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Rule2024-16907

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 2025

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Published

August 6, 2024

Effective

October 1, 2024

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This final rule finalizes changes and updates to the policies and payment rates used under the Skilled Nursing Facility (SNF) Prospective Payment System (PPS) for fiscal year (FY) 2025. First, we are rebasing and revising the SNF market basket to reflect a 2022 base year. Next, we update the wage index used under the SNF PPS to reflect data collected during the most recent decennial census. Additionally, we finalize several technical revisions to the code mappings used to classify patients under the Patient Driven Payment Model (PDPM) to improve payment and coding accuracy. This final rule also updates the requirements for the SNF Quality Reporting Program and the SNF Value- Based Purchasing Program. Finally, we also are revising CMS' enforcement authority for imposing civil money penalties (CMPs) and including revisions to strengthen nursing home enforcement regulations.

Full Text

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[Federal Register Volume 89, Number 151 (Tuesday, August 6, 2024)]
[Rules and Regulations]
[Pages 64048-64163]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16907]

[[Page 64047]]

Vol. 89

Tuesday,

No. 151

August 6, 2024

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413 and 488

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
2025; Final Rule

Federal Register / Vol. 89, No. 151 / Tuesday, August 6, 2024 / Rules
and Regulations

[[Page 64048]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 488

[CMS-1802-F]
RIN 0938-AV30

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 2025

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

ACTION: Final rule.

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SUMMARY: This final rule finalizes changes and updates to the policies
and payment rates used under the Skilled Nursing Facility (SNF)
Prospective Payment System (PPS) for fiscal year (FY) 2025. First, we
are rebasing and revising the SNF market basket to reflect a 2022 base
year. Next, we update the wage index used under the SNF PPS to reflect
data collected during the most recent decennial census. Additionally,
we finalize several technical revisions to the code mappings used to
classify patients under the Patient Driven Payment Model (PDPM) to
improve payment and coding accuracy. This final rule also updates the
requirements for the SNF Quality Reporting Program and the SNF Value-
Based Purchasing Program. Finally, we also are revising CMS'
enforcement authority for imposing civil money penalties (CMPs) and
including revisions to strengthen nursing home enforcement regulations.

DATES: These regulations are effective on October 1, 2024.

FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#1444504459547779673a7c7c673a737b62"><span class="__cf_email__" data-cfemail="4d1d091d000d2e203e6325253e632a223b">[email&#160;protected]</span></a> for issues related to the SNF PPS.
Heidi Magladry, (410) 786-6034, for information related to the
skilled nursing facility quality reporting program.
Christopher Palmer, (410) 786-8025, for information related to the
skilled nursing facility value-based purchasing program.
Celeste Saunders, (410) 786-5603, for information related to
Nursing Home Enforcement.

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 Core-Based
Statistical Area (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
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 2025 SNF
PPS Proposed Rule
A. General Comments on the FY 2025 SNF PPS Proposed Rule
IV. SNF PPS Rate Setting Methodology and FY 2025 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
VI. Other SNF PPS Issues
A. Rebasing and Revising the SNF Market Basket
B. Changes to SNF PPS Wage Index
C. Technical Updates to PDPM ICD-10 Mappings
D. Request for Information: Update to PDPM Non-Therapy Ancillary
Component
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. Collection of Four Additional Items as Standardized Patient
Assessment Data Elements and Modification of One Item Collected as a
Standardized Patient Assessment Data Element Beginning With the FY
2027 SNF QRP
D. SNF QRP Quality Measure Concepts Under Consideration for
Future Years--Request for Information (RFI)
E. Form, Manner, and Timing of Data Submission Under the SNF QRP
F. Policies Regarding Public Display of Measure Data for the SNF
QRP
VIII. Skilled Nursing Facility Value-Based Purchasing (SNF VBP)
Program
A. Statutory Background
B. Regulation Text Technical Updates
C. SNF VBP Program Measures
D. SNF VBP Performance Standards
E. SNF VBP Performance Scoring Methodology
F. Updates to the SNF VBP Review and Correction Process
G. Updates to the SNF VBP Extraordinary Circumstances Exception
Policy
IX. Nursing Home Enforcement
A. Background
B. Analysis of the Provisions of the Proposed Regulations
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 will update the SNF prospective payment rates for
fiscal year (FY) 2025, 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. Additionally,
in this final rule, we are finalizing the rebasing and revising of the
SNF market basket to reflect a 2022 base year. Next, we are finalizing
the update to the wage index used under the SNF PPS to reflect data
collected during the most recent decennial census. We also finalize
several technical revisions to the code mappings used to classify
patients under the PDPM to improve payment and coding accuracy. This
final rule updates the requirements for the SNF QRP, including the
collection of four new items as standardized patient assessment data
elements, and the modification of one item collected and submitted
using the Minimum Data Set (MDS) beginning with the FY 2027 SNF QRP. We
also finalize a policy that SNFs, which participate in the SNF QRP,
participate in a validation process beginning with the FY 2027 SNF QRP.
We also provide a summary of the

[[Page 64049]]

comments received on the request for information on quality measure
concepts under consideration for future SNF QRP program years. This
final rule also includes requirements for the Skilled Nursing Facility
Value-Based Purchasing (SNF VBP) Program, including adopting a measure
selection, retention, and removal policy, a technical measure updates
policy, a measure minimum for FY 2028 and subsequent years, updates to
the review and correction policy to accommodate new measure data
sources, updates to the Extraordinary Circumstances Exception policy,
and updates to the SNF VBP regulation text. We also proposed revisions
to existing long-term care (LTC) enforcement regulations that would
enable CMS and the States to impose CMPs to better reflect amounts that
are more consistent with the type of noncompliance that occurred.

B. Summary of Major Provisions

In accordance with sections 1888(e)(4)(E)(ii)(IV) and (e)(5) of the
Act, this final rule updates the annual rates that we published in the
SNF PPS final rule for FY 2024 (88 FR 53200, August 7, 2023). In
addition, this final rule includes a forecast error adjustment for FY
2025. We are also finalizing the rebasing and revising of the SNF
market basket to reflect a 2022 base year. Next, we are finalizing the
update of the wage index used under the SNF PPS to reflect data
collected during the most recent decennial census. We are also
finalizing several technical revisions to the code mappings used to
classify patients under the PDPM to improve payment and coding
accuracy.
We are finalizing several updates for the SNF VBP Program. We are
adopting a measure selection, retention, and removal policy that aligns
with policies we have adopted in other CMS quality programs. We are
adopting a technical measure updates policy that allows us to
incorporate technical measure updates into SNF VBP measure
specifications and to update the numerical values of the performance
standards for a program year if a measure's specifications were
technically updated between the time that we published the performance
standards for a measure and the time that we calculate SNF performance
on that measure at the conclusion of the applicable performance period.
We are adopting the same measure minimum we previously finalized for
the FY 2027 program year for the FY 2028 program year and subsequent
program years. We are adopting modifications to Phase One of our review
and correction policy such that the policy applies to all SNF VBP
measures regardless of the measure's data source. We are updating the
SNF VBP extraordinary circumstances exception (ECE) policy to allow
SNFs to request an ECE if the SNF can demonstrate that, as a result of
the extraordinary circumstance, it cannot report SNF VBP data on one or
more measures by the specified deadline. We are also updating the
instructions for requesting an extraordinary circumstance exception
(ECE). Lastly, we are adopting several updates to the SNF VBP
regulation text to align with previously finalized definitions and
policies.
Beginning with the FY 2027 SNF QRP, we are finalizing requirements
that SNFs participating in the SNF QRP collect and submit through the
MDS four new items as standardized patient assessment data elements
under the social determinants of health (SDOH) category: one item for
Living Situation, two items for Food, and one item for Utilities.
Additionally, we are finalizing our proposal to modify the current
Transportation item. We are finalizing with modification a validation
process for the SNF QRP, similar to the process that we adopted for the
SNF VBP beginning with the FY 2027 SNF QRP. We are also finalizing with
modification amendments to the regulation text at Sec. 413.360 to
implement the validation process we are finalizing. Finally, this final
rule also summarizes comments we received in response to a request for
information (RFI) on quality measure concepts under consideration for
future SNF QRP years.
We are finalizing revisions to CMS' existing enforcement authority
to expand the number and types of CMPs that can be imposed on LTC
facilities, allowing for more per-instance (PI) CMPs to be imposed in
conjunction with per-day (PD) CMPs. This update also expands our
authority to impose multiple PI CMPs when the same type of
noncompliance is identified on more than one day. Lastly, the final
revisions will enable CMS or the States to impose a CMP for the number
of days of previously cited noncompliance since the last three standard
surveys for which a CMP has not yet been imposed to ensure that
identified noncompliance may be subject to a penalty.

C. Summary of Cost and Benefits

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[GRAPHIC] [TIFF OMITTED] TR06AU24.000

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 virtually 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. In
2014, section 2(c)(4) of the Improving Medicare Post-Acute Care
Transformation (IMPACT) Act of 2014 (Pub. L. 113-185, enacted October
6, 2014) 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, 2021) (Pub. L. 116-260,
enacted December 27, 2020) amended 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 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
2024 (88 FR 53200, August 7, 2023), as amended by the subsequent
correction document (88 FR 68486, October 4, 2023).
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 will set out the required annual updates to the per diem
payment rates for SNFs for FY 2025.

[[Page 64051]]

III. Analysis and Responses to Public Comments on the FY 2025 SNF PPS
Proposed Rule

A. General Comments on the FY 2025 SNF PPS Proposed Rule

We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Some commenters expressed concerns regarding several items
outside the scope of this rule or outside the scope of CMS's current
authorities. These comments included issues related to the recently
finalized nursing home staffing rule (outside of issues related to that
rule and calculation of the SNF market basket, which are addressed
later in this rule), and a request that CMS remove the 3-day qualifying
hospital stay (QHS) prerequisite for Part A SNF coverage.
Response: With regard to those comments related to the recently
finalized nursing home staffing rule, any such issues are out of scope
for this rule and should be directed to
<a href="/cdn-cgi/l/email-protection#b9f1dcd8d5cdd1d8d7ddead8dfdccdc0f0d7c8ccd0cbd0dccaf9dad4ca97d1d1ca97ded6cf"><span class="__cf_email__" data-cfemail="0b436e6a677f636a656f586a6d6e7f7242657a7e6279626e784b68667825636378256c647d">[email&#160;protected]</span></a>. With regard to the request that
we remove the QHS requirement for Part A SNF coverage, we maintain that
we do not have the statutory authority to pursue this change at this
time. Moreover, we have previously conducted analyses of the associated
cost of removing the 3-day stay requirement and found that it would
significantly increase Medicare outlays.
Comment: Several commenters raised concerns with therapy treatment
under PDPM, specifically related to reductions in the amount of therapy
furnished to SNF patients since PDPM was implemented. Some of these
commenters stated that CMS should revise the existing limit on
concurrent and group therapy to provide a financial penalty in cases
where the facility exceeds this limit. These commenters also
recommended that CMS direct its review contractors to examine the
practices of facilities that changed their therapy service provision
after PDPM was implemented. Additionally, commenters want CMS to
release the results of any monitoring efforts around therapy provision.
Some commenters stated that the therapy items in O0400 should be
maintained to track therapy provision. Finally, some commenters stated
that CMS should reinstate the assessment schedule that had existed
prior to implementing PDPM.
Response: We appreciate commenters raising these concerns around
therapy provision under PDPM, as compared the Resource Utilization
Groups, Version IV (RUG-IV). We agree with commenters that the amount
of therapy that is furnished to patients under PDPM is less than that
delivered under RUG-IV. As we stated in the FY 2020 SNF PPS final rule,
we believe that close, real-time monitoring is essential to identifying
any adverse trends under PDPM. While we have identified the same
reduction in therapy services and therapy staff, we believe that these
findings must be considered within the context of patient outcomes. To
the extent that facilities are able to maintain or improve patient
outcomes, we believe that this supersedes changes in service provision,
whether this be in the amount of therapy furnished or the mode in which
it is furnished. We continue to monitor all aspects of PDPM and advise
our review contractors on any adverse trends. With regard to
implementing a specific penalty for exceeding the group and concurrent
therapy threshold, based on our current data, we have not identified
any widespread misuse of this limit. Should we identify such misuse,
either at a provider-level or at a broader level, we will pursue an
appropriate course of action.
With regard to eliminating certain therapy tracking items in O0400,
while the O0400 items are able to track therapy minutes, these items
only track therapy provision for the seven days up to and including the
assessment reference date. We agree with the commenters that items
should exist to track therapy provision over the course of a full
Medicare stay, which is the purpose of the O0425 items on the
assessment.
Finally, with regard to the recommendation that we reinstate
something akin to the assessment schedule that was in effect under RUG-
IV, given that PDPM does not reimburse on the basis of therapy minutes,
we do not believe that such an increase in administrative burden on
providers would have an impact on therapy provision. That being said,
we strongly encourage interested parties to continue to provide
suggestions on how to ensure that SNF patients receive the care they
need based on their unique characteristics and goals.
Comment: One commenter requested that we consider including
recreational therapy time provided to SNF residents by recreational
therapists into the case- mix adjusted therapy component of PDPM,
rather than having it be considered part of the nursing component. This
commenter further suggested that CMS begin collecting data, as part of
a demonstration project, on the utilization of recreational therapy, as
a distinct and separate service, and its impact on patient care cost
and quality.
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. More notably, we do not
believe there are data that would substantiate a determination of the
effect on payment of such interventions, as such services were not
considered separately when the PDPM was being developed, unlike
physical, occupational and speech-language pathology services. That
being said, we would 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. With regard to developing a
demonstration project focused on this particular service, we do not
believe that creating such a project would substantially improve the
accuracy of the SNF PPS payment rates. Moreover, in light of comments
discussed previously in this section on the impact of PDPM
implementation on therapy provision more generally, we believe that
carving out recreational therapy as a separate discipline will not have
a significant impact on access to recreational therapy services for SNF
patients.

IV. SNF PPS Rate Setting Methodology and FY 2025 Payment 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

[[Page 64052]]

beginning in FY 1995. The data used in developing the Federal rates
also incorporated a Part B add-on, which is an estimate of the amounts
that, prior to the SNF PPS, would be payable under Part B for covered
SNF services furnished to individuals during the course of a covered
Part A stay in a SNF.
In developing the rates for the initial period, we updated costs to
the first effective year of the PPS (the 15-month period beginning July
1, 1998) using the SNF market basket, 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
Section 1888(e)(5)(A) of the Act requires us to establish a SNF
market basket 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 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 2022 (86 FR 42444 through 42463), we rebased and revised the SNF
market basket, which included updating the base year from 2014 to 2018.
In the SNF PPS proposed rule for FY 2025 (89 FR 23427 through 23451),
we proposed to rebase and revise the SNF market basket and update the
base year from 2018 to 2022. We are finalizing the 2022-based SNF
market basket as proposed, as discussed in section VI.A. of this final
rule. The SNF market basket is used to compute the market basket
percentage increase 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 increase is adjusted by a forecast error
adjustment, 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 2025 SNF market
basket percentage increase of 2.8 percent based on IHS Global Inc.'s
(IGI's) fourth-quarter 2023 forecast of the proposed 2022-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 2025 SNF market basket
percentage increase, labor-related share relative importance, forecast
error adjustment, or productivity adjustment in this SNF PPS final
rule.
Since the proposed rule, we have updated the FY 2025 market basket
percentage increase based on IGI's second quarter 2024 forecast with
historical data through the first quarter of 2024. The FY 2025 growth
rate of the 2022-based SNF market basket is estimated to be 3.0
percent.
2. Market Basket Update for FY 2025
Section 1888(e)(5)(B) of the Act defines the SNF market basket
percentage increase as the percentage change in the SNF market basket
from the midpoint of the previous FY to the midpoint of the current FY.
For the Federal rates outlined in the proposed rule, we used the
percentage change in the SNF market basket to compute the update factor
for FY 2025. This factor was based on the FY 2025 percentage increase
in the proposed 2022-based SNF market basket reflecting routine,
ancillary, and capital-related expenses. Sections 1888(e)(4)(E)(ii)(IV)
and (e)(5)(B)(i) of the Act require that the update factor used to
establish the FY 2025 unadjusted Federal rates be at a level equal to
the SNF market basket percentage increase. Accordingly, we determined
the total growth from the average market basket level for the period of
October 1, 2023, through September 30, 2024, to the average market
basket level for the period of October 1, 2024, through September 30,
2025. As outlined in the proposed rule, we proposed a FY 2025 SNF
market basket percentage increase of 2.8 percent. For this final rule,
based on IGI's second quarter 2024 forecast with historical data
through the first quarter of 2024, the FY 2025 growth rate of the 2022-
based SNF market basket is estimated to be 3.0 percent.
As further explained in section IV.B.3. of this final rule, as
applicable, we adjust the percentage increase by the forecast error
adjustment 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 increase in the market basket exceeds
a 0.5 percentage point threshold in absolute terms. Additionally,
section 1888(e)(5)(B)(ii) of the Act requires us to reduce the market
basket percentage increase by the productivity adjustment (the 10-year
moving average of changes in annual economy-wide private nonfarm
business total factor productivity (TFP) for the period ending
September 30, 2025) which is estimated to be 0.5 percentage point, as
described in section IV.B.4. of this final rule.
We also note 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
market basket increase). 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 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.
The following is a of the public comments received on the proposed
FY 2025 SNF market basket percentage increase to the SNF PPS rates,
along with our responses.
Comment: Many commenters stated that they appreciate and support
the proposed net 4.1 percent payment update and forecast error
adjustment; however, some commenters expressed concerns about missed
forecasts and whether the market basket is appropriately capturing
inflation.

[[Page 64053]]

Commenters cited a report from the AHA, which found that hospital
employee compensation has grown by 45 percent since 2014, and workforce
shortages that may persist into the future could continue to drive
labor-related inflation higher. As a result, providers have turned to
more expensive contract labor to sustain operations. Several commenters
noted themselves or their members experiencing high rates of inflation
in equipment and supplies, and questioned whether the inflation is
being properly captured in the market basket.
A few commenters noted that there have now been four consecutive
years of under-forecasts, and that growth in the Consumer Price Index
All Urban totaled 16.8 percent between 2021 and 2023 while SNF market
basket growth totaled only 15.5 percent over the same time period.
Several commenters also expressed that the proposed 4.1 percent payment
update will fall short of covering the costs of the finalized minimum
staffing rule. Two commenters urged CMS to consider a prospective
adjustment for labor inflation. Two commenters urged CMS to use more
recent data to determine the FY SNF market basket update in the final
rule.
Response: We recognize commenters' concerns in relation to forecast
error during a high inflationary period. SNF PPS market basket updates
are set prospectively, which means that the market basket update relies
on a mix of both historical data for part of the period for which the
update is calculated and forecasted data for the remainder. For
instance, the FY 2025 market basket update in this final rule reflects
historical data through the first quarter of 2024 and forecasted data
through the third quarter of 2025. IHS Global Inc. (IGI) is a
nationally recognized economic and financial forecasting firm with
which CMS contracts to forecast the components of the market baskets.
We believe that basing the prospective update on these forecasts is an
appropriate method, while also acknowledging that these are
expectations of trends and may differ from actual experience.
We also understand commenters' concerns regarding the minimum
staffing rule not being taken into account. The 2022-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. The cost weights in this final rule are
based on the most recent set of complete and comprehensive cost data
for the universe of SNF providers available at the time of rulemaking,
and the price proxies for each cost category include expectations of
the inflationary pressures for each category of expenses in the market
basket. Any changes in intensity relative to the 2022-based SNF market
basket will be reflected in future Medicare cost reports and thus
captured in the next rebasing. We will continue to monitor Medicare
cost report data for freestanding SNFs as it becomes available to
assess whether the 2022-based SNF market basket cost weights continue
to be appropriate in the coming years.
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 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 or negative. We are confident that the forecast error
adjustments built into the SNF market basket update factor will account
for these discrepancies over time.
The proposed FY 2025 SNF market basket percentage increase of 2.8
percent reflected the most-recent forecast available at that time of
rulemaking. As stated in the SNF PPS proposed rule for FY 2025 (89 FR
23451), 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 2025 SNF market basket percentage
increase, labor-related share relative importance, forecast error
adjustment, or productivity adjustment in the SNF PPS final rule. For
this final rule, we have incorporated the most recent historical data
and forecasts provided by IGI to capture the expected price and wage
pressures facing SNFs in FY 2025. For this final rule, based on IGI's
second-quarter 2024 forecast with historical data through first-quarter
2024, the FY 2025 growth rate of the 2022-based SNF market basket is
3.0 percent. By incorporating the most recent estimates available of
the market basket percentage increase, we believe these data reflect
the best available projection of input price inflation faced by SNFs in
FY 2025.
After consideration of the comments received on the FY 2025 SNF
market basket proposals, we are finalizing a FY 2025 SNF market basket
percentage increase of 3.0 percent (prior to the application of the
forecast error adjustment and productivity adjustment, which are
discussed later in this section).
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 2023 (the most recently available FY for which there is
final data), the forecasted or estimated increase in the SNF market
basket was 3.9 percent, and the actual increase for FY 2023 was 5.6
percent, resulting in the actual increase being 1.7 percentage points
higher than the estimated increase. Accordingly, as the difference
between the estimated and actual amount of change in the market basket
exceeds the 0.5 percentage point threshold, under the policy previously
described (comparing the forecasted and actual market basket percentage
increase), the FY 2025 market basket percentage increase of 3.0 percent
is adjusted upward to account for the forecast error adjustment of 1.7
percentage points, resulting in a SNF market basket percentage increase
of 4.7 percent, which is then reduced by the productivity adjustment of
0.5

[[Page 64054]]

percentage point, discussed in section IV.B.4. of this final rule. This
results in a SNF market basket update for FY 2025 of 4.2 percent.
Table 2 shows the forecasted and actual market basket increases for
FY 2023.
[GRAPHIC] [TIFF OMITTED] TR06AU24.001

A discussion of the public comments received on the forecast error
adjustment, along with our responses, can be found below.
Comment: Several commenters noted that while they appreciate the
forecast error adjustment, forecast error adjustments are made two
years after the year in question and SNFs must contend with the
underpayment for two years before it is reconciled. One commenter
suggested updating the method to use more timely data that would
capture increased costs in recent years.
Response: While we understand that earlier forecast error
adjustments might be preferable, a two-year lag is necessary because
historical data for the current fiscal year are not available until
after the following year's update is determined.
Comment: One commenter stated that not including Federal relief
funds, the aggregate fee-for-service (FFS) Medicare margin for
freestanding SNFs in 2022 was over 18 percent, the 23rd consecutive
year this this margin has exceeded 10 percent. They note that high
margins indicate that a reduction is needed to more closely align
aggregate payments to aggregate costs.
The commenter also noted that although CMS is required by statute
to update the payment rates each year by the estimated change in the
market basket, CMS is not required to make automatic forecast error
corrections. They maintain that they do not support forecast error
adjustments for three reasons. First, in some years, such as the one
addressed by the proposed rule for FY 2025, the forecast error
correction results in making a larger payment increase in addition to
the statutory update, even as the aggregate FFS Medicare margin is
high. Second, the adjustments result in more variable updates than had
no adjustment been made. Since FY 2004, when CMS implemented the
adjustment, forecast error corrections have ranged from a 3.26 percent
increase (in FY 2004) to a -0.8 percent reduction (in FY 2022).
Eliminating the adjustment for forecast errors would result in more
stable updates. Third, the adjustment results in inconsistent
approaches to updates across settings: except for the updates to the
capital payments to acute care hospitals, CMS does not apply forecast
error adjustments to any other market basket updates.
Response: We appreciate the commenter's input and suggestions. We
note that apart from the last several years of various unprecedented
market shocks and resulting volatility, forecast errors have generally
been relatively small and clustered near zero. We agree that forecast
error adjustments have potential to introduce more variable and
unstable updates. As a result, for FY 2008 and subsequent years we
increased the threshold at which adjustments are triggered from 0.25
percentage point 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 or unexpected inflationary patterns.
As was stated when the SNF forecast error adjustment was introduced
in the FY 2004 SNF PPS final rule (68 FR 46035), our goal continues to
be to ``pay the appropriate amount, to the correct provider, for the
proper service, at the right time.'' Accordingly, we are optimistic
that market volatility will soon subside to a point where forecast
errors will not be frequently triggered. Nonetheless, we will continue
to monitor the effects of forecast error adjustments, and their
appropriateness in responding to unforeseen inflationary patterns. Any
changes, if deemed necessary, would be proposed through notice and
comment rulemaking.
After consideration of the comments received, we are finalizing the
application of the proposed forecast error adjustment without
modification. As stated above, based on IGI's second-quarter 2024
forecast with historical data through the first quarter of 2024, the FY
2025 growth rate of the 2022-based SNF market basket is estimated to be
3.0 percent. Accordingly, as the difference between the estimated and
actual amount of change in the market basket exceeds the 0.5 percentage
point threshold, under the policy previously described (comparing the
forecasted and actual market basket percentage increase), the FY 2025
market basket percentage increase of 3.0 percent is adjusted upward to
account for the forecast error adjustment of 1.7 percentage points,
resulting in a SNF market basket percentage increase of 4.7 percent,
which is then reduced by the productivity adjustment as discussed later
in this section.
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 at section
1886(b)(3)(B)(xi)(II) of the Act was published by BLS as private
nonfarm business multifactor

[[Page 64055]]

productivity. Beginning with the November 18, 2021, release of
productivity data, BLS replaced the term MFP with 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.
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 changed the name of this adjustment to refer to
it as the ``productivity adjustment,'' rather than the ``MFP
adjustment.''
Per section 1888(e)(5)(A) of the Act, the Secretary shall establish
a SNF market basket 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 this FY 2025 SNF PPS final rule,
the productivity adjustment (the 10-year moving average of changes in
annual economy-wide private nonfarm business TFP for the period ending
September 30, 2025) is projected to be 0.5 percentage point.
Comment: A few commenters noted that they are disappointed in the
productivity adjustment, and that CMS should closely monitor the effect
of such productivity adjustments and explore ways to use its authority
to offset or waive them.
Response: Section 1888(e)(5)(B)(ii) of the Act requires the
application of the productivity adjustment described in section
1886(b)(3)(xi)(II) of the Act to the SNF PPS market basket increase
factor. As required by statute, the FY 2025 productivity adjustment is
derived based on the 10-year moving average growth in economy-wide
productivity for the period ending in FY 2025. We recognize the
concerns of the commenters regarding the appropriateness of the
productivity adjustment; however, we are required under section
1888(e)(5)(B)(ii) of the Act to apply the specific productivity
adjustment described here in this section.
As stated previously, in the proposed rule the productivity
adjustment was estimated to be 0.4 percentage point based on IGI's
fourth-quarter 2024 forecast. For this final rule, based on IGI's
second-quarter 2024 forecast, the productivity adjustment (the 10-year
moving average of changes in annual economy-wide private nonfarm
business TFP for the period ending September 30, 2025) is 0.5
percentage point.
Consistent with section 1888(e)(5)(B)(i) of the Act and Sec.
413.337(d)(2), and as outlined previously in section IV.B.1. of this
final rule, the market basket percentage increase for FY 2025 for the
SNF PPS is based on IGI's second quarter 2024 forecast of the SNF
market basket percentage increase, which is estimated to be 3.0
percent. This market basket percentage increase is then increased by
1.7 percentage points, due to application of the forecast error
adjustment outlined earlier in section IV.B.3. of this final rule.
Finally, as outlined earlier in this section, we are applying a 0.5
percentage point productivity adjustment to the FY 2025 SNF market
basket percentage increase. Therefore, the resulting productivity-
adjusted FY 2025 SNF market basket update is equal to 4.2 percent,
which reflects a market basket percentage increase of 3.0 percent, plus
the 1.7 percentage points forecast error adjustment, and reduced by the
0.5 percentage point productivity adjustment. Thus, we apply a net SNF
market basket update factor of 4.2 percent in our determination of the
FY 2025 SNF PPS unadjusted Federal per diem rates.
5. Unadjusted Federal Per Diem Rates for FY 2025
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 outlined previously in sections III.B.1.
through III.B.4. of the proposed rule, to adjust each per diem
component of the Federal rates forward to reflect the change in the
average prices for FY 2024 from the average prices for FY 2023. We also
proposed to further adjust the rates by a wage index budget neutrality
factor, outlined in section III.D. of the proposed rule.
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 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. However, as further outlined in
section V.A of the proposed rule, the current CBSAs are based on OMB
standards contained in Bulletin 20-01, which is based on data collected
during the 2010 Decennial Census. In this final rule, we are updating
the SNF PPS wage index using the CBSAs defined within Bulletin 23-01.
Tables 3 and 4 reflect the proposed unadjusted Federal rates for FY
2025, prior to adjustment for case-mix.

[[Page 64056]]

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[GRAPHIC] [TIFF OMITTED] TR06AU24.003

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 outlined in section IV.A. of the
proposed 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 2025 payment rates set forth in this final
rule reflect the use of the PDPM case-mix classification system from
October 1, 2023, through September 30, 2024. The case-mix adjusted PDPM
payment rates for FY 2025 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 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, outlined in section
VII. of this final rule, or other adjustments,

[[Page 64057]]

such as the variable per diem adjustment.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR06AU24.004

[[Page 64058]]

[GRAPHIC] [TIFF OMITTED] TR06AU24.005

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 will continue this
practice for FY 2025, 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 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 2025, the
updated wage data are for hospital cost reporting periods beginning on
or after October 1, 2020, and before October 1, 2021 (FY 2021 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) gave the Secretary the discretion to
establish a geographic reclassification procedure 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. 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. Adopting such an approach would require a significant
commitment of resources by CMS and the Medicare Administrative
Contractors (MACs), 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 do not believe this undertaking is
feasible at this time, we will continue to explore implementation of a
spot audit process to improve SNF cost reports to ensure they are
adequately accurate for cost development purposes, in such a manner as
to permit us to establish a SNF-specific wage index in the future.
In addition, we will 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 2025 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 will continue

[[Page 64059]]

using the average wage index from all contiguous Core-Based Statistical
Areas (CBSAs) as a reasonable proxy. For FY 2025, the only rural area
without wage index data available is North Dakota. We have determined
that the borders of 18 rural counties are local and contiguous with 8
urban counties. Therefore, under this methodology, the wage indexes for
the counties of Burleigh/Morton/Oliver (CBSA 13900: 0.9020), Cass (CBSA
22020: 0.8763), Grand Forks (CBSA 24220: 0.7865), and McHenry/Renville/
Ward (CBSA 33500: 0.7686) are averaged, resulting in an imputed rural
wage index of 0.8334 for rural North Dakota for FY 2025. In past years
for rural Puerto Rico, we did not apply this methodology due to the
distinct economic circumstances there; due to the close proximity of
almost all of Puerto Rico's various urban and non-urban areas, this
methodology will produce a wage index for rural Puerto Rico that is
higher than that in half of its urban areas. However, because rural
Puerto Rico now has hospital wage index data on which to base an area
wage adjustment, we will not apply this policy for FY 2025. For urban
areas without specific hospital wage index data, we will continue using
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
2025, the only urban area without wage index data available is CBSA
25980, Hinesville-Fort Stewart, GA.
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.
In the FY 2023 SNF PPS final rule (87 FR 47521 through 47525), we
finalized a policy 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. We amended the SNF
PPS regulations at 42 CFR 413.337(b)(4)(ii) to reflect this permanent
cap on wage index decreases. Additionally, we finalized a policy 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.
A full discussion of the adoption of this policy is found in the FY
2023 SNF PPS final 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. OMB issued further revised CBSA delineations in OMB
Bulletin No. 20-01, on March 6, 2020 (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>).
However, we determined that the changes in OMB Bulletin No. 20-01 do
not impact the CBSA-based labor market area delineations adopted in FY
2021. Therefore, we did not propose to adopt the revised OMB
delineations identified in OMB Bulletin No. 20-01 for FY 2022 through
FY 2024.
On July 21, 2023, OMB issued OMB Bulletin No. 23-01 which updates
and supersedes OMB Bulletin No. 20-01 based on the decennial census.
OMB Bulletin No. 23-01 revised delineations for CBSAs which are made up
of counties and equivalent entities (for example, boroughs, a city and
borough, and a municipality in Alaska, planning regions in Connecticut,
parishes in Louisiana, municipios in Puerto Rico, and independent
cities in Maryland, Missouri, Nevada, and Virginia). For FY 2025, we
proposed to adopt the revised OMB delineations identified in OMB
Bulletin No. 23-01 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>). The wage index applicable to
FY 2025 is set forth in Table 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>.
Once calculated, we will apply the wage index adjustment to the
labor-related portion of the Federal rate. Each year, we calculate a
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 2022 (86 FR 42437), we
finalized a proposal to revise the labor-related share to reflect the
relative importance of the 2018-based SNF market basket cost weights
for the

[[Page 64060]]

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
42461 through 42463). Effective beginning in FY 2025, as described in
section VI.A. of this final rule, we are rebasing and revising the
labor-related share to reflect the relative importance of the 2022-
based SNF market basket cost weights for the following 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 share of the 2022-based SNF market basket
is detailed in section VI.A.4. of this final rule.
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 2025. 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 2025 than the base year weights
from the SNF market basket. We calculate the labor-related relative
importance for FY 2025 in four steps. First, we compute the FY 2025
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 2025 price index level for that cost category by the
total market basket price index level. Third, we determine the FY 2025
relative importance for each cost category by multiplying this ratio by
the base year (2022) weight. Finally, we add the FY 2025 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 2025
labor-related relative importance.
For the proposed rule, the labor-related share for FY 2025 was
based on IGI's fourth quarter 2023 forecast of the proposed 2022-based
SNF market basket with historical data through third-quarter 2023. For
this final rule, as proposed, we estimate the labor-related share for
FY 2025 based on IGI's more recent second quarter 2024 forecast, with
historical data through the first quarter of 2024. Table 7 summarizes
the labor-related share for FY 2025, based on IGI's second quarter 2024
forecast of the 2022-based SNF market basket, compared to the labor-
related share that was used for the FY 2024 SNF PPS final rule.
[GRAPHIC] [TIFF OMITTED] TR06AU24.006

To calculate the labor portion of the case-mix adjusted per diem
rate, we will 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 2025
labor-related share percentage provided in Table 7. The remaining
portion of the rate will 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

[[Page 64061]]

adjustment had not been made. For FY 2025 (Federal rates effective
October 1, 2023), we apply an adjustment to fulfill the budget
neutrality requirement. We meet this requirement by multiplying each of
the components of the unadjusted Federal rates by a budget neutrality
factor, equal to the ratio of the weighted average wage adjustment
factor for FY 2025 to the weighted average wage adjustment factor for
FY 2025. For this calculation, we will use the same FY 2023 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 budget neutrality
factor for FY 2025 is 1.0005.
In the proposed rule, we noted that if more recent data became
available (for example, revised wage data), we would use such data, if
appropriate, to determine the wage index budget neutrality factor in
the SNF PPS final rule.

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 the updates we are finalizing for the SNF VBP Program.

F. Adjusted Rate Computation Example

Tables 8 through 10 provide examples generally illustrating payment
calculations during FY 2025 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) to compute the
provider's case-mix adjusted per diem rate for FY 2025, 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 2025
SNF PPS wage index that appears in Table A 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>. 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 10, SNF XYZ's total PPS payment for
this particular patient's stay would equal $23,032.18.
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[GRAPHIC] [TIFF OMITTED] TR06AU24.008

[[Page 64062]]

[GRAPHIC] [TIFF OMITTED] TR06AU24.009

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 outlined in
section III.C. of the proposed 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 64063]]

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 Assessment Reference
Date (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). Effective with services furnished on or after
January 1, 2024, section 4121(a)(4) of the Consolidated Appropriations
Act, 2023 (CAA, 2023) (Pub. L. 117-328, enacted December 29, 2022)
added marriage and family therapists and mental health counselors to
the list of practitioners at section 1888(e)(2)(A)(ii) of the Act whose
services are excluded from the consolidated billing provision.
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 Healthcare Common Procedure Coding System (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. Conf. Rep. No. 106-479 at 854 (1999)) 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.
Effective with items and services furnished on or after October 1,
2021, section 134 in Division CC of the CAA, 2021 established an
additional fifth 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, 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
related to blood clotting factors, as described in that section.
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>.
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
five service categories specified in the BBRA 1999 and CAA, 2021; 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).
In the proposed rule, we specifically solicited public comments
identifying HCPCS codes in any of these five

[[Page 64064]]

service categories (chemotherapy items, chemotherapy administration
services, radioisotope services, customized prosthetic devices, and
blood clotting factors) representing recent medical advances that might
meet our criteria for exclusion from SNF consolidated billing. We
considered excluding a particular service if it met our criteria for
exclusion as specified previously in this section of the preamble. We
requested that commenters identify in their comments the specific HCPCS
code that is associated with the service in question, as well as their
rationale for requesting that the identified HCPCS code(s) be excluded.
We noted that the original BBRA amendment and the CAA, 2021
identified a set of excluded items and services by means of specifying
individual HCPCS codes within the designated categories that were in
effect as of a particular date (in the case of the BBRA 1999, July 1,
1999, and in the case of the CAA, 2021, July 1, 2020), as subsequently
modified by the Secretary. In addition, as noted previously 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 five specified
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, we stated in the proposed rule that if we identify
through the current rulemaking cycle any new services that meet the
criteria for exclusion from SNF consolidated billing, we will 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, 2024). By
making any new exclusions in this manner, we can 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>.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: A few commenters suggested CMS consider several items for
exclusion from SNF consolidated billing which have already been
suggested and considered in previous rulemaking, including: Imatinib;
Erleada; Venetoclax; Dasatinib; Ponatinib; Cabozantinib; Sunitinib;
Lenalidomide; and Lupron (leuprolide).
Response: We have considered each of these suggestions in previous
rulemaking and we reiterate that these items cannot be excluded from
SNF consolidated billing. We refer commenters to previous SNF final
rules in which these suggestions were addressed, including FY 2024 (88
FR 53200, August 7, 2023) and FY 2021 (85 FR 47609 through 47610,
August 5, 2020).
Comment: Commenters suggested several specific HCPCS codes for
exclusion that have not already been addressed in previous rulemaking:
Jakafi (ruxolitinib), Tafinlar (dabrafenib), Nilotinib, and Tumor
Treating Fields (``TTFields'') therapy.
Response: With regard to Jakafi, Tafinlar, and Nilotinib, these
three services are all targeted medications that ``target'' specific
signals involved in cancer growth, but they are not chemotherapy
treatments. Chemotherapy is a specific subset of cancer treatment
characterized by its systemic attacking of cell growth. Likewise, Tumor
Treating Fields therapy is a type of electromagnetic field therapy used
to treat cancer and is not a form of chemotherapy. As these are not
considered chemotherapy services, the suggestions do not fit the
chemotherapy category or any other of the five service categories in
which we have statutory authority to add exclusions, and therefore we
may not exclude these items from SNF consolidated billing. Excluding
such items would require an act of Congress to modify the law.
Comment: Commenters reiterated several general comments that are
outside of the agency's statutory authority and/or have already been
addressed in prior rulemaking cycles. Comments stated that CMS should
modify consolidated billing rules for SNFs to use a ``price/cost
threshold'' rather than base the program on specific HCPCS codes.
Comments requested CMS exclude non-chemotherapy cancer treatments.
Another comment requested the exclusion of HIV drugs and associated
administration and other less commonly used medication and
administration drugs and treatments that exceed SNF reimbursement
rates.
Response: As previously specified in this section of the preamble,
the authority afforded to us under the law to modify the list of
services excluded from SNF consolidated billing is limited to adding or
removing HCPCS codes representing high-cost low-probability services
from the five specific service categories identified in the statute.
Any of the modifications to consolidated billing and/or the SNF program
suggested by the previously mentioned comments would require an act of
Congress to modify the law.
Comment: A commenter requested that CMS consider adopting a
formalized process in which entities may propose an item, service, or
drug be added to the excluded list for consolidated billing on a case-
by-case or permanent basis.
Response: In addition to conducting our own routine internal
reviews of new and modified HCPCS codes, we solicit feedback from
interested parties on consolidated billing exclusions through this
annual rulemaking process. At this time, we consider this process
sufficient to identify services that should be excluded.
Comment: Commenters stated general appreciation for CMS soliciting
public comments to identify HCPCS codes that meet the criteria for
exclusion from consolidated billing. Comments stated they would
continue to try to identify such HCPCS codes.
Response: We thank commenters for their review.

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

[[Page 64065]]

sections of this proposed 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>.

VI. Other SNF PPS Issues

A. Rebasing and Revising the SNF Market Basket

Section 1888(e)(5)(A) of the Act requires the Secretary to
establish a market basket that reflects the changes over time in the
prices of an appropriate mix of goods and services included in covered
SNF services. Accordingly, we have developed a SNF market basket that
encompasses the most commonly used cost categories for SNF routine
services, ancillary services, and capital-related expenses.
The SNF market basket is used to compute the market basket
percentage increase that is used to update the SNF Federal per diem
rates on an annual basis, as required by section 1888(e)(4)(E)(ii)(IV)
of the Act. This market basket percentage increase is adjusted by a
forecast error adjustment, 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 III.B.4. of the
proposed rule. The SNF market basket is also used to determine the
labor-related share on an annual basis.
The SNF market basket is a fixed-weight, Laspeyres-type price
index. A Laspeyres price index measures the change in price, over time,
of the same mix of goods and services purchased in the base period. Any
changes in the quantity or mix of goods and services (that is,
intensity) purchased over time relative to a base period are not
measured.
The index itself is constructed in three steps. First, a base
period is selected (the base period is 2022) and total base period
costs are estimated for a set of mutually exclusive and exhaustive
spending categories and the proportion of total costs that each
category represents is calculated. These proportions are called cost
weights. Second, each cost category is matched to an appropriate price
or wage variable, referred to as a price proxy. In nearly every
instance, these price proxies are derived from publicly available
statistical series that are published on a consistent schedule
(preferably at least on a quarterly basis). Finally, the cost weight
for each cost category is multiplied by the level of its respective
price proxy. The sum of these products (that is, the cost weights
multiplied by their price levels) for all cost categories yields the
composite index level of the market basket in a given period. Repeating
this step for other periods produces a series of market basket levels
over time. Dividing an index level for a given period by an index level
for an earlier period produces a rate of growth in the input price
index over that timeframe.
Since the inception of the SNF PPS, the market basket used to
update SNF PPS payments has been periodically rebased and revised. We
last rebased and revised the market basket applicable to the SNF PPS in
the FY 2022 SNF PPS final rule (86 FR 42444 through 42463) where we
adopted a 2018-based SNF market basket. References to the historical
market baskets used to update SNF PPS payments are listed in the FY
2022 SNF PPS final rule (86 FR 42445).
Effective for FY 2025 and subsequent fiscal years, we proposed to
rebase and revise the market basket to reflect 2022 Medicare-allowable
total cost data (routine, ancillary, and capital-related) from
freestanding SNFs and to revise applicable cost categories and price
proxies used to determine the market basket. Medicare-allowable costs
are those costs that are eligible to be paid under the SNF PPS. For
example, the SNF market basket excludes home health agency (HHA) costs
as these costs would be paid under the HHA PPS, and therefore, these
costs are not SNF PPS Medicare-allowable costs. We proposed to maintain
our policy of using data from freestanding SNFs, of which about 91
percent of SNFs that submitted a Medicare cost report for 2022 are
represented in our sample shown in Table 11. We believe using
freestanding SNF Medicare cost report data, as opposed to the hospital-
based SNF Medicare cost report data, for the cost weight calculation is
most appropriate because of the complexity of hospital-based data and
the representativeness of the freestanding data. Because hospital-based
SNF expenses are embedded in the hospital cost report, any attempt to
incorporate data from hospital-based facilities requires more complex
calculations and assumptions regarding the ancillary costs related to
the hospital-based SNF unit. We believe the use of freestanding SNF
cost report data is technically appropriate for reflecting the cost
structures of SNFs serving Medicare beneficiaries.
We proposed to use 2022 as the base year as we believe that the
2022 Medicare cost reports represent the most recent, complete set of
Medicare cost report data available to develop cost weights for SNFs at
the time of rulemaking. We believe it is important to regularly rebase
and revise the SNF market basket to reflect more recent data.
Historically, the cost weights change minimally from year to year as
they represent the percent of total costs rather than cost levels;
however, given the COVID-19 Public Health Emergency (PHE), we have been
monitoring the Medicare cost report data to see if a more frequent
rebasing schedule is necessary than our recent historical precedent of
about every 4 years. Accordingly, while it has been only three years
since the last SNF rebasing, we proposed to incorporate data that is
more reflective of recent SNF expenses that have been impacted over the
most recent few years. The 2022 Medicare cost reports are for cost
reporting periods beginning on and after October 1, 2021 and before
October 1, 2022. While these dates appear to reflect fiscal year data,
we noted in the proposed rule that a Medicare cost report that begins
in this timeframe is generally classified as a ``2022 cost report''.
For example, we found that of the available 2022 Medicare cost reports
for SNFs, approximately 7 percent had an October 1, 2021, begin date,
approximately 75 percent of the reports had a January 1, 2022, begin
date, and approximately 12 percent had a July 1, 2022 begin date. For
this reason, we are defining the base year of the market basket as
``2022-based'' instead of ``FY 2022-based''.
We received approximately 22 comments on the proposed rebasing and
revising of the SNF market basket. A discussion of these comments, with
our responses, appears throughout this section.
Comment: Several commenters noted that they support CMS' decision
to rebase the SNF market basket 1 year earlier than is typical, and
that rebasing and revising the market basket more frequently than the
recent historical precedent of approximately every 4

[[Page 64066]]

years is warranted to more accurately reflect costs faced by SNFs at
this time.
Response: We thank the commenters for their support in rebasing and
revising of the SNF market basket, and we will continue to monitor the
data that inform the frequency of the rebasing.
Comment: One commenter stated that the need for both auditing cost
reports and requiring SNFs to submit audited cost reports is especially
critical this year as CMS plans to rebase the SNF market basket using
cost report data from 2022. They stated that there are too many
indications of flawed and possibly fraudulent data, and CMS cannot
simply assume that cost report data are accurate.
Response: We recognize the commenter's concerns and reiterate that
accurate and complete reporting of all data on the Medicare cost
reports by SNFs help to ensure that the cost weights for the SNF market
basket are reflective of the cost structure of SNFs. We also note that
we analyze the Medicare cost report data to evaluate their
representativeness; for example, we reweight the data reported by
ownership type and urban/rural so that it reflects the universe of
providers and compare it to the proposed cost weights that are based on
reported data. Our analysis shows the proposed cost weights are
representative across these dimensions. In addition, we also trim the
data to eliminate outliers as described in section VI.A.1.a of this
final rule.
As stated in the FY 2024 SNF PPS final rule (88 FR 53212), 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. Adopting such an approach would require a
significant commitment of resources by CMS and the Medicare
Administrative Contractors (MACs), potentially far in excess of those
required under the IPPS, given that there are nearly five times as many
SNFs as there are IPPS hospitals. We continue to believe that the
development of such an audit process could improve SNF cost reports,
but we do not believe this undertaking is feasible at this time.
Final Decision: We are finalizing our proposal to rebase the SNF
market basket to reflect a 2022 base year for FY 2025.
We provide a summary of the more detailed public comments received
on our proposed methodology for developing the 2022-based SNF market
basket and our responses in the sections that follow.
We proposed to develop cost category weights for the proposed 2022-
based SNF market basket in two stages. The major types of costs
underlying the proposed 2022-based SNF market basket are derived from
the 2022 Medicare cost report data (CMS Form 2540-10, OMB NO. 0938-
0463) for freestanding SNFs. Specifically, we used the Medicare cost
reports for seven specific costs: Wages and Salaries; Employee
Benefits; Contract Labor; Pharmaceuticals; Professional Liability
Insurance; Home Office/Related Organization Contract Labor; and
Capital-related. A residual ``All Other'' category is then estimated
and reflects all remaining costs that are not captured in the seven
types of costs identified above. The 2018-based SNF market basket
similarly used 2018 Medicare cost report data. Second, we proposed to
divide the residual ``All Other'' cost category into more detailed
subcategories, using U.S. Department of Commerce Bureau of Economic
Analysis' (BEA) 2017 Benchmark Input-Output (I-O) ``The Use Table
(Supply-Use Framework)'' for the Nursing and Community Care Facilities
industry (North American Industry Classification System (NAICS) code
623A00) aged to 2022 using applicable price proxy growth for each
category of costs. Furthermore, we proposed to continue to use the same
overall methodology as was used for the 2018-based SNF market basket to
develop the capital related cost weights of the proposed 2022-based SNF
market basket.
1. Development of Cost Categories and Weights
a. Use of Medicare Cost Report Data To Develop Major Cost Weights
In order to create a market basket that is representative of
freestanding SNF providers serving Medicare patients and to help ensure
accurate major cost weights (which is the percent of total Medicare-
allowable costs, as defined below), we proposed to apply edits to
remove reporting errors and outliers. Specifically, the SNF Medicare
cost reports used to calculate the market basket cost weights exclude
any providers that reported costs less than or equal to zero for the
following categories: total facility costs (Worksheet B, part 1, column
18, line 100); total operating costs (Worksheet B, part 1, column 18,
line 100 less Worksheet B, part 2, column 18, line 100); Medicare
general inpatient routine service costs (Worksheet D, part 1, column 1,
line 1); and Medicare PPS payments (Worksheet E, part 3, column 1, line
1). We also limited our sample to providers that had a Medicare cost
report reporting period that was between 10 and 14 months. The final
sample used included roughly 13,100 Medicare cost reports (about 90
percent of the universe of SNF Medicare cost reports for 2022). The
sample of providers is representative of the national universe of
providers by region (each region is represented within plus or minus 1
percentage point of universe distribution), by ownership-type
(proprietary, nonprofit, and government) (within 0.8 percentage point
of universe), and by urban/rural status (within 0.1 percentage point of
universe). Of the providers that were excluded from our final sample,
86 percent were due to having a cost reporting period less than 10
months or greater than 14 months, 10 percent were due to total facility
costs or total operating costs not being greater than zero, and 4
percent were due to Medicare general inpatient routine service costs or
Medicare PPS payments not being greater than zero.
Additionally, for all of the major cost weights, except Home
Office/Related Organization Contract Labor costs, the data are trimmed
to remove outliers (a standard statistical process) by: (1) requiring
that major expenses (such as Wages and Salaries costs) and total
Medicare-allowable costs are greater than zero; and (2) excluding the
top and bottom 5 percent of the major cost weight (for example, Wages
and Salaries costs as a percent of total Medicare-allowable costs). We
noted in the proposed rule that missing values are assumed to be zero,
consistent with the methodology for how missing values are treated in
the 2018-based SNF market basket methodology.
For the Home Office/Related Organization Contract Labor cost
weight, we proposed to first exclude providers whose Home Office/
Related Organization Contract Labor costs are greater than Medicare-
allowable total costs and then apply a trim that excludes those
reporters with a Home Office/Related Organization Contract Labor cost
weight above the 99th percentile. This allows providers with no Home
Office/Related Organization Contract Labor costs to be included in the
Home Office/Related Organization Contract Labor cost weight
calculation. If we were to trim the top and bottom Home Office/Related
Organization Contract Labor cost weight, we would exclude providers
with a cost weight of zero (84 percent of the sample) and the Medicare
cost report data (Worksheet S-2 line 45) indicate that not all SNF
providers have a home office. Providers

[[Page 64067]]

without a home office would report administrative costs that might
typically be associated with a home office in the Wages and Salaries
and Employee Benefits cost weights, or in the residual ``All-Other''
cost weight if they purchased these types of services from external
contractors. We believe the trimming methodology that excludes those
who report Home Office/Related Organization Contract Labor costs above
the 99th percentile is appropriate as it removes extreme outliers while
also allowing providers with zero Home Office/Related Organization
Contract Labor costs, which is the majority of providers, to be
included in the Home Office/Related Organization Contract Labor cost
weight calculation.
The trimming process is done individually for each cost category so
that providers excluded from one cost weight calculation are not
automatically excluded from another cost weight calculation. We noted
in the proposed rule that these trimming methods are the same types of
edits performed for the 2018-based SNF market basket, as well as other
PPS market baskets (including but not limited to the IPPS market basket
and home health market basket). We believe this trimming process
improves the accuracy of the data used to compute the major cost
weights by removing possible data misreporting.
The final weights of the proposed 2022-based SNF market basket are
based on weighted means. For example, the aggregate Wages and Salaries
cost weight, after trimming, is equal to the sum of total Medicare-
allowable wages and salaries (as defined in the ``Wages and Salaries''
section that follows) of all providers divided by the sum of total
Medicare-allowable costs (as defined in the next paragraph) for all
providers in the sample (as defined above in this section). This
methodology is consistent with the methodology used to calculate the
2018-based SNF market basket cost weights and other PPS market basket
cost weights. We noted in the proposed rule that for each of the cost
weights, we evaluated the distribution of providers and costs by
region, by ownership-type, and by urban/rural status. For all of the
cost weights, the trimmed sample was nationally representative.
For all of the cost weights, we used Medicare-allowable total costs
as the denominator (for example, Wages and Salaries cost weight = Wages
and Salaries costs divided by Medicare-allowable total costs).
Medicare-allowable total costs were equal to total costs (after
overhead allocation) from Worksheet B part I, column 18, for lines 30,
40 through 49, 51, 52, and 71 plus estimated Medicaid drug costs, as
defined below. We included estimated Medicaid drug costs in the
pharmacy cost weight, as well as the denominator for total Medicare-
allowable costs. This is the same methodology used for the 2018-based
SNF market basket. The inclusion of Medicaid drug costs was finalized
in the FY 2008 SNF PPS final rule (72 FR 43425 through 43430), and for
the same reasons set forth in that final rule, we proposed to continue
to use this methodology in the proposed 2022-based SNF market basket.
We describe the detailed methodology for obtaining costs for each
of the eight cost categories determined from the Medicare Cost Report
below. The methodology used in the 2018-based SNF market basket can be
found in the FY 2022 SNF PPS final rule (86 FR 42446 through 42452).
(1) Wages and Salaries
To derive Wages and Salaries costs for the Medicare-allowable cost
centers, we proposed first to calculate total facility wages and
salaries costs as reported on Worksheet S-3, part II, column 3, line 1.
We then proposed to remove the wages and salaries attributable to non-
Medicare-allowable cost centers (that is, excluded areas), as well as a
portion of overhead wages and salaries attributable to these excluded
areas. Excluded area wages and salaries are equal to wages and salaries
as reported on Worksheet S-3, part II, column 3, lines 3, 4, and 7
through 11 plus nursing facility and non-reimbursable salaries from
Worksheet A, column 1, lines 31, 32, 50, and 60 through 63.
Overhead wages and salaries are attributable to the entire SNF
facility; therefore, we proposed to include only the proportion
attributable to the Medicare-allowable cost centers. We proposed to
estimate the proportion of overhead wages and salaries attributable to
the non-Medicare-allowable costs centers in two steps. First, we
proposed to estimate the ratio of excluded area wages and salaries (as
defined above) to non-overhead total facility wages and salaries (total
facility wages and salaries (Worksheet S-3, part II, column 3, line 1)
less total overhead wages and salaries (Worksheet S-3, Part III, column
3, line 14)). Next, we proposed to multiply total overhead wages and
salaries by the ratio computed in step 1. We excluded providers whose
excluded areas wages and salaries were greater than total facility
wages and salaries and/or their excluded area overhead wages and
salaries were greater than total facility wages and salaries (about 50
providers). This is the same methodology used to derive Wages and
Salaries costs in the 2018-based SNF market basket.
(2) Employee Benefits
Medicare-allowable employee benefits are equal to total facility
benefits as reported on Worksheet S-3, part II, column 3, lines 17
through 19 minus non-Medicare-allowable (that is, excluded area)
employee benefits and minus a portion of overhead benefits attributable
to these excluded areas. Excluded area employee benefits are derived by
multiplying total excluded area wages and salaries (as defined above in
the `Wages and Salaries' section) times the ratio of total facility
benefits to total facility wages and salaries. This ratio of benefits
to wages and salaries is defined as total facility benefit costs to
total facility wages and salary costs (as reported on Worksheet S-3,
part II, column 3, line 1). Likewise, the portion of overhead benefits
attributable to the excluded areas is derived by multiplying overhead
wages and salaries attributable to the excluded areas (as defined in
the ``Wages and Salaries'' section) times the ratio of total facility
benefit costs to total facility wages and salary costs (as defined
above). Similar to the Wages and Salaries costs, we excluded providers
whose excluded areas benefits were greater than total facility benefits
and/or their excluded area overhead benefits were greater than total
facility benefits (zero providers were excluded because of this edit).
This is the same methodology used to derive Employee Benefits costs in
the 2018-based SNF market basket.
(3) Contract Labor
We proposed to derive Medicare-allowable contract labor costs from
Worksheet S-3, part II, column 3, line 14, which reflects costs for
contracted direct patient care services (that is, nursing, therapeutic,
rehabilitative, or diagnostic services furnished under contract rather
than by employees and management contract services). This is the same
methodology used to derive the Contract Labor costs in the 2018-based
SNF market basket.
(4) Pharmaceuticals
We proposed to calculate pharmaceuticals costs using the non-salary
costs from the Pharmacy cost center (Worksheet B, part I, column 0,
line 11 less Worksheet A, column 1, line 11) and the Drugs Charged to
Patients' cost center (Worksheet B, part I, column 0, line 49 less
Worksheet A, column 1, line 49). Since these drug costs were
attributable to the entire SNF and not limited to Medicare-allowable
services,

[[Page 64068]]

we proposed to adjust the drug costs by the ratio of Medicare-allowable
pharmacy total costs (Worksheet B, part I, column 11, for lines 30, 40
through 49, 51, 52, and 71) to total pharmacy costs from Worksheet B,
part I, column 11, line 11. Worksheet B, part I allocates the general
service cost centers, which are often referred to as ``overhead costs''
(in which pharmacy costs are included) to the Medicare-allowable and
non-Medicare-allowable cost centers. This adjustment was made for those
providers who reported Pharmacy cost center expenses. Otherwise, we
assumed the non-salary Drugs Charged to Patients costs were Medicare-
allowable. Since drug costs for Medicare patients are included in the
SNF PPS per diem rate, a provider with Medicare days should have also
reported costs in the Drugs Charged to Patient cost center. We found a
small number of providers (roughly 90) did not report Drugs Charged to
Patients' costs despite reporting Medicare days (an average of about
2,000 Medicare days per provider), and therefore, these providers were
excluded from the Pharmaceuticals cost weight calculations. This is the
same methodology used for the 2018-based SNF market basket.
Second, as was done for the 2018-based SNF market basket, we
proposed to continue to adjust the drug expenses reported on the
Medicare cost report to include an estimate of total Medicaid drug
costs, which are not represented in the Medicare-allowable drug cost
weight. As stated previously in this section, the proposed 2022-based
SNF market basket reflects total Medicare-allowable costs (that is,
total costs for all payers for those services reimbursable under the
SNF PPS). For the FY 2006-based SNF market basket (72 FR 43426),
commenters noted that the total pharmaceutical costs reported on the
Medicare cost report did not include pharmaceutical costs for dual-
eligible Medicaid patients as these were directly reimbursed by
Medicaid. Since all of the other cost category weights reflect expenses
associated with treating Medicaid patients (including the compensation
costs for dispensing these drugs), we made an adjustment to include
these Medicaid drug expenses so the market basket cost weights would be
calculated consistently.
Similar to the 2018-based SNF market basket, we proposed to
estimate Medicaid drug costs based on data representing dual-eligible
Medicaid beneficiaries. Medicaid drug costs are estimated by
multiplying Medicaid dual-eligible drug costs per day times the number
of Medicaid days as reported in the Medicare-allowable skilled nursing
cost center (Worksheet S-3, part I, column 5, line 1) in the SNF
Medicare cost report. Medicaid dual-eligible drug costs per day (where
the day represents an unduplicated drug supply day) were estimated
using 2022 Part D claims for those dual-eligible beneficiaries who had
a Medicare SNF stay during the year. The total drug costs per
unduplicated day for 2022 of $27.43 represented all drug costs
(including the drug ingredient cost, the dispensing fee, vaccine
administration fee and sales tax) incurred during the 2022 calendar
year (CY) for those dual-eligible beneficiaries who had a SNF Medicare
stay during CY 2022. Therefore, they include drug costs incurred during
a Medicaid SNF stay occurring in CY 2022. By comparison, the 2018-based
SNF market basket also relied on data from the Part D claims, which
yielded a dual-eligible Medicaid drug cost per day of $24.48 for 2018.
We continue to believe that Medicaid dual-eligible beneficiaries
are a reasonable proxy for the estimated drug costs per day incurred by
Medicaid patients staying in a skilled nursing unit under a Medicaid
stay. The skilled nursing unit is the Medicare-allowable unit in a SNF,
which encompasses more skilled nursing and rehabilitative care compared
to a nursing facility or long-term care unit. We believe that Medicaid
patients receiving this skilled nursing care would on average have
similar drug costs per day to dual-eligible Medicare beneficiaries who
have received Medicare skilled nursing care in the skilled nursing care
unit during the year. We noted in the proposed rule that our previous
analysis of the Part D claims data showed that Medicare beneficiaries
with a SNF stay during the year have higher drug costs than Medicare
patients without a SNF stay during the year. Also, in 2022, dual-
eligible beneficiaries with a SNF stay during the year had drug costs
per day of $27.43, which were approximately two times higher than the
drug costs per day of $15.83 for nondual-eligible beneficiaries with a
SNF Part A stay during the year.
The Pharmaceuticals cost weight using only 2022 Medicare cost
report data (without the inclusion of the Medicaid dual-eligible drug
costs) is 2.0 percent, compared to the proposed Pharmaceuticals cost
weight (including the adjustment for Medicaid dual-eligible drug costs)
of 6.4 percent. The 2018-based SNF market basket had a Pharmaceuticals
cost weight using only 2018 Medicare cost report data without the
inclusion of the Medicaid dual-eligible drug costs of 2.6 percent and a
total Pharmaceuticals cost weight of 7.5 percent. Therefore, the 1.1
percentage point decrease in the Pharmaceuticals cost weight between
2018 and 2022 is a result of a 0.5-percentage point decrease in the
Medicaid dual-eligible drug cost weight (reflecting the 12 percent
increase in the Medicaid dual-eligible drug costs per day, and a 14
percent decrease in Medicaid inpatient days between 2018 and 2022) and
a 0.6-percentage point decrease in the Medicare cost report drug cost
weight. The decrease in the Medicare cost report drug cost weight was
consistent, in aggregate, across urban and rural status SNFs, as well
as across for-profit, government, and nonprofit ownership type SNFs.
(5) Professional Liability Insurance
We proposed to calculate the professional liability insurance (PLI)
costs from Worksheet S-2 of the Medicare cost reports as the sum of
premiums; paid losses; and self-insurance (Worksheet S-2, Part I,
columns 1 through 3, line 41). This was the same methodology used to
derive the Professional Liability costs for the 2018-based SNF market
basket.
About 60 percent of SNFs (about 7,700) reported professional
liability costs. After trimming, about 6,900 (reflecting about 730,000
Skilled Nursing unit beds) were included in the calculation of the PLI
cost weight for the proposed 2022-based SNF market basket. These
providers treated roughly 750,000 Medicare beneficiaries and had a
Medicare length of stay (LOS) of 58 days, a skilled nursing unit
occupancy rate of 72 percent, and an average skilled nursing unit bed
size of 106 beds, which are all consistent with the national averages.
We also verified that this sample of providers are representative of
the national distribution of providers by ownership-type, urban/rural
status, and region.
We believe the Medicare cost report data continues to be the most
appropriate data source to calculate the PLI cost weight for the
proposed 2022-based SNF market basket as it is representative of SNFs
serving Medicare beneficiaries and reflects PLI costs (premiums, paid
losses, and self-insurance) incurred during the provider's cost
reporting year. A fuller discussion of the Medicare cost report data on
PLI costs compared to other sources is available in the FY 2022 SNF PPS
final rule (86 FR 42448).
(6) Capital-Related
We proposed to derive the Medicare-allowable capital-related costs
from Worksheet B, part II, column 18 for lines

[[Page 64069]]

30, 40 through 49, 51, 52, and 71. This is the same methodology to
derive capital-related costs used in the 2018-based SNF market basket.
(7) Home Office/Related Organization Contract Labor Costs
We proposed to calculate Medicare-allowable Home Office/Related
Organization Contract Labor costs to be equal to data reported on
Worksheet S-3, part II, column 3, line 16. About 7,100 providers (about
54 percent) in 2022 reported having a home office (as reported on
Worksheet S-2, part I, line 45) about the same share of providers as
those in the 2018-based SNF market basket. As outlined in section
V.A.1. of the proposed rule, providers without a home office can incur
these expenses directly by having their own staff, for which the costs
would be included in the Wages and Salaries and Employee Benefits cost
weights. Alternatively, providers without a home office could also
purchase related services from external contractors for which these
expenses would be captured in the residual ``All-Other'' cost weight.
For this reason, unlike the other major cost weights described
previously, we did not exclude providers that did not report Home
Office/Related Organization Contract Labor costs. This is the same
methodology that was used in the 2018-based SNF market basket.
(8) All Other (Residual)
The ``All Other'' cost weight is a residual, calculated by
subtracting the major cost weights (Wages and Salaries, Employee
Benefits, Contract Labor, Pharmaceuticals, Professional Liability
Insurance, Capital-Related, and Home Office/Related Organization
Contract Labor) from 100.
We did not receive public comments on our proposed major cost
weights, nor their respective methodologies of derivation. For the
reasons discussed above and in the FY 2025 SNF PPS proposed rule, we
are finalizing the major cost weights as proposed, without
modification.
Table 11 shows the major cost categories and their respective cost
weights as derived from the 2022 Medicare cost reports.
[GRAPHIC] [TIFF OMITTED] TR06AU24.010

As we did for the 2018-based SNF market basket (86 FR 42449), we
proposed to allocate contract labor costs to the Wages and Salaries and
Employee Benefits cost weights based on their relative proportions
under the assumption that contract labor costs are composed of both
wages and salaries and employee benefits. The contract labor allocation
proportion for wages and salaries is equal to the Wages and Salaries
cost weight as a percent of the sum of the Wages and Salaries cost
weight and the Employee Benefits cost weight. Using the 2022 Medicare
cost report data, this percentage is 85 percent (1 percentage point
higher than the percentage in the 2018-based SNF market basket);
therefore, we proposed to allocate approximately 85 percent of the
Contract Labor cost weight to the Wages and Salaries cost weight and 15
percent to the Employee Benefits cost weight.
We did not receive public comments on our proposed allocation of
contract labor costs to Wages and Salaries and Employee Benefits. For
the reasons discussed above and in the FY 2025 SNF PPS proposed rule,
we are finalizing the allocation methodology and percentages as
proposed, without modification.
Table 12 shows the Wages and Salaries and Employee Benefits cost
weights after contract labor allocation for the 2022-based SNF market
basket and the 2018-based SNF market basket.
[GRAPHIC] [TIFF OMITTED] TR06AU24.011

[[Page 64070]]

Compared to the 2018-based SNF market basket, the Wages and
Salaries cost weight and the Employee Benefits cost weight as
calculated directly from the Medicare cost reports each decreased by
0.8 percentage point. The Contract Labor cost weight increased 2.6
percentage points and so in aggregate, the Compensation cost weight
increased 1.0 percentage point from 60.2 percent to 61.2 percent.
b. Derivation of the Detailed Operating Cost Weights
To further divide the ``All Other'' residual cost weight estimated
from the 2022 Medicare cost report data into more detailed cost
categories, we proposed to use the 2017 Benchmark I-O ``The Use Table
(Supply-Use Framework)'' for Nursing and Community Care Facilities
industry (NAICS 623A00), published by the Census Bureau's, Bureau of
Economic Analysis (BEA). These data are publicly available at <a href="https://www.bea.gov/industry/input-output-accounts-data">https://www.bea.gov/industry/input-output-accounts-data</a>. The BEA Benchmark I-O
data are generally scheduled for publication every 5 years with 2017
being the most recent year for which data are available. The 2017
Benchmark I-O data are derived from the 2017 Economic Census and are
the building blocks for BEA's economic accounts; therefore, they
represent the most comprehensive and complete set of data on the
economic processes or mechanisms by which output is produced and
distributed.\1\ BEA also produces Annual I-O estimates. However, while
based on a similar methodology, these estimates are less comprehensive
and provide less detail than benchmark data. Additionally, the annual
I-O data are subject to revision once benchmark data become available.
For these reasons, we proposed to inflate the 2017 Benchmark I-O data
aged forward to 2022 by applying the annual price changes from the
respective price proxies to the appropriate market basket cost
categories that are obtained from the 2017 Benchmark I-O data. Next,
the relative shares of the cost shares that each cost category
represents to the total residual I-O costs are calculated. These
resulting 2022 cost shares of the I-O data are applied to the ``All
Other'' residual cost weight to obtain detailed cost weights for the
residual costs for the proposed 2022-based SNF market basket. For
example, the cost for Food: Direct Purchases represents 12.8 percent of
the sum of the ``All Other'' 2017 Benchmark I-O Expenditures inflated
to 2022. Therefore, the Food: Direct Purchases cost weight is 2.8
percent of the proposed 2022-based SNF market basket (12.8 percent x
22.2 percent = 2.8 percent). For the 2018-based SNF market basket (86
FR 42449), we used a similar methodology utilizing the 2012 Benchmark
I-O data (aged to 2018).
---------------------------------------------------------------------------

\1\ <a href="https://www.bea.gov/resources/methodologies/concepts-methods-io-accounts">https://www.bea.gov/resources/methodologies/concepts-methods-io-accounts</a>.
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Using this methodology, we proposed to derive 19 detailed SNF
market basket cost category weights from the proposed 2022-based SNF
market basket ``All Other'' residual cost weight (22.2 percent). These
categories are: (1) Fuel: Oil and Gas; (2) Electricity and Other Non-
Fuel Utilities; (3) Food: Direct Purchases; (4) Food: Contract
Services; (5) Chemicals; (6) Medical Instruments and Supplies; (7)
Rubber and Plastics; (8) Paper and Printing Products; (9) Apparel; (10)
Machinery and Equipment; (11) Miscellaneous Products; (12) Professional
Fees: Labor-Related; (13) Administrative and Facilities Support
Services; (14) Installation, Maintenance, and Repair Services; (15) All
Other: Labor-Related Services; (16) Professional Fees: Nonlabor-
Related; (17) Financial Services; (18) Telephone Services; and (19) All
Other: Nonlabor-Related Services. These are the same detailed cost
categories as those that were used in the 2018-based SNF market basket.
We noted in the proposed rule that the machinery and equipment
expenses are for equipment that is paid for in a given year and not
depreciated over the asset's useful life. Depreciation expenses for
movable equipment are accounted for in the capital component of the
proposed 2022-based SNF market basket (described in section V.A.1.c. of
the proposed rule).
We did not receive any public comments on our proposed methodology
for deriving the detailed operating cost weights. Therefore, for the
reasons discussed above and in the FY 2025 SNF PPS proposed rule, we
are finalizing the detailed operating cost weights and methodology as
proposed, without modification.
c. Derivation of the Detailed Capital Cost Weights
Similar to the 2018-based SNF market basket, we further divided the
Capital-related cost weight into: Depreciation, Interest, Lease and
Other Capital-related cost weights.
We calculated the depreciation cost weight (that is, depreciation
costs excluding leasing costs) using depreciation costs from Worksheet
S-2, column 1, lines 20 and 21. Since the depreciation costs reflect
the entire SNF facility (Medicare and non-Medicare-allowable units), we
used total facility capital costs (Worksheet B, Part I, column 18, line
100) as the denominator. This methodology assumes that the depreciation
of an asset is the same regardless of whether the asset was used for
Medicare or non-Medicare patients. This methodology yielded
depreciation costs as a percent of capital costs of 22.6 percent for
2022. We then apply this percentage to the proposed 2022-based SNF
market basket Medicare-allowable Capital-related cost weight of 8.3
percent, yielding a proposed Medicare-allowable depreciation cost
weight (excluding leasing expenses, which is described in more detail
below) of 1.9 percent for 2022. To further disaggregate the Medicare-
allowable depreciation cost weight into fixed and movable depreciation,
we proposed to use the 2022 SNF Medicare cost report data for end-of-
the-year capital asset balances as reported on Worksheet A-7. The 2022
SNF Medicare cost report data showed a fixed/movable split of 86/14.
The 2018-based SNF market basket, which utilized the same data from the
2018 Medicare cost reports, also had a fixed/movable split of 86/14.
We derived the interest expense share of capital-related expenses
from 2022 SNF Medicare cost report data, specifically from Worksheet A,
column 2, line 81. Similar to the depreciation cost weight, we
calculated the interest cost weight using total facility capital costs.
This methodology yielded interest costs as a percent of capital costs
of 17.7 percent for 2022. We then apply this percentage to the proposed
2022-based SNF market basket Medicare-allowable Capital-related cost
weight of 8.3 percent, yielding a Medicare-allowable interest cost
weight (excluding leasing expenses) of 1.5 percent. As done with the
last rebasing (86 FR 42450), we proposed to determine the split of
interest expense between for-profit and not-for-profit facilities based
on the distribution of long-term debt outstanding by type of SNF (for-
profit or not-for-profit/government) from the 2022 SNF Medicare cost
report data. We estimated the split between for-profit and not-for-
profit interest expense to be 30/70 percent compared to the 2018-based
SNF market basket with 25/75 percent.
Because the detailed data were not available in the Medicare cost
reports, we used the most recent 2021 Census Bureau Service Annual
Survey (SAS) data to derive the capital-related expenses attributable
to leasing and other capital-related expenses. The 2018-based SNF
market basket used the 2017 SAS data.

[[Page 64071]]

Based on the 2021 SAS data, we determined that leasing expenses are
65 percent of total leasing and capital-related expenses costs. In the
2018-based SNF market basket, leasing costs represent 62 percent of
total leasing and capital-related expenses costs. We then apply this
percentage to the 2022-based SNF market basket residual Medicare-
allowable capital costs of 4.9 percent derived from subtracting the
Medicare-allowable depreciation cost weight and Medicare-allowable
interest cost weight from the 2022-based SNF market basket of total
Medicare-allowable capital cost weight (8.3 percent-1.9 percent-1.5
percent = 4.9 percent). This produces the 2022-based SNF Medicare-
allowable leasing cost weight of 3.2 percent and all-other capital-
related cost weight of 1.7 percent.
Lease expenses are not broken out as a separate cost category in
the SNF market basket, but are distributed among the cost categories of
depreciation, interest, and other capital-related expenses, reflecting
the assumption that the underlying cost structure and price movement of
leasing expenses is similar to capital costs in general. As was done
with past SNF market baskets and other PPS market baskets, we assumed
10 percent of lease expenses are overhead and assigned them to the
other capital-related expenses cost category. This is based on the
assumption that leasing expenses include not only depreciation,
interest, and other capital-related costs but also additional costs
paid to the lessor. We distributed the remaining lease expenses to the
three cost categories based on the proportion of depreciation,
interest, and other capital-related expenses to total capital costs,
excluding lease expenses.
We did not receive any public comments on our proposed methodology
for deriving the detailed capital cost weights. Therefore, for the
reasons discussed above and in the FY 2025 SNF PPS proposed rule, we
are finalizing the detailed capital cost weights and methodology as
proposed, without modification.
Table 13 shows the capital-related expense distribution (including
expenses from leases) in the 2022-based SNF market basket and the 2018-
based SNF market basket.
[GRAPHIC] [TIFF OMITTED] TR06AU24.012

Table 14 presents the 2022-based SNF market basket and the 2018-
based SNF market basket cost categories and cost weights.
BILLING CODE 4120-01-P

[[Page 64072]]

[GRAPHIC] [TIFF OMITTED] TR06AU24.013

BILLING CODE 4120-01-C
2. Price Proxies Used To Measure Operating Cost Category Growth
After developing the 27 cost weights for the 2022-based SNF market
basket, we selected the most appropriate wage and price proxies
currently available to represent the rate of change for each cost
category. With four exceptions (three for the capital-related expenses
cost categories and one for PLI), we base the wage and price proxies on
Bureau of Labor Statistics (BLS) data, and group them into one of the
following BLS categories:
<bullet> Employment Cost Indexes. Employment Cost Indexes (ECIs)
measure the rate of change in

[[Page 64073]]

employment wage rates and employer costs for employee benefits per hour
worked. These indexes are fixed-weight indexes and strictly measure the
change in wage rates and employee benefits per hour. ECIs are superior
to Average Hourly Earnings (AHE) as price proxies for input price
indexes because they are not affected by shifts in occupation or
industry mix, and because they measure pure price change and are
available by both occupational group and by industry. The industry ECIs
are based on the NAICS and the occupational ECIs are based on the
Standard Occupational Classification System (SOC).
<bullet> Producer Price Indexes. Producer Price Indexes (PPIs)
measure the average change over time in the selling prices received by
domestic producers for their output. The prices included in the PPI are
from the first commercial transaction for many products and some
services (<a href="https://www.bls.gov/ppi/">https://www.bls.gov/ppi/</a>).
<bullet> Consumer Price Indexes. Consumer Price Indexes (CPIs)
measure the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services (<a href="https://www.bls.gov/cpi/">https://www.bls.gov/cpi/</a>). CPIs are only used when the purchases are similar to
those of retail consumers rather than purchases at the producer level,
or if no appropriate PPIs are available.
We evaluate the price proxies using the criteria of reliability,
timeliness, availability, and relevance:
<bullet> Reliability. Reliability indicates that the index is based
on valid statistical methods and has low sampling variability. Widely
accepted statistical methods ensure that the data were collected and
aggregated in a way that can be replicated. Low sampling variability is
desirable because it indicates that the sample reflects the typical
members of the population. (Sampling variability is variation that
occurs by chance because only a sample was surveyed rather than the
entire population.)
<bullet> Timeliness. Timeliness implies that the proxy is published
regularly, preferably at least once a quarter. The market baskets are
updated quarterly, and therefore, it is important for the underlying
price proxies to be up-to-date, reflecting the most recent data
available. We believe that using proxies that are published regularly
(at least quarterly, whenever possible) helps to ensure that we are
using the most recent data available to update the market basket. We
strive to use publications that are disseminated frequently, because we
believe that this is an optimal way to stay abreast of the most current
data available.
<bullet> Availability. Availability means that the proxy is
publicly available. We prefer that our proxies are publicly available
because this will help ensure that our market basket updates are as
transparent to the public as possible. In addition, this enables the
public to be able to obtain the price proxy data on a regular basis.
<bullet> Relevance. Relevance means that the proxy is applicable
and representative of the cost category weight to which it is applied.
We believe that the CPIs, PPIs, and ECIs that we have selected meet
these criteria. Therefore, we believe that they continue to be the best
measure of price changes for the cost categories to which they would be
applied.
Table 19 lists all price proxies for the 2022-based SNF market
basket. Below is a detailed explanation of the price proxies we
proposed to use for each operating cost category.
a. Wages and Salaries
We proposed to use the ECI for Wages and Salaries for Private
Industry Workers in Nursing Care Facilities (NAICS 6231; BLS series
code CIU2026231000000I) to measure price growth of this category. NAICS
623 includes facilities that provide a mix of health and social
services, with many of the health services requiring some level of
nursing services. Within NAICS 623 is NAICS 6231, which includes
nursing care facilities primarily engaged in providing inpatient
nursing and rehabilitative services. These facilities, which are most
comparable to Medicare-certified SNFs, provide skilled nursing and
continuous personal care services for an extended period of time, and,
therefore, have a permanent core staff of registered or licensed
practical nurses. This is the same index used in the 2018-based SNF
market basket.
b. Employee Benefits
We proposed to use the ECI for Benefits for Nursing Care Facilities
(NAICS 6231) to measure price growth of this category. The ECI for
Benefits for Nursing Care Facilities is calculated using BLS's total
compensation (BLS series ID CIU2016231000000I) for nursing care
facilities series and the relative importance of wages and salaries
within total compensation. We believe this constructed ECI series is
technically appropriate for the reason stated previously in the Wages
and Salaries price proxy section of this final rule. This is the same
index used in the 2018-based SNF market basket.
c. Electricity and Other Non-Fuel Utilities
We proposed to use the PPI Commodity for Commercial Electric Power
(BLS series code WPU0542) to measure the price growth of this cost
category as Electricity costs account for 93 percent of these expenses.
This is the same index used for the Electricity cost category in the
2018-based SNF market basket.
d. Fuel: Oil and Gas
We proposed to use a blended proxy composed of the PPI Industry for
Petroleum Refineries (NAICS 324110) (BLS series code PCU32411-32411),
the PPI Commodity for Natural Gas (NAICS 221200)(BLS series code
WPU0531), and the PPI for Other Petroleum and Coal Products
manufacturing (NAICS 324190)(BLS series code PCU32419-32419).
Our analysis of 2017 Benchmark I-O data for Nursing and Community
Care Facilities found that these three NAICS industries account for
approximately 93 percent of SNF Fuel: Oil and Gas expenses. The
remaining 7 percent of SNF Fuel: Oil and Gas expenses are for two other
incidental NAICS industries including Coal Mining and Petrochemical
Manufacturing. We proposed to create a blended index based on the three
NAICS Fuel: Oil and Gas expenses listed above that account for 93
percent of SNF Fuel: Oil and Gas expenses. We created this blend based
on each NAICS' expenses as a share of their sum. These expenses as a
share of their sum are listed in Table 15.
The 2018-based SNF market basket used a blended Fuel: Oil and Gas
proxy that was based on 2012 Benchmark I-O data. We believe the Fuel:
Oil and Gas blended index for the 2022-based SNF market basket is
technically appropriate as it reflects more recent data on SNFs
purchasing patterns. Table 15 provides the weights for the 2022- and
2018-based blended Fuel: Oil and Gas index.

[[Page 64074]]

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e. Professional Liability Insurance
We proposed to use the CMS Hospital Professional Liability
Insurance Index to measure price growth of this category. We were
unable to find a reliable data source that collects SNF-specific PLI
data. Therefore, we proposed to use the CMS Hospital Professional
Liability Index, which tracks price changes for commercial insurance
premiums for a fixed level of coverage, holding non-price factors
constant (such as a change in the level of coverage). This is the same
index used in the 2018-based SNF market basket. We believe this is an
appropriate proxy to measure the price growth associated of SNF PLI as
it captures the price inflation associated with other medical
institutions that serve Medicare patients.
Comment: One commenter mentioned a 2006 case study on the nursing
home liability insurance market in Florida that relied on information
from the National Conference of State Legislatures Health Policy
Tracking Service and suggested that CMS should be looking for credible
sources of information about SNF liability insurance rather than using
the CMS Hospital Professional Liability Insurance Index as this market
basket's price proxy.
Response: The criteria we use to evaluate and select price proxies
are: timeliness (published and available on a regular basis, preferably
at least quarterly, with little lag), reliability (consistent
historical time-series as well as being technically and
methodologically sound), availability (the proxy is publicly
available), and relevance (the proxy is applicable and representative
of the cost category weight to which it is applied). While we are
unaware of any data sources that would meet these criteria and serve as
an appropriate substitute at this time, we are interested in
information on this topic and will continue to search for, and remain
open to, any credible data source that meets the aforementioned
criteria. Nonetheless, we continue to believe that the CMS Hospital
Professional Liability Insurance Index is an appropriate price proxy as
it captures the price inflation associated with other medical
institutions that serve Medicare patients, which includes hospital-
based SNFs. Any changes to this price proxy in the future would be set
forth through notice and comment rulemaking.
f. Pharmaceuticals
We proposed to use the PPI Commodity for Pharmaceuticals for Human
Use, Prescription (BLS series code WPUSI07003) to measure the price
growth of this cost category. This is the same index used in the 2018-
based SNF market basket.
g. Food: Direct Purchases
We proposed to use the PPI Commodity for Processed Foods and Feeds
(BLS series code WPU02) to measure the price growth of this cost
category. This is the same index used in the 2018-based SNF market
basket.
h. Food: Contract Services
We proposed to use the CPI All Urban for Food Away From Home (All
Urban Consumers) (BLS series code CUUR0000SEFV) to measure the price
growth of this cost category. This is the same index used in the 2018-
based SNF market basket.
i. Chemicals
For measuring price change in the Chemicals cost category, we
proposed to use a blended PPI composed of the Industry PPIs for Other
Basic Organic Chemical Manufacturing (NAICS 325190) (BLS series code
PCU32519-32519), Soap and Cleaning Compound Manufacturing (NAICS
325610) (BLS series code PCU32561-32561), and All Other Chemical
Product and Preparation Manufacturing (NAICS 3259A0) (BLS series code
PCU325998325998).
Using the 2017 Benchmark I-O data, we found that these three NAICS
industries accounted for approximately 95 percent of SNF chemical
expenses. The remaining 5 percent of SNF chemical expenses are for
three other incidental NAICS chemicals industries such as Paint and
Coating Manufacturing. We proposed to create a blended index based on
the three NAICS chemical expenses listed above that account for 95
percent of SNF chemical expenses. We create this blend based on each
NAICS' expenses as a share of their sum. These expenses as a share of
their sum are listed in Table 16.
The 2018-based SNF market basket used a blended chemical proxy that
was based on 2012 Benchmark I-O data. We believe the chemical blended
index for the 2022-based SNF market basket is technically appropriate
as it reflects more recent data on SNFs purchasing patterns. Table B6
provides the weights for the 2022-based blended chemical index and the
2018-based blended chemical index.
[GRAPHIC] [TIFF OMITTED] TR06AU24.015

[[Page 64075]]

j. Medical Instruments and Supplies
For measuring price change in the Medical Instruments and Supplies
cost category, we proposed to use a blended proxy. The 2017 Benchmark
I-O data shows 62 percent of medical instruments and supply costs are
for Surgical and medical instrument manufacturing costs (NAICS 339112)
and 38 percent are for Surgical appliance and supplies manufacturing
costs (NAICS 339113). To proxy the price changes associated with NAICS
339112, we proposed using the PPI--Commodity--Surgical and medical
instruments (BLS series code WPU1562). To proxy the price changes
associated with NAICS 339113, we proposed to use 50 percent for the
PPI--Commodity--Medical and surgical appliances and supplies (BLS
series code WPU1563) and 50 percent for the PPI Commodity data for
Miscellaneous products--Personal safety equipment and clothing (BLS
series code WPU1571). The latter price proxy would reflect personal
protective equipment including but not limited to face shields and
protective clothing. The 2017 Benchmark I-O data does not provide
specific expenses for personal protective equipment (which would be
reflected in the NAICS 339113 expenses); however, we recognize that
this category reflects costs faced by SNFs. In absence of any specific
cost data on personal protective equipment, we proposed to include the
PPI Commodity data for Miscellaneous products--Personal safety
equipment and clothing (BLS series code WPU1571) in the blended proxy
for Medical Instruments and Supplies cost category with a weight of 19
percent (that is, 50 percent of the NAICS 339113 expenses as a percent
of the sum of NAICS 339113 and NAICS 339112 expenses from the I-O).
The 2018-based SNF market basket used a blended Medical Instruments
and Supplies proxy that was based on 2012 Benchmark I-O data. We
believe the blended index for the 2022-based SNF market basket is
technically appropriate as it reflects more recent data on SNFs
purchasing patterns. Table 17 provides the Medical Instruments and
Supplies cost weight blended price proxy.
[GRAPHIC] [TIFF OMITTED] TR06AU24.016

k. Rubber and Plastics
We proposed to use the PPI Commodity for Rubber and Plastic
Products (BLS series code WPU07) to measure price growth of this cost
category. This is the same index used in the 2018-based SNF market
basket.
l. Paper and Printing Products
We proposed to use a 86/14 blend of the PPI Commodity for Converted
Paper and Paperboard Products (BLS series code WPU0915) and the PPI
Commodity for Publications Printed Matter and Printing Material (BLS
Series Code WPU094) to measure the price growth of this cost category.
The 2017 Benchmark I-O data shows that 86 percent of paper and printing
expenses are for paper manufacturing (NAICS 322) and the remaining
expenses are for Printing (NAICS 323110). The 2018-based SNF market
basket used the PPI Commodity for Converted Paper and Paperboard
Products (BLS series code WPU0915) to measure the price growth of this
cost category.
m. Apparel
We proposed to use the PPI Commodity for Apparel (BLS series code
WPU0381) to measure the price growth of this cost category. This is the
same index used in the 2018-based SNF market basket.
n. Machinery and Equipment
We proposed to use the PPI Commodity for Machinery and Equipment
(BLS series code WPU11) to measure the price growth of this cost
category. This is the same index used in the 2018-based SNF market
basket.
o. Miscellaneous Products
For measuring price change in the Miscellaneous Products cost
category, we proposed to use the PPI Commodity for Finished Goods less
Food and Energy (BLS series code WPUFD4131). Both food and energy are
already adequately represented in separate cost categories and should
not also be reflected in this cost category. This is the same index
used in the 2018-based SNF market basket.
p. Professional Fees: Labor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. This
is the same index used in the 2018-based SNF market basket.
q. Administrative and Facilities Support Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to measure the price growth of this category. This
is the same index used in the 2018-based SNF market basket.
r. Installation, Maintenance and Repair Services
We proposed to use the ECI for Total Compensation for All Civilian
Workers in Installation, Maintenance, and Repair (BLS series code
CIU1010000430000I) to measure the price growth of this new cost
category. This is the same index used in the 2018-based SNF market
basket.
s. All Other: Labor-Related Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Service Occupations (BLS series code
CIU2010000300000I) to measure the price growth of this cost

[[Page 64076]]

category. This is the same index used in the 2018-based SNF market
basket.
t. Professional Fees: Non-Labor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. This
is the same index used in the 2018-based SNF market basket.
u. Financial Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Financial Activities (BLS series code
CIU201520A000000I) to measure the price growth of this cost category.
This is the same index used in the 2018-based SNF market basket.
v. Telephone Services
We proposed to use the CPI All Urban for Telephone Services (BLS
series code CUUR0000SEED) to measure the price growth of this cost
category. This is the same index used in the 2018-based SNF market
basket.
w. All Other: Non-Labor-Related Services
We proposed to use the CPI All Urban for All Items Less Food and
Energy (BLS series code CUUR0000SA0L1E) to measure the price growth of
this cost category. This is the same index used in the 2018-based SNF
market basket.
After consideration of the public comments we received, for the
reasons discussed above and in the FY 2025 SNF PPS proposed rule, we
are finalizing the price proxies of the operating cost categories as
proposed, without modification.
3. Price Proxies Used To Measure Capital Cost Category Growth
We proposed to apply the same capital price proxies as were used in
the 2018-based SNF market basket, and below is a detailed explanation
of the price proxies used for each capital cost category. We also
proposed to continue to vintage weight the capital price proxies for
Depreciation and Interest to capture the long-term consumption of
capital. This vintage weighting method is the same method that was used
for the 2018-based SNF market basket and is described below.
<bullet> Depreciation--Building and Fixed Equipment: We proposed to
use the BEA Chained Price Index for Private Fixed Investment in
Structures, Nonresidential, Hospitals and Special Care (BEA Table
5.4.4. Price Indexes for Private Fixed Investment in Structures by
Type). This BEA index is intended to capture prices for construction of
facilities such as hospitals, nursing homes, hospices, and
rehabilitation centers. This is the same index used in the 2018-based
SNF market basket.
<bullet> Depreciation--Movable Equipment: We proposed to use the
PPI Commodity for Machinery and Equipment (BLS series code WPU11). This
price index reflects price inflation associated with a variety of
machinery and equipment that would be utilized by SNFs, including but
not limited to medical equipment, communication equipment, and
computers. This is the same index used in the 2018-based SNF market
basket.
<bullet> Nonprofit Interest: We proposed to use the average yield
on Municipal Bonds (Bond Buyer 20-bond index). This is the same index
used in the 2018-based SNF market basket.
<bullet> For-Profit Interest: For the For-Profit Interest cost
category, we proposed to use the iBoxx AAA Corporate Bond Yield index.
This is the same index used in the 2018-based SNF market basket.
<bullet> Other Capital: Since this category includes fees for
insurances, taxes, and other capital-related costs, we proposed to use
the CPI for Rent of Primary Residence (BLS series code CUUS0000SEHA),
which would reflect the price growth of these costs. This is the same
index used in the 2018-based SNF market basket.
We believe that these price proxies are the most appropriate
proxies for SNF capital costs that meet our selection criteria of
relevance, timeliness, availability, and reliability.
As stated previously in this final rule, we proposed to continue to
vintage weight the capital price proxies for Depreciation and Interest
to capture the long-term consumption of capital. To capture the long-
term nature, the price proxies are vintage-weighted and the vintage
weights are calculated using a two-step process. First, we determine
the expected useful life of capital and debt instruments held by SNFs.
Second, we identify the proportion of expenditures within a cost
category that is attributable to each individual year over the useful
life of the relevant capital assets, or the vintage weights.
We rely on Bureau of Economic Analysis (BEA) fixed asset data to
derive the useful lives of both fixed and movable capital, which is the
same data source used to derive the useful lives for the 2018-based SNF
market basket. The specifics of the data sources used are explained
below.
a. Calculating Useful Lives for Movable and Fixed Assets
Estimates of useful lives for movable and fixed assets for the
2022-based SNF market basket are 9 and 27 years, respectively. These
estimates are based on three data sources from the BEA: (1) current-
cost average age; (2) historical-cost average age; and (3) industry-
specific current cost net stocks of assets.
BEA current-cost and historical-cost average age data by asset type
are not available by industry but are published at the aggregate level
for all industries. The BEA does publish current-cost net capital
stocks at the detailed asset level for specific industries. There are
64 detailed movable assets (including intellectual property) and there
are 32 detailed fixed assets in the BEA estimates. Since we seek
aggregate useful life estimates applicable to SNFs, we developed a
methodology to approximate movable and fixed asset ages for nursing and
residential care services (NAICS 623) using the published BEA data. For
the 2022-based SNF market basket, we use the current-cost average age
for each asset type from the BEA fixed assets Table 2.9 for all assets
and weight them using current-cost net stock levels for each of these
asset types in the nursing and residential care services industry,
NAICS 6230. For example, nonelectro medical equipment current-cost net
stock (accounting for about 29 percent of total movable equipment
current-cost net stock in 2022 is multiplied by an average age of 4.8
years for nonelectro medical equipment for all industries. Current-cost
net stock levels are available for download from the BEA website at
<a href="https://apps.bea.gov/iTable/index_FA.cfm">https://apps.bea.gov/iTable/index_FA.cfm</a>. We then aggregate the
``weighted'' current-cost net stock levels (average age multiplied by
current-cost net stock) into movable and fixed assets for NAICS 6230.
We then adjust the average ages for movable and fixed assets by the
ratio of historical-cost average age (Table 2.10) to current-cost
average age (Table 2.9).
This produces historical cost average age data for fixed
(structures) and movable (equipment and intellectual property) assets
specific to NAICS 6230 of 13.6 and 4.4 years for 2022, respectively.
This reflects the average age of an asset at a given point in time,
whereas we want to estimate a useful life of the asset. To do this, we
multiply each of the average age estimates by two to convert to average
useful lives with the assumption that the average age reflects the
midpoint of useful life and is normally distributed (about half of the
assets are below the average at a given

[[Page 64077]]

point in time, and half above the average at a given point in time).
This produces estimates of likely useful lives of 27.2 and 8.8 years
for fixed and movable assets, which we round to 27 and 9 years,
respectively. We proposed an interest vintage weight time span of 25
years, obtained by weighting the fixed and movable vintage weights (27
years and 9 years, respectively) by the fixed and movable split (86
percent and 14 percent, respectively). This is the same methodology
used for the 2018-based SNF market basket, which had useful lives of 26
years and 9 years for fixed and movable assets, respectively.
b. Constructing Vintage Weights
Given the expected useful life of capital (fixed and movable
assets) and debt instruments, we must determine the proportion of
capital expenditures attributable to each year of the expected useful
life for each of the three asset types: building and fixed equipment,
movable equipment, and interest. These proportions represent the
vintage weights. We were not able to find a historical time series of
capital expenditures by SNFs. Therefore, we approximated the capital
expenditure patterns of SNFs over time using alternative SNF data
sources. For building and fixed equipment, we used the stock of beds in
nursing homes from the National Nursing Home Survey (NNHS) conducted by
the National Center for Health Statistics (NCHS) for 1962 through 1999.
For 2000 through 2018, we extrapolated the 1999 bed data forward using
measurements of the moving average rate of growth in the number of beds
as reported in SNF Medicare cost report data on Worksheet S-3, part I,
column 1, line 8. A more detailed discussion of this methodology was
published in the FY 2022 SNF final rule (86 FR 42457). We proposed to
continue this methodology for the 2022-based SNF market basket by
extrapolating the 2018 bed data forward using the average growth in the
number of beds over the 2019 to 2022 time period. We then proposed to
use the change in the stock of beds each year to approximate building
and fixed equipment purchases for that year. This procedure assumes
that bed growth reflects the growth in capital-related costs in SNFs
for building and fixed equipment. We believe that this assumption is
reasonable because the number of beds reflects the size of a SNF, and
as a SNF adds beds, it also likely adds fixed capital.
As was done for the 2018-based SNF market basket (as well as prior
market baskets), we proposed to estimate movable equipment purchases
based on the ratio of ancillary costs to routine costs. The time series
of the ratio of ancillary costs to routine costs for SNFs measures
changes in intensity in SNF services, which are assumed to be
associated with movable equipment purchase patterns. The assumption
here is that as ancillary costs increase compared to routine costs, the
SNF caseload becomes more complex and would require more movable
equipment. The lack of movable equipment purchase data for SNFs over
time required us to use alternative SNF data sources. A more detailed
discussion of this methodology was published in the FY 2008 SNF final
rule (72 FR 43428). We believe the resulting two time series,
determined from beds and the ratio of ancillary to routine costs,
reflect real capital purchases of building and fixed equipment and
movable equipment over time.
To obtain nominal purchases, which are used to determine the
vintage weights for interest, we converted the two real capital
purchase series from 1963 through 2022 determined above to nominal
capital purchase series using their respective price proxies (the BEA
Chained Price Index for Nonresidential Construction for Hospitals &
Special Care Facilities and the PPI for Machinery and Equipment). We
then combined the two nominal series into one nominal capital purchase
series for 1963 through 2022. Nominal capital purchases are needed for
interest vintage weights to capture the value of debt instruments.
Once we created these capital purchase time series for 1963 through
2022, we averaged different periods to obtain an average capital
purchase pattern over time: (1) for building and fixed equipment, we
averaged 34, 27-year periods; (2) for movable equipment, we averaged
52, 9-year periods; and (3) for interest, we averaged 36, 25-year
periods. We calculate the vintage weight for a given year by dividing
the capital purchase amount in any given year by the total amount of
purchases during the expected useful life of the equipment or debt
instrument.
We did not receive any public comments on our proposed price
proxies used for each of the detailed capital cost categories or on our
methodology for deriving the vintage weights. For the reasons discussed
above and in the FY 2025 SNF PPS proposed rule, we are finalizing the
price proxies of the capital cost categories, the vintage weights, and
the methodology for deriving the vintage weights, as proposed without
modification.
The vintage weights for the 2022-based SNF market basket and the
2018-based SNF market basket are presented in Table 18.
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The process of creating vintage-weighted price proxies requires
applying the vintage weights to the price proxy index where the last
applied vintage weight in Table 18 is applied to the most recent data
point. We have provided on the CMS website an example of how the
vintage weighting price proxies are calculated, using example vintage
weights and example price indices. The example can be found 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>.html in the zip
file titled ``Weight Calculations as described in this IPPS FY 2010
Proposed Rule.''
After consideration of public comments, we are finalizing the 2022-
based SNF market basket as proposed. Table 19 shows all the price
proxies for the 2022-based SNF market basket.

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BILLING CODE 4120-01-C

[[Page 64080]]

4. Labor-Related Share
We define the labor-related share (LRS) as those expenses that are
labor-intensive and vary with, or are influenced by, the local labor
market. Each year, we calculate a revised labor-related share based on
the relative importance of labor-related cost categories in the input
price index. Effective for FY 2025, we proposed to revise and update
the labor-related share to reflect the relative importance of the 2022-
based SNF market basket cost categories that we believe are labor-
intensive and vary with, or are influenced by, the local labor market.
For the 2022-based SNF market basket these are: (1) Wages and Salaries
(including allocated contract labor costs as described above); (2)
Employee Benefits (including allocated contract labor costs as
described above); (3) Professional Fees: Labor-Related; (4)
Administrative and Facilities Support Services; (5) Installation,
Maintenance, and Repair Services; (6) All Other: Labor-Related
Services; and (7) a proportion of capital-related expenses. We proposed
to continue to include a proportion of capital-related expenses because
a portion of these expenses are deemed to be labor-intensive and vary
with, or are influenced by, the local labor market. For example, a
proportion of construction costs for a medical building would be
attributable to local construction workers' compensation expenses.
Consistent with previous SNF market basket revisions and rebasings,
the All Other: Labor-related services cost category is mostly comprised
of building maintenance and security services (including, but not
limited to, landscaping services, janitorial services, waste management
services services) and dry cleaning and laundry services. Because these
services tend to be labor-intensive and are mostly performed at the SNF
facility or in the local area (and therefore, unlikely to be purchased
in the national market), we believe that they meet our definition of
labor-related services.
These are the same cost categories we have included in the labor-
related share for the 2018-based SNF market basket rebasing (86 FR
42461), as well as the same categories included in the labor-related
share for the 2021-based inpatient rehabilitation facility (IRF) market
basket (88 FR 50984), and 2021-based inpatient psychiatric facility
(IPF) market basket (88 FR 51078).
As discussed in the FY 2022 SNF PPS final rule (86 FR 42462), in an
effort to determine more accurately the share of nonmedical
professional fees (included in the 2022-based SNF market basket
Professional Fees cost categories) that should be included in the
labor-related share, we surveyed SNFs regarding the proportion of those
fees that are attributable to local firms and the proportion that are
purchased from national firms. Based on these weighted results, we
determined that SNFs purchase, on average, the following portions of
contracted professional services inside their local labor market:
<bullet> 78 percent of legal services.
<bullet> 86 percent of accounting and auditing services.
<bullet> 89 percent of architectural, engineering services.
<bullet> 87 percent of management consulting services.
Together, these four categories represent 3.6 percentage points of
the total costs for the proposed 2022-based SNF market basket. We
applied the percentages from this special survey to their respective
SNF market basket weights to separate them into labor-related and
nonlabor-related costs. As a result, we are designating 2.8 of the 3.6
percentage points total to the labor-related share, with the remaining
0.8 percentage point categorized as nonlabor-related.
In addition to the professional services as previously listed, for
the 2022-based SNF market basket, we proposed to allocate a proportion
of the Home Office/Related Organization Contract Labor cost weight,
calculated using the Medicare cost reports as previously stated, into
the Professional Fees: Labor-Related and Professional Fees: Nonlabor-
Related cost categories. We proposed to classify these expenses as
labor-related and nonlabor-related as many facilities are not located
in the same geographic area as their home office, and, therefore, do
not meet our definition for the labor-related share that requires the
services to be purchased in the local labor market.
Similar to the 2018-based SNF market basket, we proposed for the
2022-based SNF market basket to use the Medicare cost reports for SNFs
to determine the home office labor-related percentages. The Medicare
cost report requires a SNF to report information regarding its home
office provider. Using information on the Medicare cost report, we
compared the location of the SNF with the location of the SNF's home
office. We proposed to classify a SNF with a home office located in
their respective labor market if the SNF and its home office are
located in the same Metropolitan Statistical Area (MSA). Then we
determined the proportion of the Home Office/Related Organization
Contract Labor cost weight that should be allocated to the labor-
related share based on the percent of total Home Office/Related
Organization Contract Labor costs for those SNFs that had home offices
located in their respective local labor markets of total Home Office/
Related Organization Contract Labor costs for SNFs with a home office.
We determined a SNF's and its home office's MSA using their zip code
information from the Medicare cost report.
Using this methodology, we determined that 25 percent of SNFs' Home
Office/Related Organization Contract Labor costs were for home offices
located in their respective local labor markets. Therefore, we proposed
to allocate 25 percent of the Home Office/Related Organization Contract
Labor cost weight (0.1 percentage point = 0.6 percent x 25 percent) to
the Professional Fees: Labor-Related cost weight and 75 percent of the
Home Office/Related Organization Contract Labor cost weight to the
Professional Fees: Nonlabor-Related cost weight (0.4 percentage point =
0.6 percent x 75 percent). The 2018-based SNF market basket used a
similar methodology for allocating the Home Office/Related Organization
Contract Labor cost weight to the labor-related share.
In summary, based on the two allocations mentioned earlier, we
proposed to apportion 2.9 percentage points into the Professional Fees:
Labor-Related cost category consisting of the Professional Fees (2.8
percentage points) and Home Office/Related Organization Contract Labor
(0.1 percentage point) cost weights. This amount was added to the
portion of professional fees that we already identified as labor-
related using the I-O data such as contracted advertising and marketing
costs (approximately 0.6 percentage point of total costs) resulting in
a Professional Fees: Labor-Related cost weight of 3.6 percent.
Based on IHS Global, Inc.'s fourth-quarter 2023 forecast with
historical data through the third quarter of 2023, we proposed a FY
2025 labor-related share of 71.9 percent.
Comment: One commenter did not support any increases in the labor-
related share because facilities with a wage index less than 1.0 will
suffer financially from a rise in the labor-related share. They stated
that across the country, there is a growing disparity between the high-
wage and low-wage States.
Response: We appreciate the commenter's concern. However, for this
final rule, we are finalizing our proposal to rebase the SNF market
basket to reflect a 2022 base year so that we can

[[Page 64081]]

incorporate more recent data on SNF cost structures. In addition, we
calculate a labor-related share based on the relative importance of
labor-related cost categories, to account for historical and projected
price changes between the base year and the payment year (FY 2025 in
this rule). The price proxies for the different cost categories in the
market basket do not necessarily change at the same rate, and the
relative importance measure captures these changes. We recognize that a
change in the labor-related share can have differential impacts for
providers, but we believe it is important to continue to update the
labor-related share to reflect the current SNF cost environment.
As was stated in the FY 2025 SNF PPS proposed rule (89 FR 23451),
if more recent data subsequently became available, we would use such
data, if appropriate, to determine the FY 2025 SNF labor-related share
relative importance. Accordingly, based on IGI's second-quarter 2024
forecast with historical data through the first quarter of 2024, the
labor-related share for FY 2025 based on the finalized 2022-based SNF
market basket is 72.0 percent.
Table 20 compares the FY 2025 labor-related share based on the
2022-based SNF market basket relative importance and the FY 2024 labor-
related share based on the 2018-based SNF market basket relative
importance as finalized in the FY 2024 SNF final rule (88 FR 53213).
[GRAPHIC] [TIFF OMITTED] TR06AU24.019

The FY 2025 SNF labor-related share is 0.9 percentage point higher
than the FY 2024 SNF labor-related share (based on the 2018-based SNF
market basket). The higher labor-related share is primarily due to
incorporating the 2022 Medicare cost report data, which resulted in a
higher Compensation cost weight, as well as higher relative importance
of the Capital cost category.
5. FY 2025 Market Basket Percentage Increase for the SNF PPS Update
As discussed previously in this rule, beginning with the FY 2025
SNF PPS update, we are adopting the 2022-based SNF market basket as the
appropriate market basket of goods and services for the SNF PPS.
Consistent with historical practice, we estimate the market basket
update for the SNF PPS based on IHS Global Inc.'s (IGI) forecast. IGI
is a nationally recognized economic and financial forecasting firm with
which CMS contracts to forecast the components of the market baskets
and total factor productivity (TFP).
Based on IGI's fourth-quarter 2023 forecast with historical data
through the third quarter of 2023, the proposed 2022-based SNF market
basket update for FY 2025 was estimated to be 2.8 percent--which was
0.1 percentage point lower than the FY 2025 percent change of the 2018-
based SNF market basket. We are also proposed that if more recent data
subsequently became available (for example, a more recent estimate of
the market basket and/or the TFP), we would use such data, if
appropriate, to determine the FY 2025 SNF market basket percentage
increase, labor-related share, forecast error adjustment, or
productivity adjustment in the SNF PPS final rule. Accordingly, based
on IGI's second-quarter 2024 forecast with historical data through the
first quarter of 2024, the most recent estimate of the 2022-based SNF
market basket percentage increase for FY 2025 is 3.0 percent.
Table 21 compares the 2022-based SNF market basket and the 2018-
based SNF market basket percent changes. While there are slight
differences of up to 0.2 percentage point in certain years, there is no
difference in the average growth rates between the two market baskets
in the historical period (FY 2020-FY 2023) and a 0.1 percentage point
difference in the forecast period (FY 2024-FY 2026) when rounded to one
decimal place.

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B. Changes to SNF PPS Wage Index

1. Core-Based Statistical Areas (CBSAs) for the FY 2025 SNF PPS Wage
Index
a. Background
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 2025, 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 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, as the basis for the SNF PPS wage index, the IPPS hospital wage
data, unadjusted for occupational mix, without taking into account
geographic reclassifications under section 1886(d)(8) and (d)(10) of
the Act, and without applying the rural floor under section 4410 of the
BBA 1997 and the outmigration adjustment under section 1886(d)(13) of
the Act. For FY 2025, the updated wage data are for hospital cost
reporting periods beginning on or after October 1, 2020, and before
October 1, 2021 (FY 2021 cost report data).
The applicable SNF PPS wage index value is assigned to a SNF on the
basis of the labor market area in which the SNF is geographically
located. 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 Metropolitan
Statistical Area (MSA) and the creation of micropolitan statistical
areas and combined statistical areas. In adopting the Core-Based
Statistical Areas (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), since the expiration of this 1-year transition on September 30,
2006, we have 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 MSAs,
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. In addition, on August 15, 2017, OMB issued Bulletin No. 17-01
which announced a new urban CBSA, Twin Falls, Idaho (CBSA 46300). As we
previously stated in the FY 2008 SNF PPS proposed and final rules (72
FR 25538 through 25539, and 72 FR 43423), and as we noted in the
proposed rule, 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.
On April 10, 2018, OMB issued OMB Bulletin No. 18-03 which
superseded the August 15, 2017 OMB Bulletin No. 17-01. Subsequently, on
September 14, 2018, OMB issued OMB Bulletin No. 18-04, which superseded
the April 10, 2018 OMB Bulletin No. 18-03. These bulletins established
revised delineations for MSAs, Micropolitan Statistical Areas, and
Combined Statistical Areas, and provided guidance on the use of the
delineations of these statistical areas. A copy of OMB Bulletin No. 18-
04, may be obtained 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>.

[[Page 64083]]

While OMB Bulletin No. 18-04 is not based on new census data, it
includes some material changes to the OMB statistical area
delineations, including some new CBSAs, urban counties that would
become rural, rural counties that would become urban, and existing
CBSAs that would be split apart. OMB issued further revised CBSA
delineations in OMB Bulletin No. 20-01, on March 6, 2020 (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>). However, we determined that the changes in OMB
Bulletin No. 20-01 do not impact the CBSA-based labor market area
delineations adopted in FY 2021. Therefore, CMS did not propose to
adopt the revised OMB delineations identified in OMB Bulletin No. 20-01
for FY 2022 through FY 2024.
On July 21, 2023, OMB issued OMB Bulletin No. 23-01 (available at
<a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>) which updates and supersedes OMB Bulletin No. 20-01 based upon
the 2020 Standards for Delineating Core Based Statistical Areas (``the
2020 Standards'') published by the Office of Management and Budget
(OMB) on July 16, 2021 (86 FR 37770). OMB Bulletin No. 23-01 revised
CBSA delineations which are comprised of counties and equivalent
entities (for example, boroughs, a city and borough, and a municipality
in Alaska, planning regions in Connecticut, parishes in Louisiana,
municipios in Puerto Rico, and independent cities in Maryland,
Missouri, Nevada, and Virginia). For FY 2025, we are adopting the
revised OMB delineations identified in OMB Bulletin No. 23-01.
To implement these changes for the SNF PPS beginning in FY 2025, it
is necessary to identify the revised labor market area delineation for
each affected county and provider in the country. The revisions OMB
published on July 21, 2023 contain a number of significant changes. For
example, under the revised OMB delineations, there would be new CBSAs,
urban counties that would become rural, rural counties that would
become urban, and existing CBSAs that would split apart. We discussed
these changes in more detail in the proposed rule.
b. Implementation of Revised Labor Market Area Delineations
We typically delay implementing OMB labor market area delineations
to allow for sufficient time to assess the new changes. For example, as
discussed in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final
rule (78 FR 47952), we delayed implementing the revised OMB statistical
area delineations described in OMB Bulletin No. 13-01 to allow for
sufficient time to assess the new changes. We believe it is important
for the SNF PPS to use the latest labor market area delineations
available as soon as is reasonably possible to maintain a more accurate
and up-to-date payment system that reflects the reality of population
shifts and labor market conditions. We further believe that using the
delineations reflected in OMB Bulletin No. 23-01 would increase the
integrity of the SNF PPS wage index system by creating a more accurate
representation of geographic variations in wage levels. We have
reviewed our findings and impacts relating to the revised OMB
delineations set forth in OMB Bulletin No. 23-01 and find no compelling
reason to further delay implementation. Because we believe we have
broad authority under section 1888(e)(4)(G)(ii) of the Act to determine
the labor market areas used for the SNF PPS wage index, and because we
believe the delineations reflected in OMB Bulletin No. 23-01 better
reflect the local economies and wage levels of the areas in which
hospitals are currently located, we proposed to implement the revised
OMB delineations as described in the July 21, 2023 OMB Bulletin No. 23-
01, for the SNF PPS wage index effective beginning in FY 2025. In
addition, we will apply the permanent 5 percent cap policy in FY 2025
on decreases in a hospital's wage index compared to its wage index for
the prior fiscal year (FY 2024) to assist providers in adapting to the
revised OMB delineations (if we finalize the implementation of such
delineations for the SNF PPS wage index beginning in FY 2025). This
policy is discussed in more detail in the proposed rule. We solicited
comments on these proposals.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Commenters generally support the proposed policies for FY
2025. One commenter stated that it ``seems to strike a balance between
fairly compensating SNFs, promoting quality care, and enhancing
regulatory oversight.'' Another commenter appreciates that CMS is not
requiring the commitment resources needed to do cost report audits at
this time. However, a number of these commenters also recommend CMS
continue to reform the wage index policies. These recommendations
included suggestions such as modifying the current methodology by
developing a reclassification policy similar to the hospital wage index
reclassification policy or developing a SNF-specific wage index.
Response: We appreciate the commenters' support of the wage index
proposed policies for FY 2025. In the absence of a SNF-specific wage
index, we continue to 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. For
a detailed discussion of the rationale for our current wage index
policies and for responses to these recurring comments, we refer
readers to the FY 2024 SNF PPS final rule (88 FR 53211 through 53215)
and the FY 2016 SNF PPS final rule (80 FR 46401 through 46402).
Comment: One commenter, who disagrees with the proposed delineation
changes, specifically expressed concerns with the wage index decrease
of both Rock County, Minnesota, and McHenry County, North Dakota. Both
counties will transition from rural to urban designation and in turn
will experience slightly over a 12 percent decrease from FY 2024 to FY
2025. Due to the decline in wage index, the commenter strongly requests
CMS to review the wage index data for Trinity Health (the only rural
PPS hospital in North Dakota prior to the proposed designation change).
Response: We understand that some CBSAs may experience a wage index
decline compared to the previous fiscal year. For North Dakota, our
investigation discovered the wage data for Trinity Health (provider
350006) was audited in FY 2025 with no issues reported. The average
hourly wage reported for Trinity Health declined 7 percent since FY
2024. For the purposes of the SNF PPS, if a SNF (not hospital)
experience a rural or urban redesignation due to the proposed
delineation changes for FY 2025 and their wage index resulted in
decline since FY 2024, the 5 percent cap policy will be applied.
Therefore, we continue to believe that the 5 percent cap policy will
mitigate any significant decreases a SNF may experience due to the
revised OMB delineations. Additional details on the wage index
transition policy for FY 2025 is discussed further below in this
section. After consideration of public comments, we are finalizing our
proposal regarding the implementation of the revised labor market area
delineations for FY 2025.
(1) Micropolitan Statistical Areas
As discussed in the FY 2006 SNF PPS proposed rule (70 FR 29093
through 29094) and final rule (70 FR 45041), we

[[Page 64084]]

considered how to use the Micropolitan Statistical Area definitions in
the calculation of the wage index. OMB defines a ``Micropolitan
Statistical Area'' as a CBSA ``associated with at least one urban
cluster that has a population of at least 10,000, but less than
50,000'' (75 FR 37252). We refer to these as Micropolitan Areas. After
extensive impact analysis, consistent with the treatment of these areas
under the IPPS as discussed in the FY 2005 IPPS final rule (69 FR 49029
through 49032), we determined the best course of action would be to
treat Micropolitan Areas as ``rural'' and include them in the
calculation of each State's SNF PPS rural wage index (see 70 FR 29094
and 70 FR 45040 through 45041).
Thus, the SNF PPS statewide rural wage index is determined using
IPPS hospital data from hospitals located in non-MSA areas, and the
statewide rural wage index is assigned to SNFs located in those areas.
Because Micropolitan Areas tend to encompass smaller population centers
and contain fewer hospitals than MSAs, we determined that if
Micropolitan Areas were to be treated as separate labor market areas,
the SNF PPS wage index would have included significantly more single-
provider labor market areas. As we explained in the FY 2006 SNF PPS
proposed rule (70 FR 29094), recognizing Micropolitan Areas as
independent labor markets would generally increase the potential for
dramatic shifts in year-to-year wage index values because a single
hospital (or group of hospitals) could have a disproportionate effect
on the wage index of an area. Dramatic shifts in an area's wage index
from year-to-year are problematic and create instability in the payment
levels from year-to-year, which could make fiscal planning for SNFs
difficult if we adopted this approach. For these reasons, we adopted a
policy to include Micropolitan Areas in the State's rural wage area for
purposes of the SNF PPS wage index and have continued this policy
through the present.
We believe that the best course of action would be to continue the
policy established in the FY 2006 SNF PPS final rule and include
Micropolitan Areas in each State's rural wage index. These areas
continue to be defined as having relatively small

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