[Federal Register Volume 60, Number 140 (Friday, July 21, 1995)]
[Rules and Regulations]
[Pages 37590-37596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17980]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[BPD-409-F]
RIN 0938-AD02
Medicare Program; Optional Payment System for Low Medicare Volume
Skilled Nursing Facilities
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: This final rule allows skilled nursing facilities (SNFs) that
provide fewer than 1,500 days of care to Medicare beneficiaries in a
cost reporting period to have the option of receiving prospectively
determined payment rates in the following cost reporting period. The
prospectively determined payment rates are based on components of SNF
costs such as routine operating costs, capital-related costs, and a
return on equity for proprietary facilities for routine services
furnished before October 1, 1993. This rule also specifies that the
return on equity provision for proprietary SNFs is eliminated for
services furnished on or after October 1, 1993.
EFFECTIVE DATE: These regulations are effective on August 21, 1995.
FOR FURTHER INFORMATION CONTACT: David Goldberg--Simplified Cost
Reporting, (410) 966-4512; Robert Kuhl--All Other Issues, (410) 966-
4597.
SUPPLEMENTARY INFORMATION:
I. Background
The Social Security Act (the Act) authorizes the Secretary to set
limits on the allowable costs incurred by a skilled nursing facility
(SNF) in furnishing care to Medicare beneficiaries. The limits are
based on estimates of the costs necessary for the efficient delivery of
needed health services. Section 1888 of the Act sets forth the
statutory provisions that specifically deal with SNF payments.
Implementing regulations appear at 42 CFR 413.30.
Section 1888(d) of the Act (as added by the Consolidated Omnibus
Budget Reconciliation Act of 1985 (Public Law 99-272)) requires the
establishment of prospectively determined payment rates for routine
services furnished by low Medicare volume SNFs choosing to be paid on a
prospective basis. The rates paid to proprietary SNFs choosing this
method of payment included a component for return on equity related to
routine service costs, which was subsequently eliminated for services
furnished on or after October 1, 1993 (see below).
Specifically, section 1888(d) of the Act--
Specifies that SNFs with fewer than 1,500 Medicare
inpatient days in one cost reporting period have the option of being
paid on the basis of a prospectively determined payment rate in the
following cost reporting period.
Requires that the amount of payment under the SNF
prospectively determined payment rate system be determined on a per
diem basis. However, that amount may not exceed the limit on routine
service costs set forth in section 1888(a) of the Act with respect to
the facility, adjusted to take into account average capital-related
costs with respect to the type and location of the facility. The limit
used for this purpose is the applicable routine service cost limit in
effect when the provider elects to be paid under prospectively
determined payment rates.
For SNFs located in an urban area, the prospectively determined
payment amount is equal to 105 percent of the mean of the per diem
reasonable routine service and routine capital-related costs of
services for SNFs in urban areas within the same census region. The
mean per diem is determined without regard to the limitations of
section 1888(a) of the Act and is adjusted for different area wage
levels.
For SNFs located in a rural area, the prospectively determined
payment amount is equal to 105 percent of the mean of the per diem
reasonable routine service and routine capital-related costs of covered
services for SNFs in rural areas within the same census region. The
mean per diem is determined without regard to the limitations of
section 1888(a) of the Act and is adjusted for different area wage
levels.
Requires the Secretary to establish the prospectively
determined payment rates for each Federal fiscal year at least 90 days
prior to the beginning of that fiscal year. The law also requires an
SNF to notify the Secretary of its intention to be paid a prospectively
determined payment rate no later than 30 days before the beginning of
the cost reporting period for which the request is made.
Requires the Secretary to provide for a simplified cost
report to be filed by SNFs being paid under prospectively determined
payment rates.
Provides that, in the case of an SNF receiving
prospectively determined payment rates, the Secretary may pay for
ancillary services on a reasonable charge basis, rather than on a cost
basis, if the Secretary determines that a reasonable charge basis
provides an equitable level of payment and eases the SNF's reporting
burden.
Section 13503(c) of the Omnibus Budget Reconciliation Act of 1993
(OBRA '93) (Public Law 103-66) amended section 1861(v)(1)(B) of the Act
to eliminate the provision for payment for a return on equity for
services furnished by proprietary SNFs on or after October 1, 1993.
Also, we note that section 13503(b) states that the Secretary may not
change the amount of any prospectively determined payment rate paid to
an SNF under section 1888(d) of the Act for services furnished during
cost reporting periods beginning during fiscal years (FYs) 1994 and
1995, except as necessary to take into account the elimination of the
return on equity provision.
In order to provide the public with information on the optional
prospectively determined payment rate system for SNF routine services
as soon as possible, and to implement the prospectively determined
rates provided for under section 1888(d) of the Act, as amended, we
initially issued guidelines in sections 2820 through 2822 of Chapter 28
of the Provider Reimbursement Manual (HCFA Pub. 15-1) in August 1986.
The rates were effective for cost reporting periods beginning on or
after October 1, 1986, but before October 1, 1987. Additional
transmittals were issued providing rates for subsequent cost reporting
periods. As described below, the guidelines in the Provider
Reimbursement Manual closely adhere to the requirements of section
1888(d) of the Act. In calculating the prospectively determined payment
rates announced in the manual transmittals, we used the most recent
data available at that time.
In the guidelines issued under Chapter 28 of the Provider
Reimbursement Manual--
We stipulated that an SNF may choose to be paid a
prospectively determined payment rate for general inpatient routine
services if the facility met the statutory criteria that, in its
immediately preceding cost reporting period, it had fewer than 1,500
[[Page 37591]]
Medicare patient days and it made a timely election.
For prospectively determined payment rate purposes, we
grouped SNFs by census region, and by urban area or rural area
designation within the region. The term ``urban area'' means an area
within a Metropolitan Statistical Area (MSA) (as defined by the Office
of Management and Budget (OMB)). The term ``rural area'' means any area
outside an urban area.
We adjusted the labor portion of the prospectively
determined payment rate to account for area wage differences through
the application of an appropriate wage index.
We based the prospectively determined payment rate on
reported costs, adjusted for actual and projected cost increases by
applying the SNF market basket index.
For SNFs electing to receive payment under prospectively
determined payment rates, we specified that ancillary services are paid
on the basis of reasonable cost with retroactive adjustment based on an
annual cost report.
II. Provisions of the Proposed Regulations
On June 8, 1994, we published in the Federal Register a proposed
rule (59 FR 29578) that generally would codify the statutory provisions
concerning prospectively determined payment rates for SNFs, as now
explained in chapter 28 of the Provider Reimbursement Manual. The
proposed rule also specified that the return on equity provision for
proprietary SNFs would be eliminated for services furnished on or after
October 1, 1993. The major provisions of the proposed regulations are
set forth below:
A. General Provisions
We proposed to add new Sec. 413.300 to introduce the
contents of Subpart I and to summarize the conditions and procedures
for making prospectively determined payments to qualifying SNFs. In
this section, we proposed to define the terms ``area wage level'',
``census region'', ``routine operating costs'', ``routine capital-
related costs'', and ``urban'' and ``rural'' areas, as we had defined
these terms in the manual.
B. Eligibility Criteria
In new Sec. 413.304, we proposed that SNFs that furnished
fewer than 1,500 Medicare covered inpatient days in a cost reporting
period as reported on the Medicare cost report would be allowed the
option of being paid on the basis of prospectively determined payment
rates during the next cost reporting period. If an SNF's preceding
Medicare cost reporting period was shorter than a full twelve months,
the SNF must have had an average daily Medicare census for the period
of not greater than 4.1 to qualify for prospectively determined
payment. This figure was determined by dividing 1,499 (that is, the
largest number of Medicare inpatient days fewer than 1,500) by the
number of days in a cost reporting year. If there was no preceding cost
reporting period for which an SNF was approved for Medicare
participation, we proposed that the SNF would automatically qualify for
prospectively determined payment for the first cost reporting period.
C. Approval Process
In new Sec. 413.308, we proposed to establish rules to
govern the process by which SNFs may request and be approved for
payment under the prospectively determined payment rate option. Under
section 1888(d) of the Act, we are required to establish the
prospectively determined payment rates at least 90 days before the
beginning of each Federal fiscal year. We proposed that an SNF request
to receive prospectively determined payments by notifying its fiscal
intermediary of its intention at least 30 days before the beginning of
the cost reporting period for which the request is made. The
intermediary would tentatively notify the SNF of whether the SNF
qualifies for the option.
In most cases, a final count of Medicare inpatient days cannot be
made for a cost reporting period before the beginning of the next cost
reporting period. Therefore, the intermediary's initial determination
of provider eligibility would be a tentative approval or disapproval.
The final determination would be made once a count of the total
Medicare inpatient days in the preceding cost reporting period is
available. We proposed that the intermediary would notify the SNF of
the final determination within 10 working days after the data necessary
to make the determination are available. If tentative approval were
given and the final determination was that the SNF did not qualify to
be paid on the basis of the prospectively determined payment rate, the
intermediary would adjust payments to reflect payment on a reasonable
cost basis.
We proposed that for a newly participating SNF with no preceding
cost reporting period, the election must be made within 30 days of its
notification of approval to participate in Medicare.
The election by the SNF and any approval by the intermediary would
be effective for only one cost reporting period at a time. We also
specified that once an election has been made and approved and the cost
reporting period has begun, the SNF may not revoke its election for
that period. Each SNF electing to receive a prospectively determined
payment rate would agree to accept that rate prior to the start of the
cost reporting period, regardless of what its final costs for the
period would be.
D. Basis of Payment
We proposed to add new Sec. 413.310 to set forth the basis
of payment to be used for routine service costs, capital-related costs,
and return on equity (for services furnished before October 1, 1993),
as well as for ancillary service costs, as specified in sections
1888(d)(2) and (d)(6) of the Act. We specified the following:
--Prospectively determined payment would be in lieu of payment on a
reasonable cost basis for routine services.
--Prospectively determined payment would also be in lieu of payment for
routine capital costs.
--The routine operating component of the prospectively determined
payment rate, excluding capital cost and excluding return on equity (if
applicable), would not exceed the amount of the provider's routine
service cost limit determined under Sec. 413.30 that is in effect when
the provider elects to be paid a prospectively determined payment rate.
E. Methodology for Calculating Rates
We proposed to add new Sec. 413.312 to establish the
methodology for determining the prospectively determined payment rates
as specified in sections 1888 (d)(2) and (d)(6) of the Act. Under these
sections of the Act, mean per diem routine operating costs, capital-
related costs, and, for proprietary SNFs, return on equity for services
furnished before October 1, 1993, are determined separately for SNFs
located in urban areas and those in rural areas for the nine census
regions.
F. Determining Routine Per Diem Rate
In Sec. 413.314, we described the proposed methodology for
determining the routine per diem rate for an SNF. We explained that the
per diem rate would be composed of a routine operating portion, a
capital-related cost portion applicable to routine services, and, for
proprietary SNFs, a return on equity portion for services furnished
before October 1, 1993. The labor-related costs of the routine
operating
[[Page 37592]]
portion would be adjusted to reflect area wage differences. The total
rate would be adjusted by using a factor based on the projected
increase in the market basket index to reflect a different cost
reporting period if an SNF's cost reporting period is other than
October 1 through September 30.
We also provided that the prospectively determined payment rate,
excluding capital costs and excluding return on equity (if applicable),
may not exceed the amount of an SNF's routine service cost limit that
is in effect when the provider elects to be paid a prospective payment
rate.
We proposed basing the prospectively determined payment rates on
combined freestanding and hospital-based SNF cost data, and we
solicited public comments on the proposed methodology.
G. Determining Payment Amount for Ancillary Services
In Sec. 413.316, we proposed that ancillary services
continue to be paid on the basis of reasonable cost. We described in
detail in the proposed rule (59 FR 29582) a number of alternative
methodologies that we are considering as we continue to search for a
way to implement section 1888(d)(6) of the Act and bring ancillary
services under the prospectively determined payment rate system. We
solicited comments on those methodologies, and indicated that we would
consider other methodologies that commenters might suggest.
H. Publication of Rates
In new Sec. 413.320, we proposed that HCFA would update
the routine prospectively determined payment rates in a Federal
Register notice published no later than July 1 of each year. In the
notices, we would establish the rates for routine services under the
prospectively determined payment rate system.
I. Simplified Cost Report
All Medicare providers with low Medicare utilization have
had, at the intermediary's discretion, the option of filing less than a
full Medicare cost report. We indicated that this option would continue
to be available to those SNFs that qualify for it. In addition, in new
Sec. 413.321, we proposed that a simplified cost report would be filed
by certain SNFs receiving a prospectively determined rate. At this
time, a simplified form is available only for freestanding SNFs. The
simplified form is not applicable to hospital-based SNFs or SNFs that
are a part of a health care complex. We are in the process of
developing a simplified form to be used by those facilities.
The new simplified cost report requires inputting only the cost
information necessary for determining prospective payment rates. The
report employs a simplified method of cost finding to be used in lieu
of the cost finding methods described in Sec. 413.24(d). We also
proposed changing Sec. 413.24(d) to clarify that the cost finding
provisions of that regulation do not apply to those SNFs that qualify
for the simplified method of cost finding. In addition, we proposed to
revise Sec. 413.24(h) to clarify that the waiver of full cost reporting
for low program utilization also applies to providers filing a
simplified cost report.
III. Analysis of and Responses to Public Comments
We received three items of correspondence commenting on the June 8,
1994 proposed rule. Following are comments from these letters, and our
responses to them.
Comment: One commenter requested that, for purposes of determining
eligibility to receive a prospectively determined rate, the qualifying
number of Medicare days in the preceding year be increased from fewer
than 1,500 days to perhaps as many as 2,500 days. Another commenter
recommended that we recognize some level of fluctuation in volume and
allow a provider to continue receiving the prospective payment rate
even if the number of days fluctuates to 2,000 days in a subsequent
year, for no more than 2 years.
Response: Section 1888(d)(1) of the Act specifies that SNFs with
fewer than 1,500 Medicare inpatient days in one cost reporting period
have the option of being paid on the basis of a prospectively
determined payment rate in the following cost reporting period. Absent
legislative change, we have no discretion to change this threshold.
Comment: With regard to our proposal that an SNF with no prior cost
reporting period would automatically qualify for being paid a
prospectively determined payment rate, one commenter requested that the
automatic qualification be a ``final'' determination of eligibility.
Response: Section 1888(d)(4) of the Act requires an SNF to notify
the Secretary of its intention to be paid a prospectively determined
payment rate for a cost reporting period no later than 30 days before
the beginning of that period. For a newly participating SNF, the
notification date is often the beginning date of the cost reporting
period. Thus, we believe it is equitable to allow an SNF 30 days after
its notification of approval to participate in Medicare to submit a
request to be paid a prospectively determined rate, as established
under Sec. 413.308(a) of this final rule. Accordingly, a final
determination of eligibility for that cost reporting period depends on
the SNF meeting this filing requirement.
Comment: One commenter suggested that once an SNF is paid a
prospectively determined payment rate, the prospective payment status
should continue until the SNF no longer qualifies or elects to revoke
this status.
Response: As stated above, section 1888(d)(4) of the Act requires
an SNF to notify the Secretary of its intention to be paid a
prospectively determined payment rate for a cost reporting period no
later than 30 days before the beginning of that period. The Secretary
is required to establish the prospective payment amounts for each
fiscal year based on the most recent data available for a 12-month
period. Accordingly, we believe that the intent of the statute is that
a separate request be made for each annual cost reporting period for
which an SNF wishes to receive a prospectively determined payment rate.
Therefore, we have not adopted this proposal.
Comment: One commenter stated that we should define the data source
for making a final determination regarding the number of Medicare days
in a cost reporting period. The commenter also asked that we clarify
when the 10 working-day window referred to in Sec. 413.308(b) begins.
Response: The settled cost report is the source for making the
final determination of the number of Medicare days. Under Sec. 413.308,
the intermediary notifies an SNF of its initial determination within 10
days of receiving all data necessary to make the determination. The 10-
day period for notification of a final determination begins with the
issuance of the Notice of Program Reimbursement. We do not believe we
need to include this information in the regulations.
Comment: One commenter indicated it is inequitable to combine
freestanding and hospital-based SNF data in computing the prospectively
determined payment rates. The commenter stated that freestanding SNFs
will be overpaid and that hospital-based SNFs will not receive adequate
payment.
Response: Section 1888(d) of the Act does not provide for different
payment rates for freestanding and hospital-based SNFS. We believe that
if the congressional intent had been for different rates, the statute
would have been worded in a manner similar to section 1888(a) of the
Act, which establishes the bases for determining
[[Page 37593]]
cost limits for freestanding and hospital-based SNFs in urban and rural
areas. If an SNF believes that it will not receive adequate payment
under this optional system, it is not required to elect this payment
system. Instead, it could continue to be reimbursed for its reasonable
costs up to its cost limit with the possibility of obtaining an
exception under the provisions of Sec. 413.30 for its costs in excess
of the limit.
Comment: Several commenters responded to our request for comments
on alternative methodologies for determining payment amounts for
ancillary services. One commenter stated that the best method for
computing an ancillary payment rate system would be by developing
reasonable charge payment screens, or, as an alternative, using an
average per diem rate weighted on the basis of ancillary services
provided. Another commenter urged the Secretary not to adopt a system
of reasonable charges for the purpose of paying for ancillary services
because such a system could not serve to reasonably cover the cost of
providing services. Two commenters urged the Secretary to continue
payment for ancillary services on a cost basis, until such time as
another method could be developed.
Response: While we agree that the reasonable charge payment screen
method would meet the statutory requirement for determining payment
rates on the basis of reasonable charges, the data to establish such
payment screens are unavailable. At the same time, we do not believe
that using an average per diem rate weighted on the basis of ancillary
services provided complies with the statutory requirement for
determining a rate for ancillary services based on reasonable charges.
We do not intend to adopt a reasonable charge system unless it can
provide an equitable level of reimbursement. To date, we have not been
able to develop a methodology that meets this requirement. Until we
develop an equitable system based on reasonable charges, payment for
ancillary services will continue on a cost basis. We have gathered data
for certain ancillary therapies and are in the process of evaluating
this information to determine if it would be appropriate for
establishing a rate for ancillary services based on reasonable charges.
IV. Provisions of the Final Regulations
After careful consideration of public comments, no substantive
changes have been made to the regulations. Thus, this final rule
basically adopts the provisions of the proposed rule, with several
minor clarifications that are discussed below.
In Sec. 413.304(a), (b), and (c), we have changed ``may'' receive
to ``is eligible to'' receive, in order to more clearly differentiate
between the eligibility criteria and the rules governing election to be
paid a prospectively determined payment rate under Sec. 413.308.
We have amended Sec. 413.308(b) by adding ``and the timely election
requirements under 413.308(a)'' to clarify that the SNF must meet
election, as well as eligibility, requirements. We have also changed
``determination'' to ``initial and final determinations'' for
clarification.
We have amended Sec. 413.308(c) by prohibiting an SNF from revoking
its request once the intermediary has given initial determination of
eligibility (as opposed to final determination, as stated in the
proposed rule (59 FR 29578)). The time needed to make a final
determination of the number of Medicare covered days in a cost
reporting period can extend for many months due to various factors.
Thus, we believe allowing an SNF to revoke its election until it
receives a final approval would not conform with the intent of the
statute.
We have added Sec. 413.308(d), which clarifies the intermediary's
authority to revoke the prospectively determined payment rate option if
the intermediary determines that the SNF did not meet the eligibility
criteria.
We have amended Sec. 413.310(b) by adding the term ``for routine
capital costs'' for clarification.
We have amended Sec. 413.314 by adding the term ``and qualifies for
such payment'' to clarify that in order to be paid a prospectively
determined rate, an SNF must not only elect to be paid prospectively,
but must qualify to do so.
V. Impact Statement
Unless we certify that a final rule will not have a significant
economic impact on a substantial number of small entities, we generally
prepare a regulatory flexibility analysis that is consistent with the
Regulatory Flexibility Act (RFA) (5 U.S.C. 601 through 612). For
purposes of the RFA, we consider SNFs as small entities.
In our analysis of the impact of the June 8, 1994 proposed rule, we
noted that Medicare payments to SNFs comprise only about 5.3 percent of
total SNF revenues and this rule will only have a small impact on those
revenues. Moreover, the purpose of this rule is to ease the compliance
burden for small entities, and we believe the rule will have a positive
impact on small entities. We received no comments on these issues.
Also, section 1102(b) of the Act requires the Administrator to
prepare a regulatory impact statement if a final rule has a significant
economic impact on the operations of a substantial number of small
rural hospitals. Such an analysis must conform to the provisions of
section 603 of the RFA. With the exception of hospitals located in
certain rural counties adjacent to urban areas, for purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital with
fewer than 50 beds.
We have determined, and the Administrator certified, that this
final rule will not have a significant effect on the operations of a
substantial number of small entities or on small rural hospitals.
Therefore, we have not prepared a regulatory flexibility analysis or an
analysis of the effects of this rule on small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
regulation was not reviewed by the Office of Management and Budget.
VI. Collection of Information Requirements
Sections 413.308 and 413.321 of this document contain information
collection and recordkeeping requirements that are subject to review by
the Office of Management and Budget (OMB) under the Paperwork Reduction
Act of 1980 (44 U.S.C. 3501 et seq.). When OMB approves these
provisions, we will publish a notice to that effect. The information
collection requirements in Sec. 413.321 concern the collection of
financial data of skilled nursing facilities needed to prepare the
applicable Medicare cost reports. The respondents who will provide the
information include an estimated 1,250 SNFs. Public reporting burden
for this collection of information is estimated to be 123,750 hours
during the first 12-month period that the rule will be in effect.
The information collection requirements in Sec. 413.308 concern
notification of election of prospectively determined payment rates by
each SNF to its intermediary for each cost reporting period and review
by the SNF of the intermediary's determination. The respondents who
will provide the information include the electing SNFs and their
intermediaries. Public reporting burden for these requirements is
estimated to be one half hour total for each request and review. The
total for 1,250 SNFs and their intermediaries would be approximately
625 hours.
[[Page 37594]]
List of Subjects in 42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
42 CFR chapter IV is amended as set forth below:
A. The title of part 413 is amended to read as follows:
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED NURSING FACILITIES
B. Part 413 is amended as follows:
1. The authority citation for part 413 continues to read as
follows:
Authority: Secs. 1102, 1814(b), 1815, 1833(a), (i), and (n),
1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act (42
U.S.C. 1302, 1395f(b), 1395g, 1395l(a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); sec. 104(c) of Public Law 100-
360 as amended by sec. 608(d)(3) of Public Law 100-485 (42 U.S.C.
1395ww (note)); sec. 101(c) of Public Law 101-234 (42 U.S.C. 1395ww
(note)); and sec. 13503 of Public Law 103-66 (42 U.S.C. 1395ww
(note)).
Subpart A--Introduction and General Rules
2. In Sec. 413.1, a new paragraph (g) is added to read as follows:
Sec. 413.1 Introduction.
* * * * *
(g) Prospectively determined payment rates for low Medicare volume
SNFs. Rules governing requests by SNFs for prospectively determined
payment rates under section 1888(d) of the Act are set forth in subpart
I of this part.
Subpart B--Accounting Records and Reports
3. In Sec. 413.24 the introductory text of paragraph (d), and
paragraph (h), are revised to read as follows:
Sec. 413.24 Adequate cost data and cost finding.
* * * * *
(d) Cost finding methods. After the close of the accounting period,
providers must use one of the following methods of cost finding to
determine the actual costs of services furnished during that period.
(These provisions do not apply to SNFs that elect and qualify for
prospectively determined payment rates under subpart I of this part for
cost reporting periods beginning on or after October 1, 1986. For the
special rules that are applicable to those SNFs, see Sec. 413.321.) For
cost reporting periods beginning after December 31, 1971, providers
using the departmental method of cost apportionment must use the step-
down method described in paragraph (d)(1) of this section or an ``other
method'' described in paragraph (d)(2) of this section. For cost
reporting periods beginning after December 31, 1971, providers using
the combination method of cost apportionment must use the modified cost
finding method described in paragraph (d)(3) of this section. Effective
for cost reporting periods beginning on or after October 1, 1980, HHAs
not based in hospitals or SNFs must use the step-down method described
in paragraph (d)(1) of this section. (HHAs based in hospitals or SNFs
must use the method applicable to the parent institution.) However, an
HHA not based in a hospital or SNF that received less than $35,000 in
Medicare payment for the immediately preceding cost reporting period,
and for whom this payment represented less than 50 percent of the total
operating cost of the agency, may use a simplified version of the step-
down method, as specified in instructions for the cost report issued by
HCFA.
* * * * *
(h) Waiver of full or simplified cost reporting for low program
utilization. (1) If the provider has had low utilization of covered
services by Medicare beneficiaries (as determined by the intermediary)
and has received correspondingly low interim payments for the cost
reporting period, the intermediary may waive a full cost report or the
simplified cost report described in Sec. 413.321 if it decides that it
can determine, without a full or simplified report, the reasonable cost
of covered services provided during that period.
(2) If a full or simplified cost report is waived, the provider
must submit within the same time period required for full or simplified
cost reports:
(i) The cost reporting forms prescribed by HCFA for this situation;
and
(ii) Any other financial and statistical data the intermediary
requires.
4. A new subpart I is added to read as follows:
Subpart I--Prospectively Determined Payment Rates for Skilled
Nursing Facilities
Sec.
413.300 Basis and scope.
413.302 Definitions.
413.304 Eligibility for prospectively determined payment rates.
413.308 Rules governing election of prospectively determined
payment rates.
413.310 Basis of payment.
413.312 Methodology for calculating rates.
413.314 Determining payment amounts: Routine per diem rate.
413.316 Determining payment amounts: Ancillary services.
413.320 Publication of prospectively determined payment rates or
amounts.
413.321 Simplified cost reports for SNFs.
Subpart I--Prospectively Determined Payment Rates for Skilled
Nursing Facilities
Sec. 413.300 Basis and scope.
(a) Basis. This subpart implements section 1888(d) of the Act,
which provides for optional prospectively determined payment rates for
qualified SNFs.
(b) Scope. This subpart sets forth the eligibility criteria an SNF
must meet to qualify, the process governing election of prospectively
determined payment rates, and the basis and methodology for determining
prospectively determined payment rates.
Sec. 413.302 Definitions.
For purposes of this subpart--
Area wage level means the average wage per hour for all
classifications of employees as reported by health care facilities
within a specified area.
Census region means one of the 9 census divisions, comprising the
50 States and the District of Columbia, established by the Bureau of
the Census for statistical and reporting purposes.
Routine capital-related costs means the capital-related costs,
allowable for Medicare purposes (as described in Subpart G of this
Part), that are allocated to the SNF participating inpatient routine
service cost center as reported on the Medicare cost report.
Routine operating costs means the cost of regular room, dietary,
and nursing services, and minor medical and surgical supplies for which
a separate charge is not customarily made. It does not include the
costs of ancillary services, capital-related costs, or, where
appropriate, return on equity.
Rural area means any area outside an urban area in a census region.
Urban area means a Metropolitan Statistical Area (MSA) or New
England County Metropolitan Area (NECMA), as defined by the Office of
Management and Budget, or a New England county deemed to be an urban
area, as listed in Sec. 412.62(f)(1)(ii)(B) of this chapter.
Sec. 413.304 Eligibility for prospectively determined payment rates.
(a) General rule. An SNF is eligible to receive a prospectively
determined payment rate for a cost reporting period if it had fewer
than 1,500 Medicare covered inpatient days as reported on a Medicare
cost report in its immediately
[[Page 37595]]
preceding cost reporting period. This criterion applies even if the SNF
received a prospectively determined payment rate during the preceding
cost reporting period.
(b) Less than a full cost reporting period. If the cost reporting
period that precedes an SNF's request for prospectively determined
payment is not a full cost reporting period, the SNF is eligible to
receive prospectively determined payment rates only if the average
daily Medicare census for the period (Medicare inpatient days divided
by the total number of days in the cost reporting period) is not
greater than 4.1.
(c) Newly-participating SNFs. An SNF is eligible to receive
prospectively determined payment rates for its first cost reporting
period for which it is approved to participate in Medicare.
Sec. 413.308 Rules governing election of prospectively determined
payment rates.
(a) Requirements. An SNF must notify its intermediary at least 30
calendar days before the beginning of the cost reporting period for
which it requests to receive such payment that it elects prospectively
determined payment rates. A separate request must be made for each cost
reporting period for which an SNF seeks prospectively determined
payment. A newly participating SNF with no preceding cost reporting
period must make its election within 30 days of its notification of
approval to participate in Medicare.
(b) Intermediary notice. After evaluating an SNF's request for
prospectively determined payment rates, the intermediary notifies the
SNF in writing as to whether the SNF meets any of the eligibility
criteria described in Sec. 413.304 and the timely election requirements
under Sec. 413.308(a). The intermediary must notify the SNF of its
initial and final determinations within 10 working days after it
receives all the data necessary to make each determination. The
intermediary's determination is limited to one cost reporting period.
(c) Prohibition against revocation. An SNF may not revoke its
request after it has received the initial determination of eligibility
from the intermediary and the cost reporting period has begun.
(d) Revocation by intermediary. If an SNF is given tentative
approval to receive a prospectively determined payment rate, and, after
the start of the applicable cost reporting period, the intermediary
determines that the SNF does not meet the eligibility criteria, the
intermediary must revoke the prospectively determined payment option.
Sec. 413.310 Basis of payment.
(a) Method of payment. Under the prospectively determined payment
rate system, a qualified SNF receives a per diem payment of a
predetermined rate for inpatient services furnished to Medicare
beneficiaries. Each SNF's routine per diem payment rate is determined
according to the methodology described in Sec. 413.312 and is based on
various components of SNF costs.
(b) Payment in full. The payment rate represents payment in full
for routine services as described in Sec. 413.314 (subject to
applicable coinsurance as described in Subpart G of Part 409 of this
title), and for routine capital costs. Payment is made in lieu of
payment on a reasonable cost basis for routine services and for routine
capital costs.
Sec. 413.312 Methodology for calculating rates.
(a) Data used. (1) To calculate the prospectively determined
payment rates, HCFA uses:
(i) The SNF cost data that were used to develop the applicable
routine service cost limits;
(ii) A wage index to adjust for area wage differences; and
(iii) The most recent projections of increases in the costs from
the SNF market basket index.
(2) In the annual schedule of rates published in the Federal
Register under the authority of Sec. 413.320, HCFA announces the wage
index and the annual percentage increases in the market basket used in
the calculation of the rates.
(b) Calculation of per diem rate. (1) Routine operating component
of rate--(i) Adjusting cost report data. The SNF market basket index is
used to adjust the routine operating cost from the SNF cost report to
reflect cost increases occurring between cost reporting periods
represented in the data collected and the midpoint of the initial cost
reporting period to which the payment rates apply.
(ii) Calculating a per diem cost. For each SNF, an adjusted routine
operating per diem cost is computed by dividing the adjusted routine
operating cost (see paragraph (b)(1)(i) of this section) by the SNF's
total patient days.
(iii) Adjusting for wage levels. (A) The SNF's adjusted per diem
routine operating cost calculated under paragraph (b)(1)(ii) of this
section is then divided into labor-related and nonlabor-related
portions.
(B) The labor-related portion is obtained by multiplying the SNF's
adjusted per diem routine operating cost by a percentage that
represents the labor-related portion of cost from the market basket.
This percentage is published when the revised rates are published as
described in Sec. 413.320.
(C) The labor-related portion of each SNF's per diem cost is
divided by the wage index applicable to the SNF's geographic location
to arrive at the adjusted labor-related portion of routine cost.
(iv) Group means. SNFs are grouped by urban or rural location by
census region. Separate means of adjusted labor-related and nonlabor
routine operating costs for each SNF group are established in
accordance with the SNF's region and urban or rural location. For each
group, the mean labor-related and mean nonlabor-related per diem
routine operating costs are multiplied by 105 percent.
(2) Computation of routine capital-related cost.
(i) The SNF routine capital-related cost for both direct and
indirect capital costs allocated to routine services, as reported on
the Medicare cost report, is obtained for each SNF in the data base.
(ii) For each SNF, the per diem capital-related cost is calculated
by dividing the SNF's routine capital costs by its inpatient days.
(iii) SNFs are grouped by urban and rural location by census
region, and mean per diem routine capital-related cost is determined
for each group.
(iv) Each group mean per diem capital-related cost is multiplied by
105 percent.
(3) Computation of return on owner's equity for services furnished
before October 1, 1993. (i) Each proprietary SNF's Medicare return on
equity is obtained from its cost report and the portion attributable to
the routine service cost is determined as described in Sec. 413.157.
(ii) For each proprietary SNF, per diem return on equity is
calculated by dividing the routine cost related return on equity
determined under paragraph (b)(3)(i) of this section by the SNF's total
Medicare inpatient days.
(iii) Separate group means are computed for per diem return on
equity of proprietary SNFs, based on regional and urban or rural
classification.
(iv) Each group mean is multiplied by 105 percent.
Sec. 413.314 Determining payment amounts: Routine per diem rate.
(a) General rule. An SNF that elects to be paid under the
prospectively determined payment rate system, and qualifies for such
payment, is paid a per diem rate for inpatient routine services. This
rate is adjusted to reflect area wage differences and the cost
reporting period
[[Page 37596]]
beginning date (if necessary) and is subject to the limitation
specified in paragraph (d) of this section.
(b) Per diem rate. The prospectively determined payment rate for
each urban and rural area in each census region is comprised of the
following:
(1) A routine operating component, which is divided into:
(i) A labor-related portion adjusted by the appropriate wage index;
and
(ii) A nonlabor-related portion.
(2) A routine capital-related cost portion.
(3) For proprietary SNFs only, a portion that is based on the
return on owner's equity related to routine cost, applicable only for
services furnished before October 1, 1993.
(c) Adjustment for cost reporting period. (1) If a facility has a
cost reporting period beginning after the beginning of the Federal
fiscal year, the intermediary increases the labor-related and nonlabor-
related portions of the prospective payment rate that would otherwise
apply to the SNF by an adjustment factor. Each factor represents the
projected increase in the market basket index for a specific 12-month
period. The factors are used to account for inflation in costs for cost
reporting periods beginning after October 1. Adjustment factors are
published in the annual notice of prospectively determined payment
rates described in Sec. 413.320.
(2) If a facility uses a cost reporting period that is not 12
months in duration, the intermediary must obtain a special adjustment
factor from HCFA for the specific period.
(d) Limitation of prospectively determined payment rate. The per
diem prospectively determined payment rate for an SNF, excluding
capital-related costs and excluding return on equity for services
furnished prior to October 1, 1993, may not exceed the individual SNF's
routine service cost limit. Under Sec. 413.30, the routine service cost
limit is the limit determined without regard to exemptions, exceptions,
or retroactive adjustments, and is the actual limit in effect when the
provider elects to be paid a prospectively determined payment rate.
Sec. 413.316 Determining payment amounts: Ancillary services.
Ancillary services are paid on the basis of reasonable cost in
accordance with section 1861(v)(1) of the Act and Sec. 413.53.
Sec. 413.320 Publication of prospectively determined payment rates or
amounts.
At least 90 days before the beginning of a Federal fiscal year to
which revised prospectively determined payment rates are to be applied,
HCFA publishes a notice in the Federal Register:
(a) Establishing the prospectively determined payment rates for
routine services; and
(b) Explaining the basis on which the prospectively determined
payment rates are calculated.
Sec. 413.321 Simplified cost report for SNFs.
SNFs electing to be paid under the prospectively determined payment
rate system may file a simplified cost report. The cost report contains
a simplified method of cost finding to be used in lieu of cost methods
described in Sec. 413.24(d). This method is specified in the
instructions for Form HCFA-2540S, contained in sections 3000-3027.3 of
Part 2 of the Provider Reimbursement Manual. This form may not be used
by hospital-based SNFs or SNFs that are part of a health care complex.
Those SNFs must file a cost report that reflects the shared services
and administrative costs of the hospital and any other related
facilities in the health care complex.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance)
Dated: June 30, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-17980 Filed 7-20-95; 8:45 am]
BILLING CODE 4120-01-P
