CMS Issues FY 2014 Payment Rates Used Under the SNF Prospective Payment System

CMS has released a final rule updating the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2014. The final rule is scheduled to be published in the Federal Register on August 8, 2013. The final rule updates the SNF PPS rates contained in the final rule for FY 2013 (77 FR 46214, August 2, 2012) and as previously proposed on May 6, 2013 (78 FR 26438). The final rule is effective October 1, 2013.

Additional Changes

In addition to updating the payment rates used under the PPS for SNFs for FY 2014, the final rule revises and rebases the SNF market basket; revises and updates the labor-related share; sets forth a policy for reporting the SNF market basket forecast error in certain limited circumstances; adds a new item to the Minimum Data Set (MDS), Version 3.0, for reporting the number of distinct therapy days; adopts a change to the diagnosis code used to determine which residents will receive the Acquired Immune Deficiency Syndrome (AIDS) add-on payment, effective for services provided on or after the October 1, 2014, implementation date for conversion to ICD-10-CM; and makes technical and conforming revisions to CMS regulations.

Summary of Projections

CMS projects that the overall estimated payments for SNFs in FY 2014 will increase by $470 million, or 1.3 percent, compared with those in FY 2013. For SNFs in urban and rural areas, CMS estimates that they will experience, on average, a 1.4 and 1.0 percent increase, respectively, compared to FY 2013. Providers in the rural Pacific region will experience the largest estimated increase in payments (approximately 2.8 percent), while providers in the rural West South Central region will experience the smallest increase in payments (0.4 percent).

SNF Payment Increase

The 1.3 percent increase was based on a FY market basket update factor of 2.3 percent. CMS adjusted the market basket update factor to reflect the forecast error from the most recently available FY for which there was final data (FY 2012). Since the forecasted FY 2012 SNF market basket percentage change exceeded the actual FY 2012 SNF market basket percentage change by more than the 0.5 percentage point threshold, the FY 2014 market basket update factor of 2.3 percent was adjusted downward by the difference, which reduced the FY 2014 market basket update factor to 1.8 percent. In addition, CMS reduced the market basket percentage by the multifactor productivity (MFP) adjustment (the 10-year moving average of changes in MFP for the period ending September 30, 2014) of 0.5 percent. The resulting MFP-adjusted SNF market basket update was equal to 1.3 percent or 1.8 percent less 0.5 percentage point.

Labor-Related Share

CMS defines the labor-related share (LRS) as those expenses that are labor-intensive and vary with the local labor market. Each year, CMS calculates a revised LRS based on the relative importance of labor-related cost categories in the input price index. This final rule updates and revises the LRS effective October 1, 2013, to reflect the relative importance of the following FY 2010-based SNF market basket cost weights that CMS believe are labor intensive and vary with, or are influenced by, the local labor market: (1) wages and salaries; (2) employee benefits; (3) contract labor; (4) the labor-related portion of nonmedical professional fees; (5) administrative and facilities support services; (6) all other labor-related services (previously referred to in the FY 2004-based SNF market basket as labor-intensive); and (7) a proportion of capital-related expenses.

Minimum Data Set (MDS)

The rate setting methodology used by CMS incorporates an adjustment to account for case-mix, using a classification system that accounts for the relative resource utilization of different patient types. The case-mix classification is based, in part, on the beneficiary’s need for skilled nursing care and therapy services. The case-mix classification system uses clinical data from the MDS to assign a case-mix group to each patient that is then used to calculate a per diem payment under the SNF PPS. The payment rates set forth in this final rule reflect the use of the Resource Utilization Groups, Version 4 (RUG-IV) case-mix classification system from October 1, 2013, through September 30, 2014. CMS lists these case-mix adjusted RUG-IV payment rates, provided separately for urban and rural SNFs, in Tables 5 and 6 of the final rule with corresponding case-mix values. These tables, however, do not reflect the add-on for SNF residents with AIDS, discussed below, which CMS applies only after making all other adjustments (including the wage index and case-mix adjustments).

AIDS Add-On Payment

Section 511 of the Medicare Modernization Act (MMA) amended Soc. Sec. Act sec. 1888(e)(12) to provide for a temporary increase of 128 percent in the PPS per diem payment for SNF residents with AIDS to reflect increased costs associated with these residents. Currently, CMS uses the International Classification of Diseases, 9th revision, Clinical Modification (ICD-9-CM) code 042 to identify those residents for whom it is appropriate to apply the AIDS add-on. In the FY 2014 SNF PPS proposed rule (78 FR 26438, 26444), with regard to the above-referenced ICD-9-CM diagnosis code of 042, CMS proposed to transition to the equivalent ICD-10-CM diagnosis code of B20 in order to identify those residents for whom it is appropriate to apply the AIDS add-on. CMS received only one comment referencing this proposal, and the comment simply acknowledged the proposal without offering any specific observations. As a result, in this final rule, CMS finalized this proposal without modification.