Last Updated on:
05/02/08

Fiscal Year 2006
Medicare Skilled Nursing Home
Prospective Payment System Final Rule
August 4, 2005

Click here to view the Federal Register Notice published August 4, 2005 in PDF format.

CMS has released a final rule to update the SNF Prospective Payment System (PPS) for FY 2006, as required by law. The final rule contains a number of policy changes.

The most significant policy change implements a refinement to the current Resource Utilization Groups, version III (RUG-III) case-mix classification system. CMS is:

• Expanding the number of RUGs from 44 to 53.

  • Adds 9 groups to account for the higher costs of beneficiaries requiring both rehabilitation and certain high intensity medical services.

  • The nursing case mix weights for the new groups were recalculated using the staff time data used to create the original SNF PPS relative weighting system.

  • We have not recalculated the therapy case mix weights for the nine new groups.

    • Under our current system, there are 5 therapy weights used for the 5 therapy levels: ultra high, very high, high, medium and low.

    • We will use the same case mix weights for the 9 new groups; i.e., the ultra high rehabilitation groups (RUC, RUB, RUA) will have the same case mix weight as the combined ultra high rehabilitation group/extensive care group (RUX, RUL).

  • The recalibration of the nursing case mix index has a distributional impact.

  • The RUG-III system was then standardized to ensure parity in payments under the 44-group and 53-group models.

    • Since the nursing case mix weights were recalibrated, the adjustment factor needed to maintain parity was applied to the nursing case mix weights.

    • The adjustment factor is 8.65 percent.

• Increasing the nursing case mix indices of all 53 RUG groups (i.e., the 44 existing RUG-III groups plus the 9 proposed groups) to reflect the high level of variability in non-therapy ancillary costs.

  • This adjustment is made to the nursing indices that also include non-therapy ancillary costs.

  • These changes to the nursing case mix indices result in an increase in aggregate payments under the SNF PPS. This payment adjustment will be incorporated into the RUG-III system on a permanent basis.

  • The increase to the relative weight is 8.51 percent, which amounts to a 4 percent annualized increase in aggregate spending.

    • Note: For FY 2006, the increase associated with this refinement will only be in effect for 9 months, resulting in a 3 percent increase in aggregate spending.

• The RUG refinements will be implemented January 1, 2006 and trigger the elimination of the BBRA add-on payments.

  • The add-on payments established by the Balanced Budget Refinement Act (BBRA) of 1999 will stay in effect for the first quarter of FY 2006.

  • The aggregate annual value of the temporary add-on payments is $1.4 billion. For the first quarter, the aggregate amount of the add-on payments is approximately $350 million.

  • For the remaining nine months of FY 2006, payments will be made under the new policy.

• For the entire FY 2006 rate year, payments to SNFs will be approximately $20 million higher than the FY 2005 levels.

  • The introduction of the refinements offsets approximately 50 percent of the add-on payments that are being eliminated.

  • The FY 2006 rates will be updated by a market basket increase of 3.1 percent.

• The 128 percent adjustment for SNF residents with AIDS that was enacted in the Medicare Modernization Act of 2003 (MMA) will be continued for FY 2006.

• The rule incorporates OMB's revised definitions for Metropolitan Statistical Areas (CBSAs), and its new definitions of Micropolitan Statistical Areas and Combined Statistical Areas.

  • The CBSA designations replaced the Metropolitan Statistical Area (MSA) designations that have been used since the inception of the SNF PPS.

  • The adoption of the CBSA designations follows the procedures adopted by the inpatient hospital PPS (IPPS).

  • Since wage index changes are distributional, some providers will be disadvantaged by the conversion.

  • We are implementing a one year transition policy that:

    • Provides relief for those SNFs who will get a wage index decrease in FY 2006

    • Minimizes the rate fluctuations for the majority of the SNFs which will have either a FY 2006 increase or will retain the same wage index.

  • The transition will provide for a blend of the FY 2006 MSA-based and CBSA-based wage indices; i.e., 50 percent MSA/50 percent CBSA blended rate.

  • The blended rate will be used for all SNF providers for FY 2006.

  • The full CBSA wage index will go used starting with the FY 2007 rate year.

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