Medicare Payment and Reimbursement

FY12 Skilled Nursing Facility PPS Final Rule Fact Sheet

October 18, 2012 10:34 am

On August 8, 2012, CMS issued a final rule updating payments under the Skilled Nursing Facility (SNF) prospective payment system (PPS) for fiscal year 2012 (FY12). The final rule:

  • Recalibrates the case-mix indexes to more accurately reflect parity in expenditures between RUG-IV and the previous case-mix classification system
  • Includes a discussion of a non-therapy ancillary component currently under development within CMS 
  • Discusses the impact of certain provisions of the Affordable Care Act (ACA)
  • Reduces the SNF market basket percentage by the multi-factor productivity (MFP) adjustment.  

The rule also implements certain changes relating to the payment of group therapy services and implements new resident assessment policies. The final rule is effective October 1, 2011. 


ACA Section 10325 postponed the implementation of the RUG-IV case-mix classification system, and required that the Secretary not implement the RUG-IV case-mix classification system before October 1, 2011 (FY12). On December 15, 2010, the Medicare and Medicaid Extenders Act of 2010 repealed this section, allowing CMS to implement the RUG IV classification system for all of FY11. 

SNF PPS Update

The SNF FY12 market basket increase is 2.7 percent reduced by the MFP adjustment of 1.0 percent, for a net market basket increase factor of 1.7 percent. The temporary increase of 128 percent in the per diem adjusted payment rates for SNF residents with AIDS, enacted by Section 511 of the Medicare Modernization Act
(MMA), remains in effect.  

Parity Adjustment

CMS notes that it applied an upward adjustment of 61 percent to the RUG-IV nursing case-mix indexes (CMIs) to achieve parity between the RUG-III and RUG-IV models. For FY12, CMS says the aggregate impact of the recalibration will be the difference between the increase of 61 percent for all nursing CMIs and a recalibrated increase of 19.84 percent, or a negative $4.47 billion. The negative $4.47 billion will be partly offset by the FY12 market basket adjustment factor of 1.7 percent (the 2.7 percent market basket increase reduced by a 1.0 percent ACA productivity factor), or $600 million, with a net result of a negative $3.87 billion update for FY12 (an aggregate negative impact of 11.3 percent). 


CMS says that “the recalibration discussed in the proposed rule and finalized in this final rule corrects, on a prospective basis only, the unintended excess payment that it observed for FY11. In addition, even with the recalibration, FY12 rates will still be 3.4 percent higher than FY10 rates, the period immediately preceding the introduction of RUG-IV and the unintended spike in payments.”


CMS lists the case-mix adjusted payment rates separately for urban and rural SNFs and the corresponding case-mix values in Tables 4 and 5. These tables do not reflect the AIDS add-on, which is applied only after making all other adjustments, such as wage and case-mix. 

Wage Index Adjustment to Federal Rates

CMS applies the wage index adjustment to the labor-related portion of the federal rate, which will be 68.693 percent of the total rate. This percentage is using the revised and rebased FY04-based market basket. The labor-related relative importance for FY11 was 69.311. The budget neutrality factor for this year is 1.0007. The wage index applicable to FY12 is set forth in Tables A and B, which appear in the Addendum of the rule, and is also available on the CMS website at

Other Issues

Required Disclosure of Ownership and Additional Disclosable Parties Information (Section 6101)    

ACA Section 6101 requires SNFs to make available on request by the Secretary and others certain information on ownership, including a description of the governing body and organizational structure of the relevant Medicare SNF or Medicaid nursing facility, and information regarding additional disclosable parties. CMS says that “to respond properly to all of the comments received related to the disclosure of information requirements, we will publish a separate final rule specifically addressing these provisions at a later date. In accordance with the statutory requirements of section 6101, we intend to publish that final rule early in CY12. Accordingly, we are not implementing these provisions in this SNF PPS final rule.” 

Therapy Student Supervision

CMS will, as proposed, discontinue the policy announced in the FY00 final rule’s preamble requiring line-of-sight supervision of therapy students in SNFs. Instead, effective October 1, 2011, as with other inpatient settings, each SNF will determine for itself the appropriate manner of supervision of therapy students consistent with state and local laws and practice standards. 

Group Therapy and Therapy Documentation  

CMS is finalizing its proposed policies related to group therapy effective October 1, 2011. First, CMS is defining group therapy as therapy provided simultaneously to four patients (regardless of payer source) who are performing the same or similar activities and are supervised by a therapist (or assistant) who is not supervising any other individuals.

In addition, CMS is finalizing its proposed policies related to the reporting and allocation of group therapy minutes. As is currently the procedure, the SNF will report the total unallocated group therapy minutes on the MDS 3.0. In terms of RUG-IV classification, this total time will be allocated (that is, divided) among the four group therapy participants to determine the appropriate number of reimbursable therapy minutes (RTM) and, therefore, the appropriate RUG-IV therapy group and payment level, for each participant. In addition, if one or more of the four group therapy participants are unexpectedly absent from a session or cannot finish participating in the entire group session, rather than discontinuing payment or requiring the session to be rescheduled, CMS will continue to deem the therapy session as meeting the definition of group therapy as long as the therapy program originally had been planned for four patients. In this situation, CMS will continue to assume that there are four patients, and therefore will divide the therapy minutes by four in allocating group therapy minutes among the group therapy participants. 

Changes to the MDS 3.0 Assessment Schedule and Other Medicare-Required Assessments  

CMS is finalizing its proposed policies related to the MDS Assessment Schedule, the end of therapy (EOT) other Medicare required assessment (OMRA), the end of therapy-resumption (EOT-R) OMRA, and the continuation of therapy (COT) OMRA. Specifically, effective October 1, 2011, CMS is:

  • Revising the Medicare-required assessment schedule in the manner set forth in Table 10B of the proposed rule
  • Removing the distinction between 5-day and 7-day facilities for purposes of setting the assessment reference date (ARD) for the EOT OMRA, and requiring all facilities to set the ARD for the EOT ORMA by the third consecutive calendar day after a patient’s therapy services have been discontinued
  • Permitting providers the option to complete an EOT-R OMRA rather than the optional start of therapy (SOT) OMRA in cases where the therapy resumption date is no more than 5 consecutive calendar days following the last day of therapy provided, and therapy services have resumed at the same RUG-IV classification level that had been in effect prior to the EOT OMRA 

In addition, effective October 1, 2011, CMS is requiring facilities to complete a COT OMRA for patients classified into a RUG-IV therapy category, whenever the intensity of therapy (that is, the total RTM delivered or other therapy category qualifiers, such as the number of days the patient received therapy during the week or the number of therapy disciplines) changes to such a degree that it would no longer reflect the RUG-IV classification and payment assigned for a given SNF resident based on the most recent assessment used for Medicare payment (as proposed, the need for a COT OMRA will be based on therapy services delivered during the COT observation period). In addition, as proposed, the new RUG-IV group resulting from the COT OMRA would be billed starting the first day of the COT observation period for which the COT OMRA was completed, and would remain at this level until a new assessment is completed which changes the patient’s RUG-IV classification.

Finally, the COT OMRA policy will also apply to patients who are receiving a level of therapy sufficient for classification into a therapy RUG, but are classified into a nursing RUG because of index maximization. 

Market Basket Forecast Error Adjustment
The regulations at §413.337(d)(2) provide for an adjustment to account for market basket forecast error. The difference between the estimated and actual amounts of increase in the market basket index for FY10 (the most recently available fiscal year for which there is final data) is 0.2 percent and does not exceed the 0.5 percentage point threshold. The payment rates for FY12 do not include a forecast error adjustment. 

For More Information

Read the final rule, published in the August 8, 2011,  Federal Register.

Content for this fact sheet was extracted from Washington Perspectives, published by Larry Goldberg, Oakton, VA.


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