RULES AND REGULATIONS
Title 55--PUBLIC WELFARE
DEPARTMENT OF PUBLIC WELFARE
[55 PA. CODE CH. 1187]
Nursing Facility Services; Metropolitan Statistical Area
[35 Pa.B. 4612] The Department of Public Welfare (Department), under the authority of sections 201(2), 206(2), 403(b), 443.1(5) and 454 of the Public Welfare Code (code) (62 P. S. §§ 201(2), 206(2), 403(b), 443.1(5) and 454), as amended by the act of July 7, 2005 (P. L. 177, No. 42) (Act 42), amends § 1187.94 (relating to peer grouping for price setting) to read as set forth in Annex A.
Act 42 amended, among other things, provisions of the code regarding payment for nursing facility services under the Medical Assistance (MA) Program. More specifically, Act 42 added paragraph (5) to section 443.1 of the code. This new paragraph provides that on or after July 1, 2004, and until regulations are otherwise adopted by July 1, 2006, payments to MA nursing facility providers shall be calculated and made as specified in the Department's regulations in effect on July 1, 2003, except as may be otherwise required by the Commonwealth's approved Title XIX plan for nursing facility services and regulations promulgated by the Department under section 454 of the code.
Section 454, which was also added to the code by Act 42, authorizes the Department to promulgate regulations to establish provider payment rates. Section 454 of the code specifies that, until December 31, 2005, notwithstanding any other provision of law including section 814-A of the code (62 P. S. § 814-A), provider payment rate regulations must be promulgated under section 204(1)(iv) of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. § 1204(1)(iv)), known as the Commonwealth Documents Law (CDL), which permits an agency to omit or modify proposed rulemaking when the regulation pertains to Commonwealth grants or benefits. In addition, section 454 of the code expressly exempts these provider payment rate regulations from review under the Regulatory Review Act (71 P. S. §§ 745.1--745.15), and from review by the Attorney General under section 205 of the CDL (45 P. S. § 1205) and section 204(b) of the Commonwealth Attorneys Act (71 P. S. § 732-204(b)).
Justification for Adoption of Final-Omitted Rulemaking
In accordance with sections 443.1(5) and 454 of the code, the Department is adopting the final-omitted rulemaking because:
* As recognized by section 454(b) of the code, the final-omitted rulemaking regards MA provider payments, which are Commonwealth grants or benefits.
* The final-omitted rulemaking regards payments for MA nursing facility services provided on or after July 1, 2004.
* The final-omitted rulemaking is necessary to conform the Department's regulations to the Commonwealth's approved State Plan for nursing facility services.
Purpose
The Department is amending § 1187.94 to specify that the Department will use the Metropolitan Statistical Areas (MSA) group classification published in the Federal Office of Management and Budget (OMB) Bulletin No. 99-04 (relating to revised statistical definitions of Metropolitan Areas and guidance on uses of Metropolitan Area definitions) to classify nursing facilities into peer groups instead of the most recent MSA group classification published on or before April 1 of each year. This final-omitted rulemaking conforms § 1187.94 to the Commonwealth's approved State Plan for nursing facility services.
Background
Under its case-mix payment system regulations, the Department computes net operating peer group prices annually using the nursing facility cost report data available in the Nursing Home Information System database. See § 1187.94 and § 1187.95 (relating to general principles for rate and price setting). The Department's case-mix regulations specify that, in setting net operating prices, the Department will classify each nursing facility participating in the MA Program, except those nursing facilities that meet the definition of a ''hospital-based nursing facility'' or ''special rehabilitation facility'' as defined in § 1187.2 (relating to definitions), into one of 12 mutually exclusive peer groups based on MSA group classification and the nursing facility's certified bed complement. See § 1187.94(1). The regulations further state that ''the Department will use the most recent MSA group classification, as published by the OMB on or before April 1 of each year'' to make the peer group classifications. See § 1187.94(1)(i).
Prior to 2003, the OMB categorized MSAs into three levels based on the total population of the counties in the MSA: Level A (areas with a total population of 1 million or more); Level B (areas with a total population of 250,000 to 999,999); and Level C (areas with a total population of 100,000 to 249,999). The Department's case-mix payment system regulations, § 1187.94(1)(iii), make explicit reference to the three MSA groups (A, B and C) in identifying the 12 peer groups into which nursing facilities are classified under the case-mix payment system.1
On June 6, 2003, the OMB published OMB Bulletin No. 03-04 (relating to revised definitions of Metropolitan Statistical Areas, new definitions of Micropolitan Statistical Areas and Combined Statistical Areas, and guidance on uses of the statistical definitions of these areas) that revised the definitions of MSAs. In publishing these revised MSA definitions, the OMB added definitions for ''Micropolitan Statistical Areas'' and ''Combined Statistical Areas'' based on Federal Census Bureau data derived from the 2000 census. However, the OMB eliminated the use of the MSA group levels A, B and C that are specifically referenced in § 1187.94(1)(iii).
The OMB's elimination of the three MSA group levels made it impossible for the Department to apply the existing language of § 1187.94(1) in classifying nursing facilities into peer groups. More specifically, the Department could not use the most recent MSA group classifications published by the OMB, as required by § 1187.94(1)(i), and also classify nursing facilities into the 12 peer groups identified in § 1187.94(1)(iii). To address this problem, the Department undertook the necessary steps to amend both the Commonwealth's approved State Plan and the language of § 1187.94.
The Department published an advance public notice at 34 Pa.B. 1863 (April 3, 2004) announcing its intent to amend its State Plan to specify that, for rates effective July 1, 2004, the Department will use the MSA group classifications published in OMB Bulletin No. 99-04 and inviting public comment. To ensure the July 1, 2004, effective date, the Department submitted a proposed State Plan Amendment to the Federal Centers for Medicare and Medicaid Services (CMS) on June 11, 2004. Subsequently, while the proposed State Plan Amendment was pending with the CMS, the Department published a proposed rulemaking at 34 Pa.B. 4465 (August 14, 2004) to make a corresponding change in § 1187.94 and again invited interested parties to comment.
On January 27, 2005, the CMS notified the Department that the State Plan Amendment incorporating the provisions of this final-omitted rulemaking into the Commonwealth's State Plan was approved effective July 1, 2004. This final-omitted rulemaking now conforms the text of § 1187.94 to the approved State Plan.
Affected Individuals and Organizations
Nursing facilities enrolled in the MA Program are affected by this rulemaking, except nursing facilities that meet the definition of ''hospital-based nursing facility'' or ''special rehabilitation facility'' in § 1187.2. This final-omitted rulemaking simply preserves the manner in which peer groups are classified under the existing case-mix payment system and therefore has a neutral effect on nursing facility reimbursement rates.
Accomplishments and Benefits
The Department is amending § 1187.94(1)(i) in conformity with the Commonwealth's approved Title XIX State Plan to specify that the Department will use the MSA group classification published in OMB Bulletin No. 99-04 to place nursing facilities into peer groups. By using the MSA classification in OMB Bulletin No. 99-04, the Department maintains the historical MSA groups which classify each MA nursing facility as MSA A, B or C or as non-MSA. Although the language of § 1187.94 is amended, the effect of this final-omitted rulemaking is to preserve the status quo. The final-omitted rulemaking enables the case-mix payment system to continue to take into account variables that may impact the cost of providing nursing facility services while maintaining reasonable and appropriate reimbursement rates to nursing facility providers.
Fiscal Impact
No fiscal impact will result from this final-omitted rulemaking since the effect is to preserve the status quo by maintaining the same MSA group classification method which the Department has used to assign nursing facilities into peer groups since the case-mix payment system was implemented in January 1996. No cost to the Commonwealth, local government, general public or nursing facility providers is anticipated as a result of this final-omitted rulemaking.
Paperwork Requirements
No new or additional paperwork requirements result from adoption of this final-omitted rulemaking.
Public Comment
On November 26, 2003, and December 23, 2003, the Department met with representatives of the four nursing home associations, Pennsylvania Association of Non-Profit Homes for the Aging, Pennsylvania Health Care Association, Hospital and Healthsystem Association of Pennsylvania and Pennsylvania Association of County Affiliated Homes, to discuss the implications of the Federal changes to the MSA definitions and whether the Department should adopt the changes for rate-setting purposes. The Department also discussed and solicited comments on the proposed changes at the Long-Term Care Subcommittee of the Medical Assistance Advisory Committee (MAAC) on February 11, 2004, April 14, 2004, October 13, 2004, and December 1, 2004.
As previously noted, the Department published an advance public notice at 34 Pa.B. 1863, announcing its intent to amend its State Plan and to specify that the Department will use the MSA group classifications published in OMB Bulletin No. 99-04. The Department provided for a 30-day comment period on the proposed amendment to the State Plan. The Department received a total of five comment letters in response to the notice. After receipt and consideration of these comments, the Department submitted a proposed State Plan Amendment to the CMS to change the Commonwealth's approved State Plan.
While the proposed State Plan Amendment was pending with the CMS, the Department published a proposed rulemaking at 34 Pa.B. 4465. The Department received a total of 12 public comment letters regarding the proposed rulemaking. Comments were also received from the Independent Regulatory Review Commission (IRRC) and a State Senator.
Subsequent to the publication of the proposed rulemaking, the General Assembly enacted Act 42 directing the Department to promulgate provider payment rate regulations in accordance with Act 42. Although not required by Act 42, the Department considered all public comments received in response to its advance public notice and proposed rulemaking.
Discussion of Comments and Major Changes
Following is a summary of the comments received by the Department following publication of the advance public notice and the proposed rulemaking and the Department's response to those comments.
§ 1187.94 Peer grouping for price setting.
Comment
Two nursing facility associations sent comments endorsing the proposed rulemaking. They believed that the use of the new OMB classifications for peer grouping purposes would create significant disruption and hardship in the nursing facility provider community.
Response
The Department initiated discussions with affected stakeholders regarding a more comprehensive overhaul of the case-mix payment system in early 2004. Until those discussions are completed and larger systemic reforms are developed and adopted, the Department agrees with the associations that this amendment creates the least amount of disruption and hardship in the nursing facility provider community. Before publishing both the proposed and final rulemaking, the Department analyzed the potential reimbursement impact of adopting the new MSA definitions for peer-grouping purposes using the various rate-setting databases that were available. Each analysis confirmed that, while some providers would benefit if the new definitions were used, the majority of nursing facility providers would suffer some adverse impact--the payment rates of the majority of nursing facility providers would be reduced if the Department used the new Federal definitions to assign nursing facilities to peer groups. The Department determined that maintaining the historical MSA group classification and, thereby preserving the status quo, was a more preferable alternative than reducing the payment rates of the majority of nursing facility providers. Therefore, the Department finds that this approach is consistent with the best interests of consumers and the MA Program.
Comment
Several commentators disagreed with the Department's position that the June 2003 OMB MSA changes made it impossible for the Department to apply its existing peer grouping regulation. The commentators suggested that the Department can implement the OMB Bulletin No. 03-04 MSA changes within current regulatory language. They claimed that OMB Bulletin No. 03-04 does not eliminate MSA Group Levels or repeal the MSA Group Level criteria defined by the OMB's 1990 standards. Although the commentators acknowledged that the OMB no longer includes Group Level classifications A--D in the updated MSAs, they contended that the Group Level classifications can be incorporated by reference to known population data, publicly available from the Census Bureau and the 1990 standard criteria. The commentators suggested that the Department issue an interpretation of general applicability adopting their proposed construction of the existing regulation instead of amending the regulation as specified in the proposed rulemaking.
Response
The Department disagrees with the commentators. Prior to 2003, the OMB used a grouping system that classified MSAs into ''Group A,'' ''Group B'' and ''Group C.'' However, as plainly stated in its June 3, 2003, notice, the OMB abandoned the A-B-C grouping system and has, instead, begun using a new classification system.
As previously noted, Department regulations make explicit reference to the A-B-C grouping system by requiring the Department to classify nursing facilities into peer groups based in part on whether they are located in MSA Groups A, B, C or in a non-MSA Group. See § 1187.94(1)(iii). As written, therefore, the clear intent of the regulation was to incorporate the A-B-C grouping system that was in effect at the time the case-mix regulations were adopted while recognizing modifications in classifications under that grouping system.
When the OMB ceased using the A-B-C grouping system as of June 3, 2003, the Department determined that § 1187.94(1)(i) and (iii) was plainly inconsistent in that subparagraph (i) requires the Department to use the most recent OMB MSA group classification while subparagraph (iii) requires the Department to classify facilities based upon the now defunct A-B-C grouping system. Consequently, the Department determined that the regulation was impossible to apply as written. After consulting with representatives of all nursing home associations, the Department proposed to eliminate that inconsistency by amending the State Plan and its regulations to expressly require the determination of peer groups to be based upon the last OMB MSA group classification that still used the A-B-C grouping system. This final-omitted rulemaking adopts the necessary amendment. Its effect is to maintain the status quo in a manner that is consistent with the original intent of the regulation and that conforms to the Commonwealth's approved State Plan.
Even if the Department were to accept the commentators' position that § 1187.94(1) may be applied unchanged, despite the OMB's elimination of the A-B-C grouping system, the Department would still proceed with the amendment. Act 42 requires, among other things, that the Department calculate and make payments to providers are required by the Commonwealth's approved State Plan. This final-omitted rulemaking ensures that result. Moreover, as previously discussed, the Department has determined that the payment rates of a majority of nursing facilities would be reduced if the Department were to take the approach recommended by the commentators. To avoid this result, the Department has concluded that maintaining the existing MSA classifications is warranted and appropriate.
Comment
IRRC and several commentators raised concern that the proposed rulemaking is inconsistent with the design of the case-mix system and that nursing facility providers located in areas that have undergone significant economic changes are being denied the rate recognition of those changes. They suggested that the proposed amendment deprives nursing facility providers with atypical labor-related costs of any opportunity for reclassification and fails to consider relevant factors supporting reclassification. The commentators noted that the Medicare Program decided to implement the OMB MSA updates in determining payment rates for inpatient hospital programs and suggested that the Department take the same approach because they believed that the new MSA group classifications more accurately reflect current costs associated with operating a nursing facility.
Response
The Department disagrees with the commentators' view that the existing peer groups do not accurately classify providers or recognize provider costs. Although not required by either State or Federal law, historically, the Department has used MSA classifications to peer group nursing facilities for rate-setting purposes to account for variables that may impact the cost of providing nursing facility services. When the OMB issued its new MSA definitions in June 2003, however, the OMB recommended that the new definitions not be used for the development or implementation of any Federal, state or local nonstatistical programs without full consideration of the effects that the changes would have on the programs. Following the OMB's recommendation, the Department analyzed and considered the implications of adopting the new Federal definitions and using 2000 census data to establish peer groups.
For analysis and comparison purposes, each county was assigned to a new 2000 MSA group based on the 2000 OMB MSA definitions and the 1990 OMB level A, B and C subgroups definitions. Census data from 2000 for the counties were used to determine the subgroups. This approach resulted in six counties (Armstrong, Columbia, Lebanon, Mercer, Pike and Somerset) changing from their 1990 MSA group to a different 2000 MSA group.
Using the databases compiled for Year 8 (Fiscal Year (FY) 2002-03) and Year 9 (FY 2003-04), the Department then calculated rates for the nursing facilities in the reconfigured peer groups and compared those rates to the rates it had computed for the nursing facilities using the existing peer groups. The Department determined that the payment rates of more than 400 nursing facilities would be reduced in both rate years. Although the Department has not set final payment rates for Year 10 (FY 2004-05) pending the publication of this final-omitted rulemaking, the Department's preliminary estimates using the Year 10 database indicate the same trend would continue-more than 400 nursing facilities would have lower payment rates in Year 10 if the Department were to use the new MSA definitions and census data.
In addition to determining the impact on payment rates, the Department also evaluated the implications of both maintaining the existing peer groups and reconfiguring the peer groups using the new MSA definitions and 2000 census data from a cost perspective. Prior to publishing both the proposed rulemaking, the Department conducted an analysis of labor costs related to direct care staff as reported by nursing facilities on their MA cost reports. Labor costs represent the biggest portion of the Resident Care component of nursing facility case-mix payment rates. The Resident Care rate component is, in turn, the single largest component of payment rates, typically accounting for over 60% of the total nursing facility payment rates.
To conduct the labor cost analysis, nursing facilities' reported labor costs were compiled and summarized by county and by MSA group. For each of the affected six counties (Armstrong, Columbia, Lebanon, Mercer, Pike and Somerset), the median labor costs for the county were compared to the median labor costs for both the county's 1990 MSA group and 2000 MSA group. The data indicated that the 1990 MSA groups were more representative of labor costs for the six affected counties than the 2000 MSA groups.
Given that use of the new definitions and data would adversely impact the majority of providers and that use of the existing peer groups would continue to properly account for labor cost variables, the Department has concluded that it is in the best interests of consumers, nursing facility providers and the MA Program to maintain the historical MSA classifications while the Department and affected stakeholders undertake a more comprehensive review of the case-mix payment system.
Comment
Several commentators from Armstrong County alleged that the proposed rulemaking will have ill effects on facilities in their county. The Armstrong County Health Center (ACHC) claimed that it may lose approximately $200,000 to $500,000 per year by being kept at the rural MSA designation and that the proposed amendment will harm the quality of care of the residents and the quality of life of the caregivers at ACHC. The Armstrong County commentators also suggested that Armstrong County's close proximity to Pittsburgh creates a competitive job market, especially for professional and licensed personnel, and that the proposed rulemaking ignores the economic realities of their county. They claimed that Armstrong County is being discriminated against based solely on the population of the county and an arbitrary formula that rewards counties smaller than Armstrong County. Another commentator suggested that the Department ignored impact analysis provided on behalf of nursing facilities in the affected counties that demonstrate that they will receive significant payment increases if the new MSA definitions are used. The commentators opposed adoption of the proposed rulemaking because they believe that it would permit the Department to ignore its regulations and the changes in OMB MSA designations for Armstrong County and the other affected counties.
Response
The Department does not dispute that the three MA nursing facility providers in Armstrong County, including ACHC, as well as some nursing facility providers in other affected counties, would receive increased payment rates if the Department were to adopt the new MSA definitions and use 2000 census data to peer group nursing facilities. That these nursing facilities would receive higher rates if peer groups were reconfigured, however, does not mean that the nursing facilities will receive payment rates that are unreasonable or inadequate if the existing peer group classification system is maintained. In evaluating whether to adopt the new MSA definitions, the Department must consider the overall impact on MA nursing facility providers, and not just the impact on nursing facilities in the affected counties. In this instance, the Department has concluded that the adverse rate impact that would be felt by the majority of nursing facilities must outweigh the beneficial impact to the remaining nursing facilities even though the Department recognizes that, for a very few nursing facilities, that beneficial impact may be substantial.
The Department also disagrees that Armstrong County nursing facilities' costs are more like the costs of Allegheny County nursing facilities than those of nursing facilities in their existing peer group. As previously noted, the Department's cost analysis indicates that median labor costs for Armstrong County are more typical of the median labor costs of the county's 1990 MSA group, than the county's reconfigured 2000 MSA group, which would include Allegheny County. In addition, the Department's preliminary estimates using the Year 10 database and maintaining the existing MSA classifications indicate that 12 of the 15 MA nursing facility providers in Armstrong, Mercer and Pike Counties with audited costs in the database will receive payment rates that exceed their average inflated per diem costs. Nine of those 15 facilities have average inflated cost per diems that are less than the estimated prices for their existing peer group in all three net operating categories and all but 1 of the 15 have average resident care cost per diems that are less than the resident care price for their peer group. Thus, the Department finds that payment rates under the existing peer grouping methodology for nursing facilities in the affected counties, including all three Armstrong County nursing facilities, are both reasonable and adequate.
Comment
IRRC and several commentators raised concern that the proposed July 1, 2004, effective date of the rulemaking was inconsistent with § 1187.95(a) which requires prices and rates to be established prospectively prior to the beginning of the rate-setting year. In addition, the commentators suggested that providers' right to receive payments vested on July 1, 2004, and the Department is improperly attempting to change the providers' vested rights retroactively by adopting the amendment to its regulation. The commentators also claimed that Federal law prohibits the Department from making the amendment effective July 1, 2004.
Response
The Department disagrees with the commentators' view that the final-omitted rulemaking will deprive them of any vested rights to payment. The commentators' view is based upon the faulty premise that the existing regulatory language requires the Department to use the June 2003 OMB classification without regard to the fact that the classification no longer uses the A-B-C grouping system required by Department regulations. As previously discussed, the regulation does not require the use of that classification. Therefore, the change made by this final-omitted rulemaking will not affect any vested property rights. By amending § 1187.94 to make OMB Bulletin No. 99-04 the standard for determining MSA groupings, the Department is merely preserving the status quo and ensuring that no further changes on the part of OMB can disrupt the case-mix payment system.
The Department also disagrees with the commentators' suggestions that the July 1, 2004, effective date is prohibited by Federal law or other Department regulations. As required by Federal law, the Department undertook a public process before adopting the amendment to § 1187.94(1). After the OMB published its new MSA definitions in June 2003, the Department analyzed the change, developed a recommendation, drafted proposed regulations and discussed the change with the Long-Term Care Subcommittee of the MAAC and the nursing facility industry. Subsequently, the Department published an advance public notice in the Pennsylvania Bulletin announcing its intent to amend the method by which peer groups are established under the case-mix payment system. On June 11, 2004, the Department submitted the necessary State Plan amendment to the CMS to make a corresponding change in the Commonwealth's State Plan. The Department notes, however, that applicable Federal regulations specifically permit a State Plan amendment to be ''retroactively'' effective to the first day of the calendar quarter in which an approvable amendment is submitted. See 42 CFR 447.256(c) (relating to procedures for CMS action on assurances and State plan amendments). Therefore, the Department could have submitted its State Plan Amendment as late as September 30, 2004, and still maintained the July 1, 2004, effective date. Ultimately, the CMS approved the State Plan amendment authorizing the Department to make the change in its methods and standards for payment of MA nursing facility services effective with the FY 2004-05.
The Department also disagrees with the commentators' suggestion that the amendment is precluded by other Department regulations which specify the time period in which the Department generally computes rates. This final-omitted rulemaking eliminates an inconsistency in the regulatory language and enables the Department to issue nursing facility provider payment rates for FY 2004-05.
Comment
A commentator raised concern that the proposed amendment, which effectively freezes nursing facility peer groups, would preclude the Department from making realignments based on later updates to OMB MSA assignments, or permitting ''good cause'' reclassifications of facilities or counties, such as those permitted under the Medicare payment methodology for inpatient hospital providers. The commentator also claimed that the amendment would preclude the Department's consideration of the new reclassification system for Medicare SNFs which will be developed in accordance with section 315 of the Federal Benefits Improvements and Protections Act (BIPA) of 2000 (Pub. L. No. 106-554). The commentator suggested that the Medicare reclassification system could significantly dampen the negative impact of the new MSA definitions on rural providers. The commentator also suggested that the Department's cost-based mandate is best met when the Department retains flexibility in the rate-setting and price-setting process.
Response
As previously noted, the Department and stakeholders have already begun discussions aimed at effecting a more comprehensive review and overhaul of the case-mix payment methodology. As part of that process, the Department expects that, together with stakeholders, it will evaluate whether and how nursing facilities should be assigned to peer groups. Among other things, the Department expects to consider whether the new Medicare SNF reclassification system, developed under section 315 of BIPA, is appropriate for the Pennsylvania MA Program. The Department will also explore and consider other alternatives which may be proposed by consumers and providers, including alternatives that permit ''good cause'' reclassifications. This amendment merely preserves the status quo while that review and evaluation process takes place and is not intended to forever fix the method by which the Department groups nursing facilities for rate-setting purposes.
Comment
The commentator recommended that, as an alternative to the proposed amendment, the Department consider another solution which would preserve the existing MSAs but allow for facilities to be placed in a different MSA as a result of the June 6, 2003, OMB reclassification. The commentator suggested amending § 1187.94(1)(i) as follows: ''the Department will use the MSA group classifications published in the Federal OMB Bulletin 99-04 to classify each nursing facility into one of three MSA groups (Level A, B, or C) or into one non-MSA group; except facilities in any county that, as of April 1, 2004, was defined by OMB to be located in and not combined with an MSA other than the one with which it was classified in OMB Bulletin No. 99-04, shall be assigned to the MSA group classification of such other MSA in OMB Bulletin No. 99-04. (This results in recognizing the changes to MSAs in OMB Bulletin No. 03-04 for Armstrong, Mercer and Pike but not the shifts to 'lower' MSA groups for Columbia, Lebanon or Somerset Counties).''
Response
The Department appreciates the commentator's attempt to minimize the adverse impacts resulting from the use of the new definitions. However, the Department's analysis of the commentator's ''grandfathering'' alternative indicates that it would still result in reduced payment rates to over 400 nursing facility providers. For the same reasons previously noted, the Department does not believe that the suggested alternative is appropriate.
In addition to the commentator's ''grandfathering'' alternative, the Department also evaluated and considered the adoption of a ''hold harmless'' alternative whereby each nursing facility would receive the higher of the rate calculated for the nursing facility using existing peer groups or the rate calculated using reconfigured peer groups based upon the new MSA definitions and census data. The Department calculated that this alternative would result in $3.8 million in increased costs to the MA Program in the first year and that the costs would continue to increase in subsequent years. The Department does not have sufficient funds available to cover these increased costs. In addition, the Department also determined that the ''hold harmless'' alternative, which would require double rate and price calculations, would be administratively burdensome to implement and could be error-prone. For these reasons, the Department determined that a ''hold harmless'' provision would not be appropriate for the MA Program.
Comment
A commentator suggested that the Department should amend § 1187.95(a)(3) to read as follows: ''If a nursing facility changes bed size after prices have been set and prior to the following April 1, the prices and rates for the nursing facility will continue to be based on the nursing facility's bed size prior to such changes until June 30 after the changes but the nursing facility shall be reassigned to a peer group based on the changes in bed certification for price and rate setting as of July 1 after the changes. If a nursing facility changes bed size after prices have been set but after the following April 1, the prices and rates for the nursing facility will continue to be based on the nursing facility's classification prior to the changes until June 30 of the following calendar year but the nursing facility shall be assigned to a peer group based on the changes in bed certification for price and rate setting as of July 1 thereafter. [This eliminates references to changes in MSA Group from the regulation].''
Response
The Department does not find that there is any need to change the language of § 1187.95(a)(3). Section 1187.95(a)(3) specifies that ''If a nursing facility changes bed size or MSA group, the nursing facility will be reassigned from the peer group used for price setting to a peer group based upon bed certification and MSA group as of April 1, for rate setting.'' The Department recognizes that, with the adoption of this final-omitted rulemaking, it is unlikely that a nursing facility will change its MSA group, although it may be possible if, for example, the nursing facility relocates its operation from one county to another. The Department notes that it is more likely and very possible, however, that the number of certified beds in a nursing facility may change in a way that affects the nursing facility's peer group assignment. In these instances, § 1187.95(a)(3) explains how the Department will group the nursing facility for price-setting and rate-setting.
Comment
Several commentators noted that the impact analysis contained in the Department's advance public notice and proposed rulemaking were based upon calculations made by the Department using the Year 8 FY 2002-03 rate-setting database rather than the database that the Department will use to set rates effective July 1, 2004 (Year 10). The commentators contended that the Department's failure to use the Year 10 database renders its impact analyses flawed and inaccurate. The commentators also complained that the Department refused to make the Year 10 database available for public review and use in connection with this rulemaking process. They claimed that, without access to the Year 10 database, they have been unable to ''meaningfully comment'' on the proposed amendment.
Response
The Department disagrees with the commentators' suggestion that its impact analyses are inaccurate or flawed. The Department used the data that was available to it during the course of this rulemaking process, and has analyzed the impact of using the new MSA definitions and 2000 census data with the Year 8, Year 9 and Year 10 databases as each of those databases was compiled. Each analysis yielded the same result. As previously noted and discussed, a clear majority of providers would suffer payment rate reductions if the Department reconfigures peer groups using the new MSA definitions and 2000 census data.
The Department also disagrees with the suggestion that commentators have been denied the opportunity for meaningful comment because they did not have access to the Year 10 database. Generally, it has been the policy of the Department to make its rate-setting databases available to the public at the time it issues rates and prices for a fiscal year. During the course of this rulemaking process, the Department posted its Year 8 and Year 9 databases on its website. The commentators had access to and submitted various analyses to the Department based upon that data. The Department recently made its Year 10 database available on its website for interested parties to download. Although this database may not have been available to commentators during the rulemaking process, the Department nonetheless received numerous thoughtful comments in response to its advance public notice and notice of proposed rulemaking. Notably, the same commentators who claim to have been denied the opportunity for meaningful comment submitted lengthy substantive comments on the Department's proposed amendment and offered alternative proposals to the Department for consideration. The Department considered all of the comments and alternative proposals it received.
Comment
A commentator noted that an impact analysis conducted by the Bureau of Long Term Care Programs indicated that the use of the new OMB MSA classifications would result in cost-savings to the MA Program of approximately $1 million. The commentator stated that the proposed rulemaking did not address this impact analysis or possible savings from the use of alternatives, but indicated instead that the proposed amendment would have no fiscal impact if adopted. The commentator suggested that the Bureau's own impact analysis demon-strates that the Department's proposed rulemaking has a fiscal impact which differs from the ''no impact'' described in the preamble to the proposed rulemaking.
Response
The Department has repeatedly acknowledged that the use of the new MSA definitions and census data would result in payment rate reductions for the majority of nursing facility providers. If these payment rate reductions were implemented, the Department estimates that payments in Year 10 would decline overall by approximately $1.3 million. The Department considered this estimate, as well as its previous estimates, which were computed based upon the earlier databases. These estimates identify the potential fiscal impact of changing the payment methodology to specifically incorporate the new MSA definitions and census data, not the impact of the amendment.
The Department determined that it should not adopt the new MSA definitions but should instead amend its regulations to expressly maintain the status quo in the geographic peer groups. As previously discussed, the Department concluded that maintaining the status quo would cause less disruption in the provider community, would continue to group similarly located nursing facilities and was a more preferable alternative for the MA Program. Because the Department is maintaining the status quo by adopting this amendment, the Department correctly stated that there is no fiscal impact associated with the final-omitted rulemaking.
Comment
A commentator noted that the populations of Somerset and Carbon Counties are below the 100,000 minimum required for a Level C classification. However, the Department designated those counties as MSA Level C in the proposed rulemaking. The commentator asked the Department to explain why these two counties have Level C status when they do not meet the necessary population requirements. The same commentator also noted that the proposed rulemaking describes the Level B group as having a population of 250,000 to 999,999 and Level C group as having population of 100,000 to 249,000. The commenter pointed out that counties with populations between 249,000 and 250,000 were not addressed and asked at which level these counties would be assigned.
Response
The Department notes that the Level C population range was identified in the proposed rulemaking as 100,000 to 249,000. This was an error. The correct population for Level C should have read 100,000 to 249,999. In determining the correct MSA level for a group, each county does not have to meet the population requirements individually; rather the population requirement for the different levels applies to the total population of all counties in the MSA. Since Carbon County is grouped with Lehigh and Northampton Counties, the total population of the three counties is considered, and, when combined, the total population is within the MSA level B range as specified by the 1990 MSA grouping classifications. Similarly, Somerset and Cambria Counties are grouped together and their combined total population falls within the 100,000 to 249,999 range for MSA Level C.
Sunset Date
There is no sunset date. However, the Department will review the effectiveness of the regulation and the issue of peer group classifications as part of its continuing discussions with the nursing facility industry, consumers and other stakeholders on a more comprehensive overhaul of the case-mix payment system.
Regulatory Review Act
Under sections 443.1(5)(ii) and 454 of the code, this final-omitted rulemaking is not subject to review under the Regulatory Review Act.
Findings
The Department finds that:
(1) Notice of proposed rulemaking is omitted in accordance with section 204(1)(iv) of the CDL and 1 Pa. Code § 7.4(1)(iv) because this rulemaking relates to Commonwealth grants and benefits.
(2) The adoption of this amendment in the manner provided by this order is necessary and appropriate for the administration and enforcement of the code.
(3) Any delay in the effective date of this final-omitted rulemaking beyond July 1, 2004, would be impracticable and contrary to the public interest since: (i) it would be inconsistent with the Commonwealth's approved State Plan and, thereby, jeopardize the receipt of Federal matching funds; (ii) it would violate the requirement of section 443.1(5) of the code that the Department calculate and make payments to nursing facility providers consistent with the Commonwealth's approved State Plan; (iii) it would prevent the Department from removing an inherent inconsistency within the Department's regulation which made the regulation impossible to apply for rate-setting beginning July 1, 2004; and (iv) a subsequent effective date would cause disruption to the majority of providers by creating ongoing uncertainty in the rate-setting process.
Order
The Department, acting under the authority of sections 201(2), 206(2), 403(b), 443.1(5) and 454 of the code, orders that:
(a) The regulations of the Department, 55 Pa. Code Chapter 1187, are amended by amending § 1187.94 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel for approval as to legality and form required by law.
(c) The Secretary of the Department shall certify and deposit this order and Annex A with the Legislative Reference bureau as required by law.
(d) This final-omitted rulemaking shall take effect July 1, 2004.
ESTELLE B. RICHMAN,
SecretaryFiscal Note: 14-496. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 55. PUBLIC WELFARE
PART III. MEDICAL ASSISTANCE MANUAL
CHAPTER 1187. NURSING FACILITY SERVICES
Subchapter G. RATE SETTING § 1187.94. Peer grouping for price setting.
To set net operating prices under the case-mix payment system, the Department will classify the nursing facilities participating in the MA Program into 14 mutually exclusive groups as follows:
(1) Nursing facilities participating in the MA Program, except those nursing facilities that meet the definition of a special rehabilitation facility or hospital-based nursing facility, will be classified into 12 mutually exclusive groups based on MSA group classification and nursing facility certified bed complement.
(i) Effective for rate setting periods commencing July 1, 2004, the Department will use the MSA group classification published by the Federal Office of Management and Budget in the OMB Bulletin No. 99-04 (relating to revised definitions of Metropolitan Areas and guidance on uses of Metropolitan Area definitions), to classify each nursing facility into one of three MSA groups or one non-MSA group.
(ii) The Department will use the bed complement of the nursing facility on the final day of the reporting period of the most recent audited MA-11 used in the NIS database to classify nursing facilities into one of three bed complement groups.
(iii) The Department will classify each nursing facility into one of the following 12 peer groups:
Peer Group # MSA Group # Beds 1 A > or = 270 2 A 120--269 3 A 3--119 4 B > or = 270 5 B 120--269 6 B 3--119 7 C > or = 270 8 C 120--269 9 C 3--119 10 non-MSA > or = 270 11 non-MSA 120--269 12 non-MSA 3--119 (iv) A peer group with fewer than seven nursing facilities will be collapsed into the adjacent peer group with the same bed size. If the peer group with fewer than seven nursing facilities is a peer group in MSA B or MSA C and there is a choice of two peer groups with which to merge, the peer group with fewer than seven nursing facilities will be collapsed into the peer group with the larger population MSA group.
(2) To set net operating prices under the case-mix payment system, the Department will classify the nursing facilities participating in the MA Program that meet the definition of a special rehabilitation facility into one peer group, peer group number 13. Regardless of the number of facilities in this peer group, the Department will not collapse the peer group of special rehabilitation facilities.
(3) To set net operating prices under the case-mix payment system, the Department will classify the nursing facilities participating in the MA Program that meet the definition of a hospital-based nursing facility into one peer group, peer group number 14. Regardless of the number of facilities in this peer group, the Department will not collapse the peer group of hospital-based nursing facilities.
(4) Once nursing facilities have been classified into peer groups for price setting, the nursing facility costs will remain in that peer group until prices are rebased, unless paragraph (5) applies.
(5) Paragraph (3) sunsets on the date that amendments are effective in Chapter 1163 (relating to inpatient hospital services), to allow for the inclusion of costs previously allocated to hospital-based nursing facilities. Subsequent to the effective date of the amendments to Chapter 1163, the Department will classify hospital-based nursing facilities in accordance with paragraph (1).
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1 Nursing facilities that are located in counties that are not included in one of the three MSA group levels are classified in a ''non-MSA'' peer group under the regulations. See § 1187.94(1)(iii).
[Pa.B. Doc. No. 05-1514. Filed for public inspection August 12, 2005, 9:00 a.m.]
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