SEC. 1111. PAYMENTS TO SKILLED NURSING FACILITIES.

[a] Change in Recalibration Factor-

[1] ANALYSIS- The Secretary of Health and Human Services shall conduct, using calendar year 2006 claims data, an initial analysis comparing total payments under title XVIII of the Social Security Act for skilled nursing facility services under the RUG-53 and under the RUG-44 classification systems.

[2] ADJUSTMENT IN RECALIBRATION FACTOR- Based on the initial analysis under paragraph [1], the Secretary shall adjust the case mix indexes under section 1888[e][4][G][i] of the Social Security Act [42 U.S.C. 1395yy[e][4][G][i]] for fiscal year 2010 by the appropriate recalibration factor as proposed in the proposed rule for Medicare skilled nursing facilities issued by such Secretary on May 12, 2009 [74 Federal Register 22214 et seq.].

[b] Change in Payment for Nontherapy Ancillary [NTA] Services and Therapy Services-

[1] CHANGES UNDER CURRENT SNF CLASSIFICATION SYSTEM-

[A] IN GENERAL- Subject to subparagraph [B], the Secretary of Health and Human Services shall, under the system for payment of skilled nursing facility services under section 1888[e] of the Social Security Act [42 U.S.C. 1395yy[e]], increase payment by 10 percent for non-therapy ancillary services [as specified by the Secretary in the notice issued on November 27, 1998 [63 Federal Register 65561 et seq.]] and shall decrease payment for the therapy case mix component of such rates by 5.5 percent.

[B] EFFECTIVE DATE- The changes in payment described in subparagraph [A] shall apply for days on or after January 1, 2010, and until the Secretary implements an alternative case mix classification system for payment of skilled nursing facility services under section 1888[e] of the Social Security Act [42 U.S.C. 1395yy[e]].

[C] IMPLEMENTATION- Notwithstanding any other provision of law, the Secretary may implement by program instruction or otherwise the provisions of this paragraph.

[2] CHANGES UNDER A FUTURE SNF CASE MIX CLASSIFICATION SYSTEM-

[A] ANALYSIS-

[i] IN GENERAL- The Secretary of Health and Human Services shall analyze payments for non-therapy ancillary services under a future skilled nursing facility classification system to ensure the accuracy of payment for non-therapy ancillary services. Such analysis shall consider use of appropriate indicators which may include age, physical and mental status, ability to perform activities of daily living, prior nursing home stay, broad RUG category, and a proxy for length of stay.

[ii] APPLICATION- Such analysis shall be conducted in a manner such that the future skilled nursing facility classification system is implemented to apply to services furnished during a fiscal year beginning with fiscal year 2011.

[B] CONSULTATION- In conducting the analysis under subparagraph [A], the Secretary shall consult with interested parties, including the Medicare Payment Advisory Commission and other interested stakeholders, to identify appropriate predictors of nontherapy ancillary costs.

[C] RULEMAKING- The Secretary shall include the result of the analysis under subparagraph [A] in the fiscal year 2011 rulemaking cycle for purposes of implementation beginning for such fiscal year.

[D] IMPLEMENTATION- Subject to subparagraph [E] and consistent with subparagraph [A][ii], the Secretary shall implement changes to payments for non-therapy ancillary services [which may include a separate rate component for non-therapy ancillary services and may include use of a model that predicts payment amounts applicable for non-therapy ancillary services] under such future skilled nursing facility services classification system as the Secretary determines appropriate based on the analysis conducted pursuant to subparagraph [A].

[E] BUDGET NEUTRALITY- The Secretary shall implement changes described in subparagraph [D] in a manner such that the estimated expenditures under such future skilled nursing facility services classification system for a fiscal year beginning with fiscal year 2011 with such changes would be equal to the estimated expenditures that would otherwise occur under title XVIII of the Social Security Act under such future skilled nursing facility services classification system for such year without such changes.

[c] Outlier Policy for NTA and Therapy- Section- 1888[e] of the Social Security Act [42 U.S.C. 1395yy[e]] is amended by adding at the end the following new paragraph:

'[13] OUTLIERS FOR NTA AND THERAPY-

'[A] IN GENERAL- With respect to outliers because of unusual variations in the type or amount of medically necessary care, beginning with October 1, 2010, the Secretary--

'[i] shall provide for an addition or adjustment to the payment amount otherwise made under this section with respect to non-therapy ancillary services in the case of such outliers; and

'[ii] may provide for such an addition or adjustment to the payment amount otherwise made under this section with respect to therapy services in the case of such outliers.

'[B] OUTLIERS BASED ON AGGREGATE COSTS- Outlier adjustments or additional payments described in subparagraph [A] shall be based on aggregate costs during a stay in a skilled nursing facility and not on the number of days in such stay.

'[C] BUDGET NEUTRALITY- The Secretary shall reduce estimated payments that would otherwise be made under the prospective payment system under this subsection with respect to a fiscal year by 2 percent. The total amount of the additional payments or payment adjustments for outliers made under this paragraph with respect to a fiscal year may not exceed 2 percent of the total payments projected or estimated to be made based on the prospective payment system under this subsection for the fiscal year.'.

[d] Conforming Amendments- Section- 1888[e][8] of such Act [42 U.S.C. 1395yy[e][8]] is amended--

[1] in subparagraph [A], by inserting 'and adjustment under section 1111[b] of the America's Affordable Health Choices Act of 2009;

[2] in subparagraph [B], by striking 'and';

[3] in subparagraph [C], by striking the period and inserting '; and'; and

[4] by adding at the end the following new subparagraph:

'[D] the establishment of outliers under paragraph [13].'.