On April 28, 2011, CMS released its proposed update to Medicare skilled nursing facility (SNF) PPS rates and policies for FY 2012. CMS sets forth two very different options under consideration for revising rates for 2012. The first option, applying the standard rate update methodology, would increase rates by 1.5% ($530 million) as a result of a 2.7% market basket update reduced by a 1.2 percentage point “Multifactor Productivity Adjustment” mandated by the ACA. The second option seeks to address what CMS characterizes as an “unexpected spike” in SNF PPS payments in FY 2011, when CMS implemented the Resource Utilization Groups, version four (RUG-IV) patient classification system. Although CMS intended implementation of RUG-IV to be budget-neutral, initial claims under the updated system show a significant increase in Medicare expenditures, in part because the proportion of patients grouped in the highest-paying RUG therapy categories greatly exceeded CMS expectations. Although CMS will continue to analyze claims data, the agency is considering making a prospective adjustment to case mix weights to “restore overall payments to their intended levels,” which would cut rates by $4.47 billion. While this amount would be partly offset by the 1.5% update, this option would still result in a net payment decrease of $3.94 billion (-11.3%) for FY 2012. In addition to these payment policies, the proposed rule would implement an ACA provision requiring Medicare SNFs and Medicaid nursing facilities to disclose certain information in a standardized format to HHS and other entities regarding the ownership and organizational structure of their facilities. CMS also proposes to establish a standard that defines group therapy under the SNF PPS as therapy provided simultaneously to four patients who are performing similar therapy activities, and to require the allocation of group therapy minutes in assigning RUG-IV payment groups. In addition, the rule would require a new Medicare-required assessment to be completed by SNFs when changes occur in the intensity of therapy, and CMS proposes modifications to the schedule for completing the MDS 3.0. In addition, CMS proposes revising its current policy regarding supervision of therapy students to provide that a therapy student working in an SNF would no longer be required to be in the supervising therapist’s “line of sight.”  The official version of the rule will be published on May 6, 2011. Comments on the proposal will be accepted until June 27.