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CMS Finalizes SNF PPS Rule for FY 2019

On July 31st, the Centers for Medicare and Medicaid Services (CMS) released the Skilled Nursing Facility (SNF) Prospective Payment System (PPS) final rule for Federal Fiscal Year (FY) 2019, which begins Oct. 1, 2018. The rule outlines FY 2019 Medicare payment updates and quality program changes and adopts a new reimbursement methodology for implementation on Oct. 1, 2019. The final rule is largely unchanged from the proposed rule, which was issued in April 2018 and generated over 290 public comments, including those of LeadingAge NY.

The 424-page final rule, which will be officially published in the Aug. 8th Federal Register:

  1. increases Medicare Part A rates by 2.4 percent as required by the Bipartisan Budget Act of 2018, effective Oct. 1, 2018;
  2. replaces the Resource Utilization Groups Version 4 (RUG-IV) case-mix classification system used to determine SNF Part A rates with the Patient-Driven Payment Model (PDPM), effective Oct. 1, 2019;
  3. authorizes public display of SNF Quality Reporting Program (QRP) assessment-based quality measures, increases the number of years of data for two of the measures, and changes how CMS evaluates the cost-benefit of utilizing QRP measures on an ongoing basis; and
  4. sets baseline and performance periods for the 2021 SNF Value-Based Payment (VBP) program year, adjusts the VBP scoring methodology, and adds an exceptions policy for extraordinary circumstances.

Our preliminary analysis of these individual elements of the rule is provided below; we are working on a more complete analysis which will be issued shortly.

SNF Medicare Part A Rates Effective October 2018

Nursing homes will see a 2.4 percent increase in their Medicare Part A base rates in October 2018, a nationwide increase of approximately $820 million. The rule implements a provision in the Bipartisan Budget Act of 2018 requiring that rates be increased by a 2.4 percent "market basket" adjustment to account for inflation. The actual rate increase will vary by region based on the annual update to the Medicare wage index. In contrast, last year’s market basket increase after adjustments would have been 2.3 percent, but it was limited to 1 percent (i.e., a $300 million increase in payments nationally) by the Medicare Access and CHIP Reauthorization Act of 2015.

Please note that implementation of the SNF VBP Program in October 2018 (discussed below) will also impact Medicare Part A rates, and homes subject to QRP penalties will have their market basket adjustments calculated differently than described above.

Replacing RUG-IV with PDPM

The final rule adopts a new case-mix classification system as the basis for SNF Medicare Part A payments effective Oct. 1, 2019. The new PDPM system will base payments not on the amount of therapies and other services provided, but on resident characteristics that are predictive of service needs. Although the PDPM model incorporates significant revisions, it is structurally similar to the Resident Classification System Version 1 (RCS-1) model that CMS circulated for comment in last year’s Advanced Notice of Proposed Rulemaking and reflects the same policy objectives.

The new system stems from longstanding federal government concerns that the RUG-IV system over-incentivizes the provision of therapy and under-reimburses for nursing and ancillary services. To address this, CMS contracted with Acumen, LLC to manage a multi-year SNF Payment Models Research Project to explore alternative payment methodologies. Much of the project work involved identifying patient characteristics that drive costs, dividing these into major categories, and finding appropriate gradations to align reimbursement to cost. The PDPM was then developed and calibrated to be budget neutral (i.e., spend no more money in the aggregate than RUG-IV). Under the PDPM system:

  • The minutes of therapy provided to a resident no longer drives classification of that resident into a payment category;
  • A combined 25 percent limit is imposed on group and concurrent therapy by discipline, requiring that at least 75 percent of therapy be provided one-on-one;
  • Five individual components (Physical Therapy (PT), Occupational Therapy (OT), Speech/Language Pathology (SLP), nursing, and non-therapy ancillaries (NTA)) are established, each with its own categories and discrete case-mix adjustments and into which each resident is classified based primarily on his/her clinical and functional characteristics;
  • A variable per-diem payment adjustment is used for the PT, OT, and NTA components, resulting in a decreasing payment as a resident’s stay progresses; and
  • Required PPS assessments are reduced to the 5-Day Scheduled PPS Assessment, a PPS Discharge Assessment with some additional items, and a new Interim Payment Assessment (IPA) that would be used to change the resident classifications assigned by the 5-Day PPS Assessment.

Based on various concerns expressed by stakeholders, CMS decided in the final rule to make the IPA an optional assessment. Facilities will be able to determine when IPAs will be completed for their patients to address potential changes in clinical status, and what criteria should be used to decide when an IPA is needed.

The RUG-IV case-mix model first categorizes residents based on their therapy need and then on additional aspects of the resident’s care, while the PDPM model first categorizes residents based on the clinical reasons for the SNF stay. The new model separates the different therapy disciplines into distinct rate components, with each component subdivided into multiple payment categories. It splits the current nursing component into nursing and NTA components. In the new model, NTA costs such as drugs, laboratory services, respiratory therapy, and medical supplies will no longer be included in the nursing component as they are in the current methodology; rather, they will be split out as a separate NTA component with a separate and distinct case-mix adjustment to the NTA base rate based on resident characteristics.

SNF Quality Reporting Program

The SNF QRP was authorized by the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 to be able to compare quality and costs across freestanding SNF, hospital-based SNF, and certain swing-bed rural hospital settings. Under the SNF QRP, SNFs that fail to submit required quality data to CMS beginning in October 2017 are subject to a 2-percentage point reduction to the otherwise applicable annual market basket percentage update. Some LeadingAge NY member SNFs have recently been notified that they are being penalized under this provision for the FY 2019 rates.

CMS reviewed the SNF QRP’s set of nine assessment-based and three claims-based measures in accordance with the CMS Meaningful Measures Initiative (MMI) to identify how to move the SNF QRP forward in the least burdensome manner possible while continuing to incentivize quality improvements. Specifically, the goals of the SNF QRP and the measures used in the program cover most of the MMI priorities. All measures adopted in the SNF QRP meet the requirements of the IMPACT Act. There were no new measures added to the SNF QRP by the final rule.

The final rule adopts a cost-benefit analysis factor to consider when evaluating measures for removal from the SNF QRP measure set. CMS will also publicly display the four SNF QRP assessment-based quality measures and increase the number of years of data used to display two claims-based SNF QRP measures, Discharge to the Community and Medicare Spending per Beneficiary, from one year to two years. Accordingly, CMS will report data on these measures in Calendar Year (CY) 2019 based on discharges between Oct. 1, 2016 and Sept. 30, 2018.


Existing law requires that VBP apply to SNF fee-for-service payments starting Oct. 1, 2018 based on an initial performance period of CY 2017. The VBP will be funded with a 2 percent withhold from SNF Part A payments that can be partially earned back based on each facility’s rehospitalization rate and level of improvement. Major features of the program including measure specifications, calculation of VBP payments, timing of baseline and performance periods, and review and reporting provisions are already established. CMS adopted the SNF 30-Day All-Cause Readmission Measure (SNFRM) as the all-cause, all-condition readmission measure that will be used in the first stages of the SNF VBP Program.

As proposed, CMS has adopted FY 2017 (i.e., Oct. 1, 2016 to Sept. 30, 2017) as the baseline period for the FY 2021 program year. FY 2019 will be the performance period for the FY 2021 SNF VBP program year. To link performance as closely to the program year as possible, beginning with the FY 2022 program year, the performance period will be the one-year period following the performance period for the previous program year, and the baseline period will be the one-year period following the baseline period for the previous year. Under this policy, the performance period for the FY 2022 program year will be FY 2020.

The final rule includes an Extraordinary Circumstances Exceptions (ECE) policy for the SNF VBP to provide relief to SNFs affected by natural disasters or other circumstances beyond the facility’s control. If a SNF can demonstrate that an extraordinary circumstance affected the care that it provided and its measure performance, CMS will exclude from the calculation of the measure rate for the applicable baseline and performance periods the calendar months during which the SNF was affected by the extraordinary circumstance.

Finally, changes are being made for facilities with inadequate data needed for scoring:

  • In some cases, a SNF will not have sufficient baseline period data (i.e., fewer than 25 eligible stays) available for scoring for a program year due to the SNF not being open at all or for a portion of the baseline period or other reasons (such as receiving an ECE). CMS will not measure these facilities on improvement for that program year, and they will be scored based on achievement only.
  • If a SNF has less than 25 eligible stays during a performance period for a program year, it will be assigned a performance score. That assigned performance score will, when used to calculate the value-based incentive payment amount for the SNF, result in a payment amount equal to the adjusted federal per diem rate that the SNF would have received for the fiscal year in the absence of the VBP program (i.e., no 2 percent withhold).

LeadingAge NY is carefully analyzing the provisions of the final rule and will follow up this summary with a more comprehensive analysis in the coming days. The Medicare SNF payment changes will be covered during the LeadingAge NY Financial Professionals Annual Conference (Aug. 28th to 30th) and as part of an Aug. 9th audioconference, CMS Proposed Changes and Final Rule - What Can the Changes Mean to You?. We are working with LeadingAge National as well to help member facilities prepare for the upcoming changes.

Contact: Dan Heim, dheim@leadingageny.org, 518-867-8866