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CMS Proposes Changes to Medicare Part A Reimbursement

On Fri., April 27th, the Centers for Medicare and Medicaid Services (CMS) released the Skilled Nursing Facility (SNF) Prospective Payment System (PPS) proposed rule for Federal Fiscal Year (FFY) 2019, which begins Oct. 1, 2018. The rule outlines proposed FFY 2019 Medicare payment updates and quality program changes and unveils a new reimbursement methodology to be implemented in October 2019. The proposed rule is being presented to solicit stakeholder comment and is expected to be finalized and published as a final rule in August.

As proposed, the rule would:

  • increase Medicare Part A rates by 2.4 percent as required by the Bipartisan Budget Act of 2018, effective October 2018;
  • formally propose to replace the RUG-IV case mix classification system used to determine SNF Part A rates with the Patient-Driven Payment Model (PDPM), effective October 2019;
  • publicly display SNF-Quality Reporting Program (QRP) assessment-based quality measures and make changes to how CMS evaluates QRP measures for addition or retention in the program; and
  • set baseline and performance periods for the 2021 SNF Value-Based Payment (VBP) program year, adjust the VBP scoring methodology, and add an exceptions policy for extraordinary circumstances.

Our preliminary analysis of the individual proposals is provided below; we will issue a more complete analysis shortly.

SNF Medicare Part A Rate

Nursing homes will see a 2.4 percent increase in their Medicare Part A base rates in October 2018, a nationwide increase of approximately $850 million. Although the customary methodology for calculating the "market basket" (i.e., the Medicare inflation adjustment) would suggest a 1.9 percent increase after adjustments, the Bipartisan Budget Act of 2018 mandates that rates be increased by 2.4 percent. The actual rate increase will vary by region based on the annual update to the wage index.

In contrast, last year’s market basket increase after adjustments would have been 2.3 percent if not for a provision in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that limited the increase to 1 percent.

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 the RUG-IV Case-Mix Classification System with PDPM

The proposed rule would implement a new case-mix classification system as the basis for SNF Medicare Part A payments effective Oct. 1, 2019. The new system, named the Patient-Driven Payment Model (PDPM), would base payment not on the amount of services provided but on objective resident characteristics that are predictive of service needs. Although the PDPM model incorporates significant revisions, it is structurally similar to the RCS-1 model that CMS circulated for comment in last year’s Advanced Notice of Proposed Rulemaking and reflects the same policy objectives.

The proposal stems from a longstanding concern within CMS that the RUG methodology over-incentivizes therapy and under-reimburses for nursing and other medical services. To address this, CMS contracted with Acumen, LLC to manage a multiyear SNF Payment Models Research (PMR) Project to explore alternative payment methodologies. Much of the work of the project involved identifying patient characteristics that drive costs, dividing these into major categories, and finding appropriate gradations to align reimbursement to cost. The model was then calibrated for budget neutrality.

As a result of this work, CMS and Acumen developed an alternative to the RUG-IV classification system, which they named the Resident Classification System, Version I (RCS-I). In the spring of 2017, CMS published an Advanced Notice of Proposed Rulemaking that outlined the methodology and requested stakeholder feedback. Over the past six months, CMS used that feedback to refine the RCS-1 methodology, reducing the number of possible payment categories, revising how a resident’s functional score would be calculated, separating PT and OT into separate components, and making other changes. CMS has renamed this revised methodology the Patient-Driven Payment Model (PDPM), but it retains a similar overall structure and maintains the same philosophical underpinnings as RCS-1. CMS has posted the technical reports that describe the analyses used to inform the development of the new system on the SNF PPS Payment Models Research page here

In this proposed rule, CMS outlines the PDPM methodology and requests that stakeholders provide additional feedback. In some cases, the agency indicates their intended approach but also includes alternatives that are still under consideration. Consequently, it is important to keep in mind that while the overall direction of the new system and the major payment drivers are clear, the methodology outlined in the rule is not final, and some features may change by the time the final rule is published in the summer.

Structurally, the PDPM would:

  • Separate the amount of therapy from payment by no longer relying on minutes of therapy provided to a resident to classify that resident into a payment category;
  • Impose a combined 25 percent limit on group and concurrent therapy by discipline to ensure that at least 75 percent of therapy was provided on an individual basis;
  • Establish five individual components, each with its own discrete case-mix adjustment, and classify each resident into the appropriate category in each of five components (Physical Therapy (PT), Occupational Therapy (OT), Speech/Language Pathology (SLP), nursing, and non-therapy ancillaries (NTA)) based primarily on that resident’s clinical and functional characteristics;
  • Incorporate a variable per-diem payment adjustment for the PT, OT, and NTA components, which would result in a decreasing payment as a resident’s stay progresses; and
  • Reduce required PPS assessments to the 5-Day Scheduled PPS Assessment, 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 when certain criteria are met. 

Instead of a resident being assessed into a RUG-IV category that determines the per-day payment under the current methodology, payment under the PDPM model would be based on the sum of five separate, individually case-mix-adjusted components. For each component, CMS would establish a base rate. Each base rate would be adjusted by the component-specific case mix derived from resident characteristics deemed relevant to that component. A sixth, non-case-mix-adjusted component, similar to that used in the current RUG system, would be added to the five case-mix-adjusted components to yield the daily rate.

The rate would be subject to two additional adjustments. The PDPM model would incorporate an adjustment to the PT, OT, and NTA components to reflect findings that costs for these two components are higher at the beginning of a Part A stay and decrease as the stay progresses. Additionally, the resulting rate would be wage-adjusted using the same hospital wage index and the same wage adjustment methodology as is currently used. The existing market basket methodology currently used to update base rates for inflation, including the forecast error and multifactor productivity adjustments, would also be maintained.

The RUG case-mix model first categorizes residents based on their therapy need and then on additional aspects of the resident’s care; the PDPM case-mix 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 a number of 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, but will rather be split out as a separate NTA component with a separate and distinct case mix adjustment that will be applied to the NTA base rate based on resident characteristics.

Specifically, the rate components include:

  • A PT base rate adjusted by one of 16 case mix weights (based on clinical category, functional score, and cognitive impairment) to yield a PT component;
  • An OT base rate adjusted by one of 16 case mix weights (based on clinical category, functional score, and cognitive impairment) to yield an OT component;
  • An SLP base rate adjusted by one of 12 case mix weights (based on the presence of an acute neurological condition, swallowing disorder/mechanically altered diet, SLP-related comorbidity, or cognitive impairment) to yield an SLP component;
  • A Nursing base rate adjusted by one of 25 nursing case mix weights (based on clinical condition/extensive services, function score calculated on MDS Section GG data, restorative nursing services, and the presence of depression) to yield a Nursing component;
  • An NTA base rate adjusted by one of six NTA case mix weights (based on specific conditions and need for extensive services) to yield an NTA component; and
  • A non-case-mix component as it exists in the RUG-IV methodology.

CMS has posted a walk-through that shows the steps for determining a resident’s case mix weight for each component resulting in the overall rate that is available here. Updated provider-specific impact estimates based on the PDPM methodology can be downloaded here.

SNF Quality Reporting Program

The Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 requires CMS to implement a QRP to collect standardized data to be able to compare quality and costs across different post-acute care settings. CMS has finalized nine assessment-based and three claims-based measures that are part of the SNF QRP. Beginning in October 2017, SNFs that fail to meet data submission standards required by the QRP face a two-percentage point reduction in their annual rate update. The four measures that were most recently added will impact payments beginning in FY 2020, but the data used for this calculation will come from SNF resident admissions and discharges that occur on or after Oct. 1, 2018.

In the most recent proposed rule, CMS discusses the possibility of accounting for social risk factors in the SNF QRP but concludes that more work is needed to establish how to do so. CMS will continue working with the Office of the Assistant Secretary for Planning and Evaluation (ASPE) and other key stakeholders on this issue to identify policy solutions aimed at attaining health equity while minimizing unintended consequences.

CMS has begun reviewing the SNF QRP’s measures under its Meaningful Measures Initiative and wants to move the SNF QRP forward in the least burdensome manner possible while continuing to incentivize quality improvement. CMS has established seven criteria that will be used to remove unnecessary measures from the SNF QRP. Under the proposed rule, an eighth factor would be added (i.e., the costs associated with a measure outweigh the benefit of its continued use in the program).

In the FY 2018 SNF PPS final rule, CMS indicated that two measures would be added to satisfy the domain of accurately communicating the existence and transfer of health information and care preferences by Oct. 1, 2018 and intended to adopt them for the FY 2021 SNF QRP, with data collection beginning on or about Oct. 1, 2019. CMS now proposes to push these dates back by one year: specify the measures by Oct. 1, 2019, use them in the FY 2022 SNF QRP, and collect data beginning Oct. 1, 2020.

The FY 2018 SNF PPS final rule indicated that the Medicare Spending Per Beneficiary-PAC SNF QRP and Discharge to Community-PAC SNF QRP measures would be publicly reported in Nursing Home Compare in calendar year (CY) 2018 based on discharges in FFY 2017. In this proposed rule, CMS proposes to report two years of data at a time on these measures, meaning they would be in CY 2019, based on discharges from Oct. 1, 2016 through Sept. 30, 2018. CMS also propose to begin publicly displaying data in CY 2020 on the following four assessment-based measures: (1) Change in Self-Care Score; (2) Change in Mobility Score; (3) Discharge Self-Care Score; and (4) Discharge Mobility Score. SNFs are required to submit data on these four assessment-based measures for admissions and discharges on or after Oct. 1, 2018.


The Protecting Access to Medicare Act of 2014 (PAMA) requires that VBP apply to SNF fee-for-service payments beginning Oct. 1, 2018. The performance period for the first year is CY 2017. The VBP will be funded with a 2 percent withhold to 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.

In this proposed rule, CMS is proposing additional requirements for the FY 2021 SNF VBP Program as well as other program policies. As with the SNF QRP, CMS discusses the possibility of accounting for social risk factors in the SNF VBP but concludes that more work is needed to do so.

Due to timing constraints, CMS is currently unable to provide estimated numerical values for the FY 2021 program year’s performance standards and therefore is proposing to adopt FY 2017 as the baseline period for the FY 2021 program year. Under this proposal, FY 2019 would be the performance period for the FY 2021 SNF VBP program year.

In an effort to link performance as closely to the program year as possible, CMS proposes that beginning with the FY 2022 program year, the performance period would be the one-year period following the performance period for the previous program year, and the baseline period would 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 would be FY 2020.

CMS is required to announce the performance standards for a fiscal year at least 60 days prior to the performance period. CMS is proposing that if an error is discovered in the calculations subsequent to their publication, they would perform one update to the numerical values to correct the error.

CMS is also proposing to adopt 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 that affect the care provided to the facility’s patients. If a SNF can demonstrate that an extraordinary circumstance affected the care that it provided and its measure performance, CMS would 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, CMS proposes changes 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, whether 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). Under this proposal, CMS would not measure these facilities on improvement for that program year, and they would be scored based on achievement only.
  • CMS also proposes that if a SNF has less than 25 eligible stays during a performance period for a program year, it would be assigned a performance score. That assigned performance score would, 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 withhold).

The rule is accompanied by a Request for Information (RFI) seeking suggestions on how to better achieve the sharing of health care data between providers. A CMS fact sheet on the proposed rule is available here, and the full text of the rule can be accessed here. Comments may be submitted electronically to http://www.regulations.gov by June 26, 2018.

Contacts: Dan Heim, dheim@leadingageny.org, 518-867-8383, ext. 128 or Darius Kirstein, dkirstein@leadingageny.org, ext. 104