Industry Insights

Health Care Reform to Have Significant Effect on Skilled Nursing Facilities

April 2010
Author:  Lori Brunholtz

Lori Brunholtz

Managing Director


Health Care

Two Warren Place
6120 S. Yale Avenue, Suite 1400
Tulsa, OK 74136-4223


As you no doubt have heard, health care reform is now a reality. On March 21, 2010, Congress passed the Patient Protection and Affordable Care Act (PPACA), and President Obama signed it into law March 23. PPACA includes several significant provisions that will affect Medicare reimbursement for skilled nursing facilities (SNFs). The following summarizes a few of those provisions.

1. Delay of implementation of Resource Utilization Group (RUG) IV, but not Minimum Data Set (MDS) Version 3.0

The fiscal year 2010 SNF prospective payment system final rule was published in the Federal Register in August 2009. It also contained provisions which were applicable to fiscal year 2011. These included implementation of the new MDS version 3.0, along with the transition to the RUG IV reimbursement system effective October 1, 2010. Although the Centers for Medicare & Medicaid Services (CMS) intended the impact on SNF reimbursement related to these changes to be budget-neutral, passage of PPACA will likely result in reduced Medicare payments to SNFs for FY2011.

PPACA prohibits the transition to RUG IV before October 1, 2011, but specifically did not delay the implementation of MDS 3.0 set to take effect October 1, 2010. In addition, PPACA stipulates the provisions of the August 2009 rule related to changes in capturing concurrent therapy and limiting the capture of lookback services to only those provided after admission to the SNF are to be implemented October 1, 2010.

Eliminating the lookback prior to admission to the SNF will practically eliminate beneficiaries from qualifying for one of the current RUG III “upper nine” combined rehabilitation plus extensive services categories. These are the highest reimbursed categories. Furthermore, the following could reduce the number of minutes of therapy allowed to be counted for rehab categories:

  • The requirement to allocate concurrent therapy minutes across patients
  • Changes in the MDS 3.0 RAI manual that eliminate section T and projected therapy minutes
  • Changes that exclude supervised therapy aide treatments from qualifying as skilled services

These and other MDS 3.0 changes could significantly decrease SNF reimbursement in FY2011 under RUG III. In addition, therapy cost per unit of service may increase.

2. Extension of exceptions process for Medicare therapy caps

The Deficit Reduction Act of 2005 allowed CMS to implement a one-year exceptions process to allow payment for medically necessary Part B therapy services that exceeded the financial limits on outpatient Part B therapy services. Every year since, Congress has extended that exceptions process. On March 2, 2010, a temporary extension, retroactive to January 1, 2010, was granted through March 31, 2010. PPACA extended the exceptions process through December 31, 2010.

3. Implementation of a “productivity” adjustment to be applied against the annual market basket adjustment of reimbursement rates beginning in FY2012

The new productivity adjustment is a 10-year moving average of annual changes in nonfarm economywide productivity. Applying this adjustment could result in future market basket updates being negative, thereby reducing rates to levels below the previous year. This provision would go into effect October 1, 2011.

4. No extension of temporary freeze in Medicare Physician Fee Schedule (MPFS) payments for SNF Part B therapy services

The Temporary Extension Act of 2010, which was enacted March 2, 2010, delayed the 21.2 percent cut in 2010 MPFS through March 31, 2010. PPACA did not contain any provision to extend the temporary freeze. As of this writing, the temporary delay in the payment reduction has expired. However, CMS believes Congress is working to avert the negative update and has instructed its contractors to hold claims containing services paid under the MPFS for the first 10 business days of April in hopes that Congress will either delay or fix the payment formula. This hold will only affect claims with dates of service on or after April 1, 2010. Providers should be on the alert for more information about the 2010 MPFS update.

Your BKD National Health Care Group long-term care advisor can help you understand the ramifications of PPACA on your facility’s Medicare reimbursement. Please contact your advisor for more information.

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