Deciphering the Final Rule

Thoughtware Article Published: Aug 15, 2018
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The Centers for Medicare & Medicaid Services (CMS) released final rule CMS-1696-F on July 31, 2018, which outlined the fiscal year (FY) 2019 Medicare Part A payment rates and quality programs for skilled nursing facilities (SNF).

Market Basket Increase

There was a 2.4 percent market basket increase with a scheduled 2 percent reduction in Medicare payments under the SNF Value-Based Purchasing Program (SNF VBP) beginning October 1, 2018.

While CMS has indicated there are some errors in the case mix rate calculations contained in the final rule that will be corrected, the unadjusted rates are as follows based on the 2.4 percent market basket increase:

SNF Quality Reporting Program (SNF QRP)

The rule addressed the 2 percentage point reduction in the annual market basket percentage for SNFs that haven’t submitted the required quality data for the SNF QRP for each fiscal year.


Information included in the rule established performance periods and baseline years for FY 2021 and the change to a fiscal year rather than a calendar year for the periods. SNF VBP affects payments for services furnished after October 1, 2018, and the actual facility results for the 30-day all-cause hospitalization measure will be published on Nursing Home Compare. October 1, 2018, to September 30, 2019, will be the performance period for FY 2021, and the baseline for FY 2021 will be rehospitalizations from October 1, 2016, to September 30, 2017. The rule included an adjustment for low-volume SNFs (those with less than 25 eligible stays) during the performance period. Low-volume SNFs will be assigned a performance score based on the distribution of all SNF performance scores for that program year after calculating the exchange function. Low-volume SNFs would be notified no later than 60 days prior to the fiscal year involved.

The rule also contained an Extraordinary Circumstances Exception policy for the SNF VBP Program intended to allow relief from program requirements due to natural disasters and other circumstances beyond the facility’s control that could affect its ability to provide high-quality health care. The policy addresses both natural and man-made disasters that could cause care quality to suffer, along with the subsequent effect on measure performance in the SNF VBP Program—and the SNF could be penalized under the scoring methodology. The SNF would be required to demonstrate extraordinary circumstances through photos, the newspaper or other media articles and request an exception through the CMS QualityNet website. If an exception is granted, the calendar months involved could be excluded from the applicable measurement period.

Patient-Driven Payment Model (PDPM)

Possibly the biggest news in the rule was the implementation of the PDPM that will replace the current Resource Utilization Groups (RUGs)-based SNF Prospective Payment System (PPS) on October 1, 2019. PDPM is an updated version of the 2017 previously proposed Resident Classification System, Version 1 (RCS-1) and will affect all facilities currently billing under the RUG-IV system, including hospital swing beds.

PDPM determines payment based on various patient characteristics, primary medical conditions and diagnoses associated with newly designed care components. In the current reimbursement system, payment is driven based on the amount and frequency of services provided to patients, namely physical, occupational and speech therapy. The nursing RUGs are rarely used because most patients admitted for skilled care receive rehabilitation services, and the majority of rehab RUG groups have a higher case-mix index than the majority of nursing categories. The change to PDPM also follows many years of scrutiny from CMS and others that claim rehabilitation services weren’t provided to patients based on their specific plan of care, but rather based on the minimum therapy minute requirement for specific payment levels.

PDPM includes five independently determined case-mix adjusted payment components, plus a non-case-mix component, rather than the single hierarchical case mix under RUG-IV. The five components include Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), Nursing and Non-Therapy Ancillary (NTA). The activities of daily living (ADL) score currently calculated from section G of the Minimum Data Set (MDS) will be changed to a functional score that is calculated from information entered into section GG of the MDS. There also will be only two required MDS assessments for skilled beneficiaries—the admission five-day and a PPS Discharge Assessment. This change makes MDS accuracy more important than ever for appropriate reimbursement. These items are discussed in more detail later in this article.

The rates shown in the tables below illustrate what the unadjusted federal per diem rates would be for each of the case-mix adjusted components for PDPM based on the FY 2019 base rates.

PDPM Clinical Categories

PDPM includes 10 Clinical Categories. Every patient will be placed into one of the clinical categories based on the diagnosis code entered on the first line in section I8000 of the MDS. This diagnosis code must reflect the primary reason for admission to the SNF and may not be the same as the hospital diagnosis code. The CMS website does have a mapping tool that allows providers to determine where specific diagnosis codes will land in the 10 Clinical Categories. We did note there are some ICD-10 codes that indicate “return to provider,” and the final rule indicates these codes aren’t considered appropriate for a primary reason for SNF care. ICD-10-CM coding is going to be critical to success under PDPM. The 10 Clinical Categories are listed in the table below:

The PT and OT components of PDPM are based on the Clinical Category determined by the ICD-10 code on the first line of section I8000 and a new item to be added to the MDS J2000. The ICD-10 code will be collapsed from the 10 Clinical Categories noted above into four Clinical Categories for the PT and OT components. J2000 will be a checkbox-style mechanism to indicate if a surgical procedure occurred during the preceding hospital stay. The PT and OT components also will include a functional score that’s determined based on information entered into Section GG of the MDS. Currently, an ADL score of zero signifies independent. The functional scoring will assign higher points to higher levels of independence, with a score of 23 being totally independent. This approach is consistent with functional measures in other care settings, which should make reporting across provider types more consistent moving forward. See the table below for PT and OT case-mix classification groups:

The SLP component of PDPM is based on the Clinical Category determined by the ICD-10 code on the first line of section I8000, presence of an acute neurologic condition, related comorbidity or cognitive impairment, as well as signs and symptoms of a swallowing disorder and a mechanically altered diet. SLP-related comorbidities include: cerebrovascular accident, transient ischemic attack, stroke, hemiplegia, traumatic brain injury, tracheostomy care or ventilator support while a resident, laryngeal cancer, apraxia, dysphagia, ALS, oral cancers and speech and language deficits. See the table below for SLP Case-Mix Classification Groups:

The nursing component for PDPM includes a nursing function score that ranges from 0 to 16, determined by answers to specific areas of section GG, as well as any clinical conditions or services provided to the patient during the look-back period and captured on the MDS assessment. The nursing clinical groups are collapsed to 25 groups and closely resemble the nursing groups in RUG-IV. Signs and symptoms of depression and restorative nursing also can affect the nursing component. The current RUG-IV payment system pays based on the highest RUG-IV level for which the patient qualifies, which usually was based on therapy services. Nursing conditions and services that were being provided didn’t affect the payment since they generated a lower RUG-IV rate. PDPM will calculate a nursing case-mix group for every patient and is going to require MDS staff to be diligent in reviewing all documentation provided by the transferring hospital and in the SNF, along with capturing that information on the MDS assessment when appropriate. The nursing case-mix groups include:

The NTA component is based on comorbidity points from conditions and extensive services coded on the MDS assessment and, in the case of HIV/AIDS, the diagnosis code (B20) on the UB-04 claim form. There are points awarded for specific conditions and services. Once again, MDS accuracy is critical to obtain appropriate reimbursement in the PDPM. The NTA component is determined by the score (total number of points) from the condition/extensive service list. The NTA case-mix classification groups include:

The MDS assessment schedule for PDPM will be dramatically different from the current RUG-IV model. There are only two required MDS assessments for skilled patients covered under traditional Medicare Part A: a five-day admission and a PPS Discharge Assessment. The five-day MDS will allow an assessment reference date (ARD) of any day one to eight of the stay and will be the basis for the payment for all Part A days until discharge, unless an interim payment assessment (IPA) is completed. The PPS Discharge Assessment will require an ARD that’s the last covered day of the Medicare Part A stay. The discharge assessment will require the total number of days and minutes provided by each therapy discipline during the Medicare stay to be entered in section O, which will be added to the discharge assessment. CMS indicates it’s adding this requirement to verify providers are adhering to the requirement that not more than 25 percent of any one therapy discipline’s minutes are from concurrent or group minutes. The validation report from MDS transmission will contain a “nonfatal warning” for those MDS assessments that don’t follow the therapy provision (25 percent limit on concurrent and group). CMS also has indicated it may flag SNFs for further review if there are increased nonfatal warnings regarding the therapy provision. The final rule also allows for future laws regarding changes in behavior regarding providing therapy services to residents.

The optional IPA is meant to capture substantial changes to the resident’s clinical condition that aren’t expected to return to their original clinical status within 14 days. The change in per diem payment will be effective on the ARD of the IPA, which is the day the facility determines an IPA is warranted. The PPS assessment schedule for PDPM is included below:

The rule also contains variable per diem adjustment factors and payment schedules for the Medicare payment days. The PT and OT components would be paid at 100 percent for days 1 through 20 of the stay and reduced by .02 percent every seven days thereafter. The NTA component would be reduced by 2 percent on day four of the stay and remain constant for the remainder of the stay. There is an Interrupted Stay Policy beginning October 1, 2019. When a skilled patient discharges and returns to the facility by midnight at the end of the third day, the five-day MDS assessment completed for the initial Medicare stay continues the payment based on the original five-day PPS assessment. If a patient is out of the facility for more than three days, a new five-day MDS would be required and the variable per diem payment adjustment schedule would reset to day one. The policy’s purpose is to ensure that when two segments of a resident’s stay in the facility are separated by only a brief absence, the variable per diem payment adjustment isn’t inappropriately reset to day one upon the resident’s return.

The presumption of coverage was updated for PDPM to include five-day MDS assessments that result in at least one of the following components:

  • Nursing: All categories beginning with “extensive services” down to the lowest group in “clinically complex”
  • PT and OT: RB, TC, TD, TF and TG
  • NTA: comorbidity total points of at least 12

How can SNFs begin preparing for PDPM? Identify the effect of the change in the reimbursement methodology by reviewing the profile of your most common Medicare admissions and calculating how the change to PDPM will affect your Medicare revenue. Begin discussions with ancillary providers about the final rule, including therapy providers and pharmacy services. Talk with MDS personnel also regarding the importance of assessment accuracy, diagnosis coding and inclusion of all pertinent PDPM-required data on each assessment completed. Finally, communicate with nursing administration about clinical competencies and potential specialty niche areas, as well as training for nursing staff.

PDPM is a model that may allow SNFs with clinical expertise to excel and actually see appropriate reimbursement for those patients who may not have been as appealing under the RUG-IV model because they weren’t an ideal therapy candidate.

Register now for one of our upcoming Q&A calls featuring BKD professionals who will be answering questions submitted by registrants.

Want to connect sooner? Contact Sherri or your trusted BKD advisor for additional information or to schedule an assessment of your RUG-IV to PDPM effect.

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