Authored by:
Brian Ellsworth, MA, Director, Payment Transformation
Health Dimensions Group

After years of study and countless criticisms of skilled nursing facility (SNF) payment policy, the Centers for Medicare and Medicaid Services (CMS) issued an advance notice of proposed rulemaking (ANPRM*) with comment this week. The proposal addresses potential rulemaking to replace the resource utilization groups (RUGs) payment system for the Medicare SNF prospective payment system (PPS). This advance notice of future rulemaking is the result of three years of work by CMS, their contractor Acumen, and technical expert panels, and it likely marks the beginning of the end of the RUGs payment system.

The ultimate timing for implementation is unclear, but it is safe to say that this would be a major change for the SNF sector if implemented as proposed. For now, there is a 60-day comment period which ends June 24, 2017. One of the key drivers for this proposal has been the longstanding perception (by MedPAC, OIG, and others) that SNFs over-provide therapy and drive longer-than-necessary lengths of stay (LOS). This proposal aims to address those issues and to also better align payment levels to costs for different patient types.

Among the options discussed in the proposal:

  • Replace RUGs with a new classification system called Resident Classification System (RCS), which seeks to minimize the effect of service-related measures by instead basing payments on resident characteristics.
  • Separate payments for nursing and non-therapy ancillaries; combine payments for physical therapy and occupational therapy; and separate payments for speech-language pathology.
  • Reduce per diems as the LOS increases.

One of the most important changes is that the resident classification system would use the primary reason for the SNF stay, as coded on the minimum data set (MDS), as a primary grouping factor. There would be five primary categories: major joint replacement and spinal surgery, other orthopedic, non-orthopedic surgery, acute neurologic, and medical management.

The implications of the changes are potentially significant. SNFs whose financial foundation is built on maximizing ultra-high therapy and LOS may need to rethink their strategy. This new methodology may provide a much better basis for contracting with Medicare Advantage and for gainsharing with value-based payors, as the RUGs system is fairly opaque with respect to primary medical needs. MDS coding practices, admissions strategies, and operational processes may all need to be rethought. Internal cost accounting over a length of stay could potentially be facilitated by this type of system.


More Insight on SNF Value-Based Purchasing

At the same time that CMS was issuing the above proposal, it also published the regular SNF PPS proposed rule, which contains some important policy changes. Among them are new potential measures under the SNF Quality Reporting Program (QRP) and some further specificity on the SNF Value-Based Purchasing (VBP) program (e.g., readmissions penalties), the discussion of which starts on page 226 of the display copy of the proposed rule:

It is still not possible to exactly tell which SNFs are going to have net decreases due to SNF VBP and which will have a net gain as it is a relative ranking system (i.e., grading on a curve) that ultimately depends on everybody’s performance during the performance period. Nonetheless, there are some new details, including that CMS intends to distribute 60 percent of the amounts withheld back to the SNFs, even though the statute permits 70 percent. SNFs should be paying close attention to their 30-day readmissions rates for a variety of reasons, including this forthcoming payment adjustment.

Stay tuned to HDG for more information about how these proposed changes affect the post-acute sector and what you can do to prepare for the coming transformation.


*The ANPRM can be found here:
To review the most recent presentation of the SNF PPS Technical Expert Panel from October 2016, click here: