On April 27, 2018, the Centers for Medicare and Medicaid Services (CMS) announced a proposal to replace the Resource Utilization Groups (RUGs) payment system with a new model for Medicare payment of skilled nursing care. Although it is similar conceptually to last year’s proposed Resident Classification System (RCS), CMS made some refinements and decided to give it a new name: Patient-Driven Payment Model (PDPM). This is more than just a new acronym for providers to learn. It has the possibility to transform Medicare-covered skilled nursing from a therapy-driven model to one that has more emphasis on nursing, better payments for medically complex patients, and increased focus on length of stay. These are key elements in increasing the value of skilled nursing facilities (SNFs) in the health care ecosystem.

CMS has proposed to replace RUGs with PDPM effective October 1, 2019. The proposal’s timing is not surprising given CMS’ assurances that it would give adequate lead time for providers and vendors to implement the operational changes necessary under the new payment model. MedPAC and the Office of Inspector General (OIG) have been railing for years about the poor incentives of the current Medicare payment system regarding over-provision of therapy and the incentives for long lengths of stay. Waiting another year to propose the model would have meant implementation two and a half years from now—something CMS stated it did not want to do.

The proposed rule has a 60-day comment period that ends June 26, 2018.


New Patient-Driven Payment Model (PDPM) Proposal Highlights

Here are some highlights of the proposal:

  • The basic structure of the payment model follows last year’s RCS proposal, but with modifications and streamlining based on public comments and stakeholder input. There would be five case mix related components to the rate: physical therapy (PT), occupational therapy (OT), speech-language pathology (SLP), nursing, and non-therapy ancillary (NTA), along with a sixth component for non-case mix related costs.
  • The proposed PDPM would separately identify and adjust the case mix components—using primarily minimum data set (MDS) data—for the varied needs and characteristics of a resident’s care. The case mix components would then be combined with the non-case mix component to form the full SNF prospective payment system (PPS) per diem rate for that resident. The intent is to base as much of the rate as possible on patient characteristics instead of service provision.
  • Grouping for the PT and OT components (now to be priced separately) would be based on the primary reason for SNF care (as listed on the MDS), further modified by functional impairment sub-groupings to be scored based on Section GG of the MDS. The functional grouping would include new metrics in calculating activities of daily living (ADL) and expand the payment system’s reliance beyond the four late-loss ADLs. Unlike RCS, cognitive function is no longer included as a grouping factor for the PT and OT components, which streamlines the number of groups.
  • Both the SLP and nursing components have been streamlined, resulting in 12 and 25 payment groups respectively. Non-therapy ancillaries (NTA) would be paid based on six groups derived from a comorbidity score calculated from the MDS.
  • Importantly, PDPM retains the variable per diem adjustment factors based on length of stay for the PT, OT, and NTA payment categories. This change is intended to better calibrate costs to a patient’s stay over an episode of care, recognizing that some per diem costs are higher in the early days of a length of stay and are lower nearer to discharge. This adjustment would introduce length of stay incentives into the per diem payment model.
  • CMS put forward an interrupted stay policy, which would require completion of a new MDS if there is a readmission to the hospital that is longer than three days and/or admission to a different SNF during the episode. This new policy would not trigger a reset of the variable per diem adjustment clock noted above, meaning that those overall length of stay incentives remain intact regardless of the presence of an interrupted stay.
  • Various MDS completion requirements would be eliminated, which, when netted against the new requirements, are estimated by CMS to result in a net savings of $12,000 per SNF annually.


In the coming weeks, Health Dimensions Group will provide more information on the new payment system, as well as how to survive and thrive operationally and strategically. Given the depth and breadth of these proposed changes, providers will need to carefully evaluate: their clinical capabilities, MDS coding and quality management systems, and staffing levels, as well as fully understand the strategic imperatives of the new payment system. Managed care payors may also be interested in this payment approach as it begins to address longstanding deficiencies in current payment strategies. These changes, in the offing for many years, are a major new opportunity for SNFs to succeed in a value-based world.

Please contact us if you are interested in preparing for these emerging opportunities. For more information, visit our website or contact us at 763.537.5700 or info@hdgi1.com.


Authored by: Brian Ellsworth, MA, Vice President, Public Policy & Payment Transformation, Health Dimensions Group