Patient-Driven Payment Model Updated for FY 2021

On July 31, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a final rule for fiscal year (FY) 2021 that updates the payment rates and the value-based purchasing program for Medicare payment for skilled nursing facilities (SNFs). The final rule contains routine updates and no major policy changes, but it provides a good opportunity to assess where we are with this new payment system and where we are likely to go. Prior to the COVID-19 pandemic, the Patient-Driven Payment Model (PDPM) was the biggest change to skilled nursing in many years and still promises to have long-lasting impact.

First, the PDPM updates from CMS.

Market Basket Update. For October 1, 2020, the market basket update net of productivity adjustments will be 2.2 percent, slightly below the 2.3 percent proposed in April 2020.

Wage Index Changes. CMS is adopting revised geographic delineations provided by the Office of Management and Budget (OMB) to identify a provider’s status as an urban or rural facility and to calculate the wage index. CMS will be applying a 5 percent cap on any decreases in a provider’s wage index from FY 2020 to FY 2021. About 80 counties are either switching from urban to rural or vice versa, and this could have a significant impact in those regions. The labor share of the rate, to which the wage index is applied, is increasing to 71.3 percent, signaling an increasing role of the wage index in adjusting the rates.

So, before you plug a 2.2 percent Medicare increase into your budget, check the wage index value and make sure it has not appreciably changed from last year. It is important to understand that the 5 percent cap on decreases is for one year only. Therefore, if you are planning for multiple years, further decreases may be in store in those regions at the 5 percent cap.

Updates to PDPM Clinical Diagnosis Mappings. CMS is finalizing some stakeholder recommendations to make changes to the ICD-10 diagnosis code mappings into PDPM payment categories. This is expected to be an ongoing process as PDPM unfolds, and providers should review the ICD-10 mapping on at least an annual basis.

SNF Value-Based Purchasing (VBP) Program. Minor tweaks were made to the regulatory text to reflect updates in policy made in previous years. Providers should be on the lookout for their 30-day readmissions data from CMS, typically provided around the same time as the final rule. This is an important piece of the puzzle in projecting Medicare rates for the coming fiscal year.

What Is Not Included in the PDPM Update

Following are the key areas that CMS did not revise in the final rule for 2021 SNF Medicare payment.

Consolidated Billing. CMS did not revise consolidated billing rules despite some suggestions to carve out certain expensive antiviral and antibiotic, or new chemotherapy, medications. CMS continues to insist that they either lack the authority to exclude certain items (and thus could be billed separately) or, in the case of new chemotherapy drugs, that the item must first have its own code and then it can be considered for exclusion.

Commenters remain concerned that access to SNF care for some patients with expensive medications can be limited as long as those medications continue to be bundled into the overall payment rate.

COVID-19 Impact. Commenters made suggestions about explicitly incorporating COVID-19 diagnosis codes and costs into PDPM. For instance, commenters suggested that a comorbidity be added to the Non-Therapy Ancillary (NTA) component based on the ICD-10 code of either lab confirmed or pending/inconclusive COVID-19 to reflect the increased costs of testing and personal protective equipment (PPE), among other things. CMS stated that it did not have enough viable cost data, or in the case of inconclusive COVID-19 tests, that the code is not approved by the Centers for Disease Control and Prevention (CDC) yet. CMS did indicate that they are continuing to look at these issues and may consider them in future rulemaking.

In the meantime, regarding COVID-19, providers should make sure of the following:

  • Appropriately coding isolation stays for the nursing component when applicable.
  • Using the three-day waiver to skill persons in place when the patient meets skilled criteria and extend the SNF benefit period when the COVID emergency prevents establishment of a new spell of illness. Documentation of skilled need is vital to protecting against audit risk.
  • Documenting additional costs of testing, PPE, and labor, as well as maximizing use of federal and state provider relief funding.

PDPM Impact Data. CMS also did not provide any new evaluative data about the impact of PDPM to date, stating it was premature to do so based on data currently available. CMS noted that it will continue to monitor the impact of PDPM implementation on patient outcomes and budget neutrality and will consider recalibrating case-mix weights as appropriate. We expect this will occur at some point in the future.

HDG’s PDPM Analysis

HDG recently completed an analysis of over 2,000 PDPM stays across 32 SNFs initiated during first quarter 2020 (after implementation but before COVID-19). The results were interesting and include:

  • Close to a 50 percent increase in proportion of patient days in Special Care High compared to baseline 2017 PDPM scores calculated by CMS; this is an early indicator of facilities making the shift to more medically complex care.
  • Minimal number of Interim Payment Adjustments (IPAs)—CMS projected 3 to 4 percent of Medicare stays would be IPAs; however, we are seeing far less than that, indicating that providers are having some trouble figuring out when to perform the optional IPA.
  • Slight decrease in functional impairment scores (indicating higher activities of daily living impairment), which raises the nursing component and lowers the physical and occupational therapy component.
  • Minimal change in proportion of secondary splits for depression and restorative nursing, indicating that providers are potentially leaving money on the table for these categories.

Our coding audits have also revealed some systemic weaknesses in coding for certain areas such as cognitive impairment, which can particularly affect speech therapy reimbursement.

Two other observations we would make at this stage:

  • Most Medicare Advantage plans have adopted PDPM, but in some cases with important nuances on prior authorization policies and payment rates.
  • Many therapy contracts signed just before the beginning of PDPM were status quo contracts, meaning that they generally were designed to pay about the same as before, even if the payment basis had changed (e.g., from minutes to percentage of the PDPM rate). Those contracts should be reevaluated as therapy practice has changed under PDPM and due to COVID-19. Ultimately, therapy payments need to be moving towards an outcome focus.

Next Steps

HDG can assist you in a deep dive on PDPM by conducting a coding audit, benchmarking your claims data, reviewing your operations, and analyzing your market. As SNF occupancy continues to drop under COVID-19 and relief funding is squeezed, it will be important to ensure that you receive all the payment to which you are entitled. HDG can help. For more information, please visit our website and contact us at or 763.537.5700.