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Though no final decision has been reached, the changes are designed to make Medicare payments better reflect the variation in costs throughout a resident’s stay.

Navigating health reform

Proposed Resident Classification System Will Change SNF Reimbursement

  • Alissa Tinklenberg
  • Cory Rutledge
  • 5/19/2017

At the end of April, the Centers for Medicare & Medicaid Services (CMS) announced they are considering changing skilled nursing facility (SNF) reimbursement methodology from Resource Utilization Groups, Version 4 (RUG-IV) to a Resident Classification System, Version 1 (RCS-1). The goal of the change is for Medicare payments to better reflect the variation in costs throughout the resident’s stay.

Proposed reimbursement changes

The current reimbursement system considers the resident’s therapy needs, nursing needs, and non-therapy ancillary services to determine their RUG-IV classification. Opponents to the current RUGS-IV system claim that reimbursement is too heavily influenced by the number of therapy minutes a SNF resident receives. The RCS-I methodology is believed to use a more balanced approach to reimbursement by incorporating the following five reimbursement components:

  • Physical therapy (PT) and occupational therapy (OT)
  • Speech language pathology
  • Non-therapy ancillary (NTA) services
  • Nursing (nursing and social services)
  • Non-case-mix

In addition to changing the components of reimbursement, RCS would also change Medicare reimbursement from its current constant per diem rate to a variable per diem payment. Payments would be modified for changes in utilization of the services that occur during the course of the resident’s stay, which would better align payments to the costs incurred.

Why the change?

As CMS explored alternatives to the existing prospective payment system (PPS), it concluded that constant per diem rates do not accurately reflect changes in resource utilization throughout a resident’s stay. Simply stated, payments are likely too low at the beginning of a stay and too high at the end. CMS is seeking to accurately pay for the resource utilization of the resident’s care, and they believe that varying per diem payments that are dependent on the services provided best accomplishes this target. Another goal of using the RCS methodology is to improve the identification of extensive services, functional abilities, and clinical conditions by removing the high correlation between therapy minutes provided and reimbursement that exists in the RUG methodology. Payment accuracy would be achieved by setting payments for each resident group reflecting average costs for that group using the following methods:

  1. Costs per stay would be calculated by multiplying covered charges on individuals’ claims by cost-to-charge ratios from their facility’s cost report at the cost center level.
  2. Cost per day would then be calculated by dividing costs per stay by the number of utilization days in that stay.

CMS also suggests the change in methodology will more accurately reimburse for higher cost residents that are currently not separately identified in the RUG system. The RCS methodology would result in higher payments for many vulnerable populations, including residents with high NTA costs and residents using ventilator, respirator, and tracheostomy and infection isolation.

How will this impact your SNF?

Historically, SNF reimbursement was largely driven by therapy utilization, and the profitability of Medicare residents increased at the tail end of their stays. Some providers noted this, and developed strategies that maximized reimbursement through their residents’ care plans. The RCS-I methodology will create considerably different financial outcomes, and providers will therefore need to understand how the new payment methodology will impact their specific SNF based on the levels of therapy, nursing services, and non-therapy ancillary services provided. While the RCS-I system is expected to result in an overall 2 percent Medicare payment reduction, the impact to each SNF will vary depending on care practices. Providers optimizing the current RUG-IV fee-for-service payment methodology by providing very-high and ultra-high levels of therapy for many of their residents will be impacted more severely than those providing moderate levels of therapy to their Medicare residents.

How we can help

While CMS has not finalized this change or given any details on how RCS rates would be calculated, it is clear that CMS is seeking to both reduce reimbursement levels and create a more balanced reimbursement methodology that is less driven by therapy utilization. CLA professionals can help you prepare for this change by analyzing your current Medicare practices to identify any opportunities or risks. Once more details of the RCS-I methodology are available, we can help by modeling the reimbursement impact specific to your organization. Finally, this change is one of many reimbursement and regulatory changes that could reduce financial performance. CLA has a range of capabilities that can help SNFs identify the specific activities that will drive financial improvement.