CMS Releases FY 2023 Final Rule for Skilled Nursing Facilities

  • Regulations
  • 8/19/2022
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Key insights

  • CMS finalizes a 5.1% market basket update.
  • CMS finalizes a 4.6% PDPM parity adjustment reduction over a two-year period.
  • CMS finalizes various changes to the Value-Based Payment and Quality Reporting programs.

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On July 29, the Centers for Medicare & Medicaid (CMS) issued its final rule updating the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2023. Also included in the final rule are changes to the SNF Quality Reporting Program (QRP) and the SNF Value-Based Program (VBP) for 2023 and future years. For more information, download the final rule from the Federal Register.

Market basket update

CMS is required to establish a market basket index that reflects changes over time in the prices of an appropriate mix of goods and services included in covered SNF services. For FY 2023, CMS finalized the market basket percentage change of 3.9% but adjusted upward to account for a forecast error correction of 1.5%, resulting in a SNF market basket percentage change of 5.4%. That is then reduced by a 0.3% productivity adjustment to result in a 5.1% update. CMS estimates the result will be an increase of $904 million in rate increases to SNFs in FY 2023.

Patient Driven Payment Model (PDPM) parity adjustment

On October 1, 2019, CMS implemented the Patient Driven Payment Model (PDPM). The intention of CMS was to implement PDPM in a budget-neutral manner, similar to prior payment transitions.

However, CMS has determined it paid approximately 5% more in FY 2020 than it would have under the previous payment model, RUG-IV. CMS discussed various methodologies in the FY 2022 proposed rule to recalibrate the PDPM parity adjustment; however, they did not implement any change in the FY 2022 final rule.

Based on stakeholder feedback and considering the effects of the COVID-19 public health emergency (PHE), CMS is finalizing a recalibration of the PDPM parity adjustment in its FY 2023 rule, including applying budget neutrality. CMS does so by using a combined methodology of a subset population that excludes patients with stays utilizing a COVID-19 PHE waiver or who were diagnosed with COVID-19 and a control period. The control period uses six months of FY 2020 data from October 2019 through March 2020 and six months of FY 2021 data from April 2021 through September 2021. The result is a final parity adjustment factor of 4.6%.

Though not originally proposed, CMS does finalize implementation of the parity adjustment through a two-year phase-in period. The recalibration of the PDPM parity adjustment will include a 2.3% reduction in FY 2023 ($780 million) and a 2.3% reduction in FY 2024.

This means that for each of the PDPM case-mix adjusted components, CMS will lower the PDPM parity adjustment factor from 46% to 42% in FY 2023 and would further lower the PDPM parity adjustment factor from 42% to 38% in FY 2024.

Wage index

CMS recognizes that changes to the wage index have the potential to create instability and significant negative impacts on certain providers even when labor market areas do not change. In addition, CMS notes that year-to-year fluctuations in an area’s wage index can occur due to external factors beyond a provider’s control, such as the COVID–19 PHE. The agency notes this can be difficult to predict and may create volatility, making budgeting and operations planning difficult for individual providers. There CMS finalizes its approach to smoothing these fluctuations by implementing a permanent year-over-year 5% cap to wage index decreases for the SNF PPS beginning in FY 2023.

Value-based purchasing (VBP) program

CMS acknowledges that facilities have continued to be affected by COVID-19 at different times and levels of severity since March 2020 — which has significantly affected the validity and reliability of the readmission measure and resulting performance scores. CMS proposes to continue to suppress the use of SNF readmission measure data for purposes of scoring and payment adjustments in the SNF VBP program. In general, CMS stated SNF 30-day all-cause readmission rates will still be calculated but would not be used to score facility performance, rank SNFs, or calculate the incentive payment. Instead, CMS will reduce each eligible SNF’s adjusted federal per diem rate by 2% and return 60% of the withhold as their incentive payment, resulting a 1.2% payback to the SNFs.

CMS finalizes expansion of the SNF VBP program in FY 2026 and FY 2027 to include three new measures. For FY 2026, CMS finalizes adoption of the SNF Healthcare Associated Infections (HAI) Requiring Hospitalization and the Total Nursing Hours per Resident Day measures. For FY 2027, CMS finalizes adoption of the Discharge to Community — Post Acute Care measure for SNFs.

CMS finalizes various scoring changes as well:

  • Beginning FY 2026 program year, CMS will update the achievement and improvement scoring formulas such that SNFs could earn up to 10 points per measure for achievement and up to nine points per measure for improvement to accomplish the goal of continuing to award SNF performance scores that range between 0 and 100 points. All measures in the expanded SNF VBP program would be weighted equally.
  • Beginning FY 2023 SNF VBP program year, CMS replaces the low-volume adjustment policy with a case minimum policy. CMS finalizes adoption of a minimum of 25 eligible stays during the applicable one-year performance period beginning with the FY 2023 program year for all-cause readmission measure. In the FY 2026 program year, a minimum of 25 residents for the SNF Healthcare Acquired Infections Requiring Hospitalization measure and a minimum of 25 residents, on average, across all available quarters during the applicable one-year performance period for the Total Staff Nursing measure. Beginning with the FY 2027 program year, CMS adopts a minimum of 25 eligible stays during the applicable two-year performance period for the discharge to community measure.
  • CMS updates the scoring policy for SNFs without sufficient baseline period data beginning with the FY 2026 SNF VBP program year. CMS will accommodate additional quality measures, such that if a SNF does not meet the case minimum threshold for a given measure during the applicable baseline period, the SNF would not receive an improvement score for that measure.
  • Adopting a measure minimum policy beginning with the FY 2026 SNF VBP program year, CMS will require a two-measure minimum for a SNF to receive a SNF performance score and, for the FY 2027 program, a three-measure minimum for the SNF to receive a SNF performance score.

Quality reporting program (QRP)

The SNF QRP requires SNFs to meet certain reporting requirements, and SNFs may be subject to a 2% reduction in their annual update rate if the reporting requirements are not met. There are currently 15 measures for FY 2023.

Quality measures currently adopted for the FY 2023 SNF QRP

In its final 2023 rule, CMS will require adoption of a new quality measure for FY 2024 — Influenza Vaccination Coverage Among Healthcare Personnel (HCP) (NQF #0431), a process measure. SNFs will need to submit measure data through the CDC’s National Healthcare Safety Network with the initial data submission period of October 1, 2022, through March 31, 2023.

CMS finalizes that SNFs must begin collecting Transfer of Health Information measures and certain categories of standardized patient assessment data elements (including race, ethnicity, preferred language, health literacy, social isolation) beginning October 1, 2023.

Requirements of Participation (RoP)

CMS finalizes two changes to LTCs, one related to the director of food and nutrition services and another related to physical environment.

Director of food and nutrition services

CMS finalizes that an individual who, on the effective date of this final rule, has two or more years of experience in the position of director of food and nutrition services in a nursing facility setting and has completed a course of study in food safety and management by no later than October 1, 2023 (plus other existing requirements) is qualified to be the director of food and nutrition services.

Physical environment/life safety code

CMS finalizes that LTC facilities participating in Medicare prior to July 5, 2016, and previously using the Fire Safety Evaluation System (FSES) to determine equivalent fire protection levels to continue to use the 2001 FSES mandatory values when determining compliance for containment, extinguishment, and people movement requirements.

CMS intends to require minimum staffing in future

CMS requested comments in the proposed rule on several issues, including minimum staffing requirements. CMS said it received 3,129 comments from a variety of sources, including advocacy groups, long-term care ombudsmen, industry associations (providers), labor unions and organizations, nursing home staff and administrators, industry professionals and other researchers, and family members and caretakers of nursing home residents. CMS indicated “overall, commenters were generally supportive of establishing a minimum staffing requirement,” but that other commenters opposed it.

CMS said it appreciated the “robust” response and believes that staff levels in nursing homes have a substantial impact on the quality of care and outcomes residents experience. CMS states it will “use the input received used in conjunction with a new research study being conducted by CMS to determine the level and type of nursing home staffing needed” to provide safe and quality care.

CMS states it intends to release proposed rules on setting minimum staffing level requirements within one year in order to provide all residents “safe, quality care, and that workers have the support they need to provide high quality care.”

Further, CMS states it intends to issue proposed rules on a minimum staffing level measure within one year.

How we can help

Connect with CLA for further insight on preparing for the coming parity adjustment and future staffing requirements and understanding their impact on your facility. Don’t forget to register for CLA’s August 24 webinar specific to learn how industry-driven data-focused insights can provide skilled nursing and long-term care organizations clarity into their landscape, and inform their strategic operational and financial actions in pursuit of a financially viable future.

Our health care team is on the front lines of regulatory, policy, and payment changes for providers across the continuum and can provide guidance to meet your specific needs.

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