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Medicare skilled nursing facility value-based payment program will begin in FY 2019. The details will be forthcoming, but SNFs need to be prepared to report on their performance measures.

Navigating health reform

Medicare Skilled Nursing Facility Value-Based Payment Program Begins FY 2019

  • 4/29/2014

The recently signed Protecting Access to Medicare Act of 2014 (also known as the SGR or Sustainable Growth Rate bill) included a provision requiring the U.S. Secretary of Health and Human Services (HHS) to implement a value-based purchasing program for skilled nursing facilities (SNFs) by federal fiscal year 2019.

“Though incentive payments don’t begin until on or after October 1, 2018, SNFs will begin receiving quarterly feedback reports on their readmission performance two years earlier and this early performance may be the basis for the incentive payments when they finally kick in,” says Nicole Fallon, a health care consultant and director at CliftonLarsonAllen.

Under the program, beginning in fiscal year 2019, all SNF Medicare payments will be reduced by 2 percent, and a portion of these dollars will be redistributed as incentive payments for SNFs that perform well on a hospital readmission measure. The law prescribes that only 50 to 70 percent of the total amount pooled from the 2 percent reduction will be redistributed as incentive payments to SNFs performing in the top 60 percent on the readmission measure. SNFs whose performance is in the bottom 40 percent will receive none of these dollars back, effectively resulting in a 2 percent reduction in their in their adjusted federal per diem rate payments (Medicare Part A).

Providers will be notified of the net rate adjustment resulting from the SNF Value Based Payment Program at least 60 days prior to its October 1 implementation. The reported rate adjustment will only apply to the current fiscal year and will not rebase the SNF’s rate.

Two approaches to measurement

The methodology for distributing the incentive payments has not yet been determined, but the initiative indicates that SNFs will be judged from two perspectives: a facility’s overall achievement on reducing readmissions and how much the facility’s readmission rate improved. The higher of the two scores will be used to assign the facility a rank in comparison to their peers. This is good news for providers who may not be the best performers but who are able to make significant improvements in reducing their readmissions each year.

The HHS secretary is charged with developing an all-cause, all-condition hospital readmission measure by October 1, 2015, for SNFs. A subsequent “resource use” measure will be developed by October 1, 2016, that narrows the measure by applying risk-adjustment and only looking at readmissions that are potentially preventable.

It is important to note that while the 2 percent reduction and corresponding incentive payments are not scheduled to take effect until on or after October 1, 2018, it appears that this value-based incentive payment will be based upon performance in a prior fiscal year.

The quarterly feedback reports on readmission performance that SNFs will begin receiving after October 1, 2016, (fiscal year 2017) could help SNFs gauge how they will fare on the incentive payments and how much they need to improve.

More guidance to come

Unfortunately, the new law leaves many unanswered questions about how various terms will be defined and how incentives will be applied. Guidance on the following is expected in the future:

  • Peer group: Will SNFs be ranked nationally, regionally, or by state? Will urban and rural facilities be distinguished from each other?
  • Readmission formula: How will the readmission rate be calculated? Will it compare expected readmissions to actual readmissions rate? Or will it calculate SNF admissions to the number readmitted to the hospital? Will it include readmissions for both short-stay and long-stay residents? Will it consider readmissions that occur while the resident is in the SNF, or only those that occur after they return home, or both?
  • Timeframe: Will it count readmissions over 30, 60, or 90 days?
  • The payout formula: How will the incentive payments be distributed? If a SNF is in top 60 percent, will it get the entire 2 percent back? Will the top 10 percent SNFs receive more than 2 percent?

Although this is the initial value-based payment program for SNFs, additional value-based payments and metrics are under consideration in proposed federal legislation that many believe could still be passed by Congress in 2014.