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July 2005

By George G. Olsen, JD

An SNF Change

CMS proposes revisions in prospective payment system

On May 13, 2005, the Centers for Medicare and Medicaid Services (CMS) issued a proposed regulation that would revise the prospective payment system rates for skilled nursing facilities (SNF PPS) for fiscal year 2006. The proposal also describes several refinements in the Resource Utilization Groups (RUGS III), the case-mix classification system utilized by the SNF PPS. According to a May 13, 2005, CMS press release, CMS Administrator Mark McClellan, MD, PhD, said that the proposed revisions reflected in the rule “will bring greater accuracy to our payments, greater support for patients who need the most help, and much-needed predictability for the nursing home industry. These steps make sense for patients, nursing homes, and the Medicare program.” The complete text of the proposal is available at the CMS Web site at www.cms.hhs.gov/providers/snfpps.

BACKGROUND
The SNF PPS was statutorily mandated by the Balanced Budget Act of 1997, which directed the establishment of a per diem prospective payment system to replace the existing cost-based reimbursement methodology.

The PPS was to cover all routine, ancillary, and capital-related costs of covered SNF services to Medicare beneficiaries under Part A of Medicare. The new payment structure was effective for cost-reporting periods beginning on or after July 1, 1998. Pursuant to this new system, federal per diem rates were established for rural and urban areas predicated on allowable costs from nursing home cost reports for fiscal year 1995.

The rates were adjusted each year according to an SNF market-basket index. In addition, the rates were case mix-adjusted using the Resource Utilization Groups, Version III. The payment rates were revised further by the hospital wage index to account for geographic variations in wages. The SNF PPS was phased in over a 3-year period that blended a federal case mix-adjusted rate with a facility-specific payment rate. For each cost-reporting period that an SNF was in the PPS, the facility-specific portion of the blended rate decreased by 25% and the federal rate increased by the same amount. The facility-specific rates were fully transitioned out by fiscal year 2002, and accordingly, the proposed rule contains no refinements to those rates.

PROPOSED RULE
When the SNF PPS replaced the historical cost-based reimbursement system, nursing homes became responsible not only for furnishing all of the services required by beneficiaries but also for the cost-effectiveness of their purchasing decisions. Reimbursement for the entire congeries of services furnished to patients in the facility was made directly to the SNF and not to the provider actually rendering the care. Services covered included therapy and other ancillary services, diagnostic tests, supplies, and pharmacy. According to the May 19 issue of the Federal Register, these changes and the response thereto by the nursing home sector resulted in “an aggregate decrease in Medicare expenditure levels for the first SNF PPS year.” CMS also concluded that: “These rapid changes in facility practices and Medicare payment also generated significant concerns that the transition to a prospective payment system would impede access for beneficiaries with complex medical needs, and by decreasing aggregate payments to SNFs, negatively affect the quality of care in nursing homes across the country.”

Congress reacted to these access and quality concerns by including several temporary payment adjustments in the Balanced Budget Refinement Act. Among the adjustments were a 20% increase in the per diem adjusted payment rates for 12 complex medical RUG-III groups, and a 6.7% increase for all 14 rehabilitation groups. Congress intended that these adjustments remain in effect until the later of October 1, 2000, or implementation of a refined case-mix classification system. The proposed rule delineates that refined system.

The proposal would increase the number of RUG-III groups from 44 to 53. The nine groups that CMS proposes to add are as follows:

RUX Rehabilitation Ultra High plus Extensive Services, High;
RUL Rehabilitation Ultra High plus Extensive Services, Low;
RVX Rehabilitation Very High plus Extensive Services, High;
RVL Rehabilitation Very High plus Extensive Services, Low;
RHX Rehabilitation High plus Extensive Services, High;
RHL Rehabilitation High plus Extensive Services, Low;
RMX Rehabilitation Medium plus Extensive Services, High;
RML Rehabilitation Medium plus Extensive Services, Low; and
RLX Rehabilitation Low plus Extensive Services.

CMS believes that the new RUG Groups will adequately reflect the costs of medically complex patients who need rehabilitation services as well as numerous treatments for many comorbidities.

The May 19 issue of the Federal Register reported that CMS also examined whether there was a need to adjust the case-mix weights for the groups and concluded: “[I]n view of the data that we have available to us that demonstrates wide disparities in non-therapy ancillary resources consumed by patients both within and across RUG-III groups, we believe that it is appropriate to adjust the case-mix weights for all 53 groups to better account for non-therapy ancillary variability.” As a benchmark for making such adjustments, CMS examined the outlier pool for the prospective payment system for post-acute care, inpatient rehabilitation facilities, which is pegged at 3% of aggregate expenditures. This analysis led CMS to propose “an increase to the nursing component of the case-mix weights (the component that includes non-therapy ancillaries) of approximately 8.4%, which equates to approximately 3% of aggregate expenditures under the SNF PPS.” As explained above, when the case-mix refinements are implemented, the temporary add-on payments for the RUGS will expire. However, CMS believes that the 3% increase will partially offset the reductions occasioned by the elimination of the temporary adjustments.

The case-mix adjusted payment rates for urban and rural SNFs for the existing 44 RUGs groups as well as the proposed group of 53 are set out in four separate tables in the proposed regulation. CMS has also made available a number of studies that support its work on RUGs refinements. They are available at www.cms.hhs.gov/providers/snfpps.

Recognizing that it will take some time for SNFs and Medicare contractors to reform their systems to incorporate the changes described above, CMS proposed that from October 1, 2005, through December 31, 2005, Medicare will make payment based entirely on the existing 44-group RUG classification system. Thereafter, on January 1, 2006, payment will be predicated exclusively on the new RUG-53 classification system. At that time, all of the temporary add-on payments for RUG-III groups will terminate.

The proposed rule provides for a market-basket update of approximately 3% that will result in increased Medicare payments of $510 million. In CMS’ view, this adjustment, taken together with the case-mix adjustment, will result in Medicare payments to SNFs in fiscal year 2006 that are nearly equal to such payments in fiscal 2005.

CONCURRENT THERAPY
In previous proposed rules for SNF PPS, CMS has discussed the issue of concurrent therapy. At that time, the agency said that concurrent therapy, also known as “dovetailing,” “involves a single professional therapist treating more than one Medicare beneficiary at a time—in some cases, many more than one individual at a time. In contrast to group therapy, in which all participants are working on some common skill development, each beneficiary who receives concurrent therapy likely is not receiving services that relate to those needed by any of the other participants.”

CMS also expressed concern “over instances in which facility management might inappropriately attempt to increase productivity by coercing a therapist, against his or her own professional judgment, to perform concurrent therapy.” Again, according to the May 19, 2005, issue of the Federal Register, responding to the comments filed on that proposed rule, CMS acknowledged that “concurrent therapy can have a legitimate place in the spectrum of care options available to therapists treating Medicare beneficiaries, as long as its use is driven by valid clinical considerations.”

CMS decided not to make specific policy recommendations concerning concurrent therapy when it issued the final rule in 2001. However, the agency took the opportunity to remind stakeholders that “it is inappropriate for a facility to require, as a condition of employment, that a therapist agree to treat more than one beneficiary at a time in situations where providing treatment in such a manner would compromise the therapist’s professional judgment.”

Despite that admonition, CMS stated in the proposed rule for FY 2006 that it continues to receive reports of efforts to override the therapist’s professional judgment and to order concurrent therapy when it is not justified by clinical considerations. As a result, CMS has decided to revisit the issue and is specifically seeking comments on “the most effective way to prevent the abuse of this practice, and to ensure that concurrent therapy is performed only in those instances where it is clinically justified.”

INDUSTRY REACTION
The nursing home industry reacted cautiously to the proposed rule. The American Health Care Association (AHCA), which represents more than 10,000 nonprofit and proprietary facilities, issued a statement advising that its “preliminary evaluation of the Administration’s Proposed Rule… indicates that we have taken a good first step by lessening the blow of the full cut….” Also, while acknowledging that CMS has established a structure for “further constructive discussions,” “it appears undeniable that funding will be reduced in some areas with the elimination of temporary add-ons that have been in place for several years.” Increases in other areas “will help compensate,” AHCA observed.

The American Association of Homes and Services for the Aging commented, “Certainly putting more money in the base helps stabilize SNF funding. Whether there is enough money in the system to ensure quality of care with the changes proposed in the rule remains to be seen.” Pending a more detailed assessment of the impact of the rule, AAHSA concluded that “the rule is a big step in the right direction for skilled nursing facility residents with complex needs.”

Comments on the proposed rule will be considered by CMS, if they are received no later than 5:00 pm on July 12, 2005. Procedures for submitting comments are outlined in the preamble to the proposal.

George G. Olsen, JD, is an attorney with the law firm of Williams & Jensen, PLLC, Washington, DC.

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July 2005