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When a Skilled Nursing Facility (SNF) provides services covered by Medicare—speech therapy, physical therapy, occupational therapy—to residents, Medicare skilled nursing facility reimbursement rates are calculated under the Prospective Payment System (PPS) through Medicare part A.   

The Prospective Payment System (PPS), according to the CMS, is a method of reimbursement in which payments for services provided to residents are a predetermined, fixed amount. Payment for a service is based on the classification system of the provided service, and staff can use the financial modules of their nursing home software to calculate their payments. CMS uses different PPSs for reimbursements for acute inpatient hospitals, long term care hospitals, rehabilitation facilities (inpatient), and skilled nursing facilities.

For a SNF’s PPS, CMS notes that the payment rates are adjusted for case-mix and the geographic variation of wages in the country. Also, PPS covers all costs of furnishing covered SNF services (routine costs and any ancillary costs). The American Speech-Language-Hearing Association (ASHA) notes that should a resident require speech-language pathology services, the SNF is obligated to provide those services, regardless of whether or not the services are covered under Medicare Part A or Part B.

Elderly resident talking to a nurse in a skilled nursing facility.
For SNFs, PPS covers all costs of furnishing (routine costs and any ancillary costs).

Medicare Part A covers inpatient care in hospitals, SNF care (not custodial and not long-term), home health care, and hospice care. Meanwhile, long term care providers—including skilled nursing facilities—receive reimbursements for services provided to residents through Medicare Part B with certain conditions. Medicare Part B kicks in after 100 days, when Medicare Part A no longer covers certain services provided to a resident. Services covered by Medicare Part B include:

How Reimbursement for Long Term Care Has Changed

Reimbursement for long term care underwent a drastic change on October 1st 2019, when the CMS introduced the Patient-Driven Payment Model (PDPM). PDPM was introduced as a replacement for RUG-IV, a system for grouping nursing home residents according to their clinical and functional status as identified by way of a facility’s minimum data set.

RUG-IV was a system used to determine the reimbursement levels for long term care facilities. Payment was determined by classifying residents into groups based on their care and resource needs. PDPM is an improvement over RUG (Resource Utilization Groups) for the following reasons:

Senior resident using a cardio machine, thanks to good Medicare skilled nursing facility reimbursement rates
PDPM is outcome-driven and is thus better for long term care residents.
  • RUG was therapy-driven whereas PDPM is driven by the medical diagnosis of the resident, clinical complexity of the resident’s condition, and care outcomes.
  • RUG primarily focused on therapy disciplines whereas PDPM is multi-disciplinary.
  • RUG did not focus on resident care outcomes whereas PDPM is outcome-driven and thus better for long term care residents.
  • RUG required five scheduled PSS assessments whereas PDPM only requires one.
  • RUG had constant rates for length of stay whereas PDPM has a Variable Per Diem (VPD) adjustment, meaning the per diem rate adjusts over the course of the stay of the patient or resident.
  • In RUG, the primary diagnosis of a resident was not emphasized as much as it is under PDPM in which the primary diagnosis is used in the classification process of the patient or resident.

It is worth noting that PDPM affected Medicare skilled nursing facility reimbursement rates as well. For more on maximizing reimbursement under PDPM, click here

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Case Mix Index Nursing Homes and Reimbursements

The discussion around case mix index nursing homes involves SNF administrators seeking to have a high Case Mix Index (CMI) for their facility. But what is CMI, and how does it relate to Medicare skilled nursing facility reimbursement rates? Ritcher notes that Case Mix Index—tracked by staff in nursing homes and SNF using their long term care software—is a relative value assigned to residents in a nursing home and SNF. The CMI is, in turn, used to determine the allocation of resources, which can be managed in the financial suite of a long term care software system.

CMI was part of RUGs as well, and the data entered would affect RUG score reimbursement rates. Now, under PDPM, administrators looking to boost their nursing home reimbursement should be aware of the factors that affect the Case Mix Index of long term care facilities:

Nurse and physician using EHR software in their healthcare facility.
By using a long term care EHR, nursing homes and SNFs can easily ensure documentation is compliant with all healthcare regulations.
  • Documentation specificity: Accuracy and regulatory compliance are vital when it comes to long term care documentation. By using a long term care EHR, nursing homes and SNFs will find it easy to ensure that their documentation is detailed, accurate, and in compliance with all healthcare regulations.
  • Coding accuracy: Coding accuracy is essential to ensure that a long term care facility has a high CMI. The best long term care software makes coding easy by giving coding suggestions and making documentation review easy. This helps the team improve workflows and save time.
  • A high volume of weighted DRGs: Examples of highly weighted DRGs include medical procedures like organ transplants, neurosurgeries, and cardiothoracic surgeries. The mentioned DRGs apply only to hospitals. Long term care facilities should look for highly weighted DRGs that their facilities are equipped to handle and use their long term care EHR to ensure services are delivered effectively.
  • Annual updates to relative MS-DRG Weights: The Centers for Medicare and Medicaid Services makes annual updates to relative MS-DRG Weights, and they can be found here.

Medicare Skilled Nursing Facility Reimbursement Rates

Above, it was shown how Medicare skilled nursing facility reimbursement rates are calculated under the Prospective Payment System (PPS)  for short stays through Medicare Part A. It was also mentioned that Medicare Part B comes into play for long stays in SNFs and other long term care facilities. Here the role of consolidated billing should be emphasized. The ASHA notes that SNFs must provide and bill for both Medicare Part A and Part B services provided to residents. Through consolidated billing, the CMS prevents double billing by SNFs. Keeping that in mind, long term care facilities should seek to improve their CMIs in order to boost their reimbursement rates.

For more on recent trends in long term care, read our blog and subscribe to the LTC Heroes podcast.

Elijah Oling Wanga
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