Select Page

In our recent white paper, The Future of Long-Term Care: Predictions, our team made a prediction around the upcoming Patient Driven Payment Model (PDPM). More specifically, the white paper predicted that a greater emphasis on accurate coding will require skilled nursing facilities to invest in staff training and enablement. PDPM will be a big shift and staff will need to shift mindset and have the proper training to ensure your facility is compliant.

With focus and investment continuing to shift toward value-based care, the payment system for skilled nursing facilities is changing to better align patient outcomes with the payment model for the facility. The Centers for Medicare & Medicaid Services (CMS) has released the new Skilled Nursing Facility Prospective Payment System (SNF PPS). Within this notice, CMS outlines a fresh payment model called Patient Driven Payment Model (PDPM).

This new reimbursement model will take effect on October 1, 2019. PDPM will fully replace the current Resource Utilization Groups, Version IV (RUG-IV) system with a completely new system for Medicare Part A reimbursement for all SNF residents. PDPM will not apply to Medicare Advantage.

Why the move to PDPM?

The Centers for Medicare & Medicaid Services (CMS) offers that the primary goals of moving to the Patient Driven Payment Model are as followed:

  • Renewed focus on quality over quantity in resident care
  • Additional resources to target vulnerable populations
  • Add focus to specific areas of the MDS assessment during admission over the RUG IV schedule of multiple assessments
  • Reduce administrative burdens by easing documentation requirements and offering more flexibility

The hope is to better align reimbursements to outcomes while also aligning facility operations to the delivery of those positive outcomes. CMS stated in its final rule in July 2018 that PDPM will be patient-centered and outcome-driven rather than process-oriented. “Where applicable, these changes will allow providers to work with a smaller set of more meaningful healthcare measures and spend more time on patient care.”

Under the current Resource Utilization Groups, Version IV (RUG IV) system, a case-mix classification methodology, residents are classified into rehabilitation groups, where payment is primarily determined based on the volume of therapy services and intensity of nursing received by the resident and other aspects of the resident’s care and condition. This model has led to increases of up to more than 60% of patients classifying into the “ultra-high” therapy category according to the Ohio Health Care Association. CMS, not pleased with the trending increase in patient therapy severity, stated, “we believe the increase in “thresholding” is a strong indication of service provision predicated on financial considerations rather than resident need.”

Within this new model, Medicare reimbursement to the Skilled Nursing Facility will be determined by the patient’s condition (primary diagnosis) at admission and successive care needs, rather than the volume of care and minutes of therapies provided.

Section GG of the Minimum Data Set (MDS) will be one of the most significant areas of SNF documentation and has been updated more than any other sections of the MDS. The expansion of Section GG will allow CMS to compare outcomes of patients with similar data in Inpatient Rehab Facilities (IRFs).

The expansion offers changes for mobility score and self-care score, both in-facility and at discharge. Coding will be as follows: 1. Dependent, 2. Needed some help, 3. Independent, 8. Unknown, and 9. Not Applicable. Another significant update is to Section N, with addition of new items that revolve around the residents five-day PPS assessment. Section N will include assessment revolving around Antipsychotic medication, overall drug regimen review, medication follow-up, and medication intervention. With the changes to Sections GG, N, C, I, J, M, and O, CMS will be able to track and compare changes in patient outcomes.

How PDPM differs from RUG IV

  • Resident’s participation in therapies tracked by minute with minimum minutes required to meet each RUG level
  • 5 scheduled MDS assessments
  • 66 Groups


  • Minutes of therapy not relevant, reimbursement will provide a separate rate component for PT, OT, and ST services not based on therapy minutes for associated reimbursement
  • Patient clinical characteristic based with focus on ADL status, and co-morbidities for reimbursement
  • Per Diem payment
  • The selection of the appropriate ICD-10 diagnosis code plus co-morbidities must be accurately captured to ensure appropriate payment for services provided
  • ICD-10 Diagnosis Coding on MDS and Related Coding is basis for payment.

Through the current RUG IV model, higher volumes of therapies made for higher volumes of reimbursement. However, measured outcomes did not show improved outcomes for patients, leaving patients and legislators frustrated. The RUG IV model also created a need for stacks of paperwork (electronic or not) due to the number of therapies a resident would be prescribed and the large number of RUG IV classification groups and the number of MDS assessments required in the schedule. The time to process additional documentation required considerable time from SNF nurses, social workers, therapy providers and business office staff. The RUG IV models also increased the amount of information in a resident’s file, which PDPM aims to simplify. When a patient’s file is filled with numerous therapies and complex MDS assessments, it is always possible for human error to inhibit patient care.

The differences between the current RUG IV model and the new PDPM system change the focus from therapy minutes to incentivizing the right support for individual needs and clinical characteristics. The RUG IV model called for repeated MDS completion, whereas PDPM will require rapid and accurate patient assessment with MDS coding and from therapy delivery to coordinated team-based care for reimbursement, though admission and the first days of a resident’s stay will have the highest financial impact on the SNF. Post-admission, SNFs will no longer have to follow a schedule that includes assessments completed around days five, fourteen, thirty, sixty, and ninety of the resident’s stay. Additional assessments will be required under specific circumstances.

Under the upcoming Patient Driven Payment Model, the International Classification of Disease, Tenth Edition (ICD-10) diagnosis codes and other patient health characteristics, such as the patient’s activities of daily living (ADL), will be used as the basis for patient classification. This change brings focus to the condition of the whole-patient and gives a holistic idea as to what clinical needs they have, which will lead to the best value-based care for that individual. Keeping value-based care at top of mind is why facilities will be required to classify each resident into a clinical category that represents the clinical reasons for their stay.

Though PDPM is designed to be budget-neutral, CMS approximates that the 2019 financial year will show an increase of $820 million in Medicare payments to Skilled Nursing Facilities.

How will PDPM work?
The Patient Driven Payment Model will introduce a modified minimum data set (MDS) schedule with a heavier weight on admission criteria. PDPM will consist of five case-mix adjusted payment components:

  • Utilization of physical therapy (PT)
  • Utilization of occupational therapy (OT)
  • Utilization of speech-language pathology (SLP) services
  • Utilization of nursing services and social services
  • Utilization of non-therapy ancillary (NTA) services,

The per diem reimbursement payments for SNFs will reflect varying costs throughout the stay of a resident and will be based upon what each individual resident needs as a comprehensive patient.  In addition to the five components, PDPM will including a non-case-mix component, which covers overhead items such as laundry, capital expenses and more. These six categories will be added together to create the daily per diem.

How to prepare.

While PDPM does aim to reduce overall complexity each case mix has its own groups as well. The model will create 16 PT groups, 16 OT groups, 12 SLP groups, 6 NTA groups, and 25 nursing groups. As opposed to RUG-IV, in which a resident’s classification into a single group determines the case-mix index and per-diem rates for all case-mix adjusted components. PDPM classifies residents into a separate group for each of the case-mix adjusted components, which each have their own associated case-mix indexes and per diem rates. Documenting and coding everything precisely and on time for each resident will be extremely critical for facilities to receive accurate reimbursement.

PDPM will be an adjustment at first. As with any major change, there will be headaches. Top level administration must have the correct staffing mix and any staff that works with the MDS will have to educate and orient themselves with the changes and the new schedule that prioritizes admission. They must know the correct codes for the facility to be reimbursed by Medicare and they must be sure they are properly assessing a patient holistically based on ADL and co-morbidities. The good news for Skilled Nursing Facilities is that there will be an 80 percent reduction in the number of payment group combinations. CMS projects that this simplification of assessment paperwork will reduce reporting burden by roughly two billion dollars over ten years under the new system.

Preparation for PDPM is key and it will take the entire facility. With the switch less than a year away, it is time for all relevant facility staff is prepared and your electronic health record (EHR) system and your financials are set up to aid your compliance with PDPM. Communication between clinical and billing staff and training are vital for an effective transition over the coming months.

If a SNF is perceived to deliver care that is not “patient centric” and motivated to their defined clinical needs, the facility could be audited as CMS wants to ensure all SNF staff is focusing on a ‘whole patient’ view. Capturing each resident’s assessment up front with correct MDS entry will avoid the pain of an audit.

According to the American Health Care Association (AHCA), for a Skilled Nursing Facility to be accurately reimbursed through Medicare Part A under PDPM, a facility will need to ensure four things:

  • an understanding of new payment drivers’ impact
  • that all residents have correct comprehensive clinical information collected and assessed
  • a strong care delivery process and the needed resources to support the new model

With the admission assessment, SNF staff must be familiar with MDS assessments and have a level of knowledge with ICD-10 coding.

Skilled Nursing Facilities will need internal protocols and staff training in place well before October 1st of 2019 in order to maximize reimbursements. Successful transition could rely on getting nursing, social services, business office, even dietary and more within a single facility on the same page following the same coding protocol. Financial and clinical must work together to make PDPM work for the facility’s long-term success.


Skilled Nursing Facilities currently working on basic software, such as J-Raven to perform MDS assessments are at risk because it’s limited in its scope. If your MDS software is not robust enough to help the nurse assessment coordinator (NAC) manage the new process, facility reimbursement will be affected. The resident population being cared for by a SNF have complex health conditions and care needs. This results in frequent transitions between home, acute, post-acute, and long-term care settings. These residents and those involved in their care need an EHR with interoperability to make these transitions seamless in the patient’s chart and allows all entities to increase patient care quality while ensuring accurate data is reported to receive appropriate reimbursement from Medicare.

With the proposed Patient Driven Payment Model less than a year away and no overlap period with RUG IV, it is up to SNFs to shift away from the RUG IV system and focus resident care quality over a quantity of therapy minutes or they will not be reimbursed for patient care. This is especially important during admission and the required PPS assessment days during a resident’s stay. All SNFs should identify gaps now in staffing, training, and resources to ensure success under this new reimbursement model. PDPM is the future of Medicare Part A reimbursement, so it is vital for Skilled Nursing Facilities to understand how it works in their day-to-day operations as well as overall financial health.

For action items and more, check out our newest white paper, The Future of Long-Term Care: Predictions for 2019.