The Shift to Patient-Driven Payment Model (PDPM)
In October 2019, the Centers for Medicare & Medicaid Services (CMS) officially transitioned from the Resource Utilization Group, Version IV (RUG-IV) system to the Patient-Driven Payment Model (PDPM). This move represented a fundamental change in how Medicare calculates payment for Skilled Nursing Facilities (SNFs). Where RUG-IV primarily based reimbursement on the volume of therapy minutes provided, PDPM's core philosophy is to determine payments based on a patient's individual clinical needs and conditions. This model aims to better align payment with the costs of care and to reduce administrative burden on providers.
The Six Payment Components
At its heart, the PDPM calculation is based on six distinct components that are added together to create a patient's total daily rate. Five of these are case-mix adjusted, meaning the payment rate is determined by the patient's specific characteristics. The sixth is a non-case-mix component.
The Five Case-Mix Adjusted Components
- Physical Therapy (PT): The rate for this component is based on the patient's primary diagnosis and functional score. The PDPM uses data from the Minimum Data Set (MDS) assessment to classify patients into a specific case-mix group. Payment for PT also includes a variable per diem (VPD) adjustment, with payments decreasing over time.
- Occupational Therapy (OT): Similar to PT, the OT payment is based on the patient's primary diagnosis and functional score, as reported on the MDS. OT also has its own variable per diem adjustment schedule that factors in the length of the patient's stay.
- Speech-Language Pathology (SLP): This component is determined by factors such as the presence of a swallowing disorder, cognitive impairment, and the patient's need for a mechanically altered diet. Unlike PT and OT, the SLP payment rate is not subject to a variable per diem adjustment.
- Nursing: The nursing component is arguably the most complex. It is derived from a combination of the patient's primary diagnosis, functional score, and other clinical characteristics documented in the MDS, such as the need for extensive services or special care. This component is designed to capture the total nursing needs of a patient.
- Non-Therapy Ancillaries (NTAs): This component covers items and services not specifically included in the therapy components, such as drugs, medical supplies, and other ancillary costs. The NTA rate is based on the number and type of patient comorbidities, with a significant VPD adjustment where the first three days are paid at a much higher rate.
The Non-Case-Mix Component
This final component covers the routine costs of a patient's stay, such as room and board. It is a flat, unadjusted per-diem rate that is the same for every patient, regardless of their individual case-mix classification. This component provides a stable base for the overall daily payment.
Step-by-Step Breakdown of the Calculation
The total SNF daily rate under PDPM is a sophisticated formula that brings together these components with several adjustment factors. Here is a simplified breakdown:
- Patient Assessment: Upon admission, a comprehensive MDS assessment is completed. This assessment is the foundation for classifying the patient into a specific case-mix group (CMG) for each of the five case-mix adjusted components.
- Case-Mix Index (CMI): Each CMG is assigned a CMI, which is a relative value reflecting the resource intensity for that group. A higher CMI indicates higher expected resource use and thus, a higher payment.
- Component Rate Calculation: For each of the five case-mix adjusted components, the calculation multiplies the component's base rate by the CMI assigned to the patient's CMG.
Component Payment = Component Base Rate × CMI
- Adjusting for Geography and Stay Duration: Several adjustments are then applied:
- Wage Index: The labor-related portion of the payment for each component is adjusted based on the SNF's geographic location. This accounts for differences in local labor costs. A facility in a high-cost urban area will have a higher wage index adjustment than one in a lower-cost rural area.
- Variable Per Diem (VPD): The PT, OT, and NTA components have a variable per diem adjustment, which changes the rate over the course of the stay. For example, the NTA rate is tripled for the first three days, while PT and OT rates decline after day 20. This reflects the typical pattern of resource use during a SNF stay.
- Summing the Components: The calculated and adjusted payment amounts for all six components are then added together.
Total Daily Rate = (PT Payment + OT Payment + SLP Payment + Nursing Payment + NTA Payment) + NCM Payment
Comparison of RUG-IV vs. PDPM
| Feature | RUG-IV (Previous Model) | PDPM (Current Model) |
|---|---|---|
| Basis for Payment | Therapy minutes provided | Patient's clinical characteristics and needs |
| Number of Components | Often consolidated into one primary RUG category | Six distinct components (5 case-mix, 1 non-case-mix) |
| Focus | Volume-driven, incentivized more therapy | Value-based, incentivized accurate coding and needs |
| Data Source | Primarily the MDS assessment | Primarily the MDS assessment |
| Risk Factor | Risk of providing unnecessary therapy to maximize reimbursement | Risk of inaccurate coding or documentation leading to underpayment |
| Adjustments | Case-mix, geographic wage index | Case-mix, geographic wage index, variable per diem |
The Role of Accurate Documentation
For SNFs, the accuracy of the final calculation hinges entirely on the quality of documentation. Under the PDPM model, documentation of a patient's primary diagnosis and all comorbidities is crucial for accurate payment classification. The MDS assessment must capture a complete picture of the resident's health status and care needs. For instance, a patient with a respiratory diagnosis, cognitive issues, and a swallowing disorder will be classified differently and receive a higher payment rate than a patient with only a simple orthopedic issue, even if they receive the same number of therapy minutes.
CMS provides extensive guidance and resources to ensure facilities understand the intricacies of this model and can accurately document patient information. The emphasis on detailed and accurate clinical information ensures that SNFs are reimbursed appropriately for the care they provide, discouraging the potentially detrimental practice of over-treating patients simply to increase revenue. It aligns financial incentives with patient outcomes, supporting a higher standard of care.
For a deeper dive into the technical details and latest updates on the Skilled Nursing Facility Prospective Payment System, you can visit the official CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/skilled-nursing-facility-snf.
Conclusion
Understanding how is snf calculated today requires a shift in perspective away from the old volume-based system. The current PDPM is a sophisticated, patient-centric model that assesses six distinct components, with adjustments for geography and length of stay. For families, this means the cost of care is more closely tied to the actual needs of the patient. For providers, it emphasizes the critical importance of accurate and thorough clinical documentation. As healthcare evolves, payment models will continue to adapt to better reflect the complexity of patient care, and the PDPM is a prime example of this ongoing evolution in senior care.
