What's the reimbursement system for SNFs? A guide to PDPM and payment

Since 2019, the Medicare reimbursement system for Skilled Nursing Facilities (SNFs) has fundamentally shifted from a volume-based model to one centered on individual patient needs. This change, known as the Patient-Driven Payment Model (PDPM), aims to improve payment accuracy and tailor compensation to the complexity of a resident's care, not just the quantity of services provided.

Quick Summary

The primary reimbursement system for SNFs under Medicare Part A is the Patient-Driven Payment Model (PDPM), which bases daily payment rates on a patient's clinical and functional characteristics, unlike the former volume-based approach.

Key Points

• PDPM Explained: The current Medicare Part A reimbursement system for SNFs is the Patient-Driven Payment Model (PDPM), implemented in 2019, which pays based on patient characteristics, not therapy volume.

• Six Rate Components: A SNF's daily payment under PDPM is a sum of rates for six components: nursing, PT, OT, SLP, non-therapy ancillaries (NTA), and a non-case-mix component.

• MDS is Key: The Minimum Data Set (MDS) assessment tool is used to collect patient data, including diagnoses and functional scores (Section GG), which classifies residents into PDPM payment groups.

• Medicare Part A Coverage: Medicare Part A typically covers up to 100 days of a SNF stay per benefit period, with a copayment starting on day 21, and requires a qualifying 3-day hospital stay.

• Beyond Medicare: For long-term stays, Medicaid is a primary payer, with rates varying by state, while Medicare Part B can cover services after Part A benefits are exhausted.

• Consolidated Billing: SNFs are required to submit a single, consolidated bill to Medicare for most services provided during a Part A stay, preventing separate billing from other providers.

The Shift from Volume to Value with PDPM

On October 1, 2019, the Centers for Medicare & Medicaid Services (CMS) replaced the previous Resource Utilization Group (RUG) system, which linked payment to the volume of therapy services, with the Patient-Driven Payment Model (PDPM). PDPM focuses on individual resident characteristics, clinical complexity, and functional status, moving away from incentives based on therapy minutes. The goal is to improve payment accuracy by reflecting the higher resources needed for patients with greater acuity and complex conditions.

Deconstructing the Six PDPM Payment Components

A SNF's daily payment under PDPM is calculated by summing the payment rates for six distinct components, which capture different aspects of patient care needs. These include case-mix adjusted rates for Nursing, Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), and Non-Therapy Ancillary (NTA) services, plus a fixed Non-Case Mix component. The PT, OT, and NTA components also include a variable per diem (VPD) adjustment that reduces the rate over time.

The Role of the MDS and Patient Assessment

The Minimum Data Set (MDS) is a crucial, federally mandated assessment tool for Medicare and Medicaid certified nursing homes. It gathers standardized data on residents' health, function, and clinical characteristics, which CMS uses to classify them into PDPM payment groups. Key factors in this classification include the primary diagnosis (ICD-10 code), functional status (from Section GG of the MDS), and comorbidities captured for the NTA component. Facilities can also use an Interim Payment Assessment (IPA) if a resident's condition changes significantly.

Medicare Part A Coverage Rules and Costs

For Medicare Part A to cover a SNF stay, a beneficiary generally needs a qualifying hospital stay of at least three consecutive days and must be admitted to the SNF within 30 days of hospital discharge. The resident must also require daily skilled nursing or rehabilitation related to the hospital stay. Medicare Part A covers the first 20 days per benefit period at $0 coinsurance, days 21-100 with a daily coinsurance, and no coverage beyond day 100.

The Role of Other Payers: Medicaid and Consolidated Billing

While Medicare is significant for short-term stays, Medicaid is the primary payer for long-term care residents who meet eligibility requirements. Medicaid rates are state-determined and vary. Consolidated Billing is a rule requiring SNFs to submit a single bill to Medicare for most services provided to a resident during a Part A covered stay, including therapy and ancillaries.

PDPM vs. RUG-IV: A Comparative Analysis

The transition from RUG-IV to PDPM fundamentally changed SNF reimbursement. RUG-IV focused on therapy minute volume, while PDPM centers on patient clinical and functional characteristics. PDPM utilizes five case-mix adjusted components and one non-case-mix component, whereas RUG-IV had therapy and nursing case-mix components. Functional scores under RUG-IV used Section G of the MDS, while PDPM uses Section GG. PDPM also includes a separate NTA component and variable per diem adjustments for PT, OT, and NTA, which were not features of RUG-IV.

Conclusion: Adapting to the Modern SNF Payment Landscape

PDPM has significantly altered the financial and operational landscape for Skilled Nursing Facilities by prioritizing patient needs over service volume. Understanding its components, the MDS's role in assessment, and Medicare Part A coverage is essential for accurate reimbursement and compliance. Keeping up with CMS updates is also vital.

For more detailed information, consult the official CMS website at CMS.gov.

Frequently Asked Questions

What is the biggest difference between the old RUG system and the new PDPM for SNFs?

The biggest difference is the payment driver. The old RUG system tied reimbursement to the volume of therapy minutes provided, while the PDPM model bases payment on the individual patient's clinical and functional characteristics.

What is the role of the Minimum Data Set (MDS) in SNF reimbursement under PDPM?

The MDS is a comprehensive assessment tool that collects data on a resident's health and functional status. This data is used to classify the patient into the appropriate PDPM payment groups for reimbursement purposes.

Does PDPM affect reimbursement for Medicaid patients?

While PDPM is the Medicare reimbursement system, Medicaid is the primary payer for long-term residents. Medicaid payment rates are set at the state level and are not directly determined by PDPM, although states may use similar patient-driven methodologies.

What is a 'qualifying hospital stay' for Medicare SNF coverage?

A qualifying hospital stay is an inpatient hospital stay of at least three consecutive days. A patient must have this type of stay immediately prior to entering a SNF for Medicare Part A to cover their stay.

What happens after a resident's 100 days of Medicare Part A coverage ends?

After 100 days in a benefit period, Medicare Part A no longer covers the SNF stay. The resident is then responsible for all costs. Other payment sources, such as Medicaid or private pay, must cover the expenses.

What are Non-Therapy Ancillaries (NTA) and why are they important in PDPM?

NTAs are special medical equipment, supplies, and services needed for medically complex conditions. Under PDPM, NTAs are a separate, case-mix adjusted payment component, ensuring facilities are reimbursed appropriately for caring for sicker patients.

How does Consolidated Billing work for SNF reimbursement?

Consolidated Billing is a Medicare rule that requires the SNF to handle the billing for most services received by a resident during a covered Part A stay. This means the SNF bills Medicare, even if an outside provider rendered the service, and the SNF then pays the outside provider.