On April 28, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that discusses options the agency is considering for purposes of setting the 2012 Medicare payment rates for skilled nursing facilities (SNFs). The proposed rule provides for two different scenarios, and seeks input as CMS decides which to implement on October 1, 2011.

Option One
In option one, CMS attempts to adjust for the unanticipated impact of RUGS-IV; however, it does so in a way that goes far beyond the actual impact (see background below for details). The proposed rule states that to make RUGS-IV revenue neutral, CMS must cut SNF Medicare reimbursement rates by approximately 12.8%. After factoring in the 1.5% market basket increase, the net impact would be an 11.3% rate reduction, effective October 1 of this year. CMS proposed this drastic cut, but acknowledges that its base of information on RUGS-IV payments is limited. It only had first quarter data available to make its determination of an alleged “overpayment.”

Option Two
Option two is simple. CMS would update the market basket index for FY 2012 by 2.7 percent. We would then take a 1.2 percent productivity adjustment as a result of the Affordable Care Act. The net result is that we would gain 1.5% or a total of $530 million in Medicare reimbursement.

The first proposal would be debilitating. It is possible that CMS will implement one or the other in their entirety, or implement a completely different rule that is a blend of the two.

Background: Medicare pays skilled nursing facilities using a prospective payment system known as the SNF PPS. The SNF PPS uses a case-mix classification system known as Resource Utilization Groups, version four (RUG-IV) that is used to determine a daily payment rate. Each RUG-IV group is assigned a case mix index (CMI) that reflects relative differences in patient acuity. For FY 2011, which began on October 1, 2010, CMS implemented RUG-IV, which includes refinements to better account for the resources used in the care of medically complex patients and therapy patients. In implementing RUG-IV, CMS adjusted the RUG-IV CMIs based on forecasted utilization under the refined case-mix system to ensure that the transition to RUG-IV did not trigger a change in overall payment levels. Although the CMI adjustment that accompanied the transition to the RUG-IV model was intended to ensure there would be no change in overall spending levels, it instead appears to have resulted in an increase in Medicare expenditures.

CMS has come to this conclusion because actual utilization under the refined case-mix system has differed significantly from the projections on which the adjustment was based. For example, using initial data that reflect actual RUG-IV claims experience, CMS has now found that patients are being classified into one of the highest paying RUG-IV therapy groups more than 40 percent of the time (as compared to less than 10 percent as originally projected by CMS), thus triggering Medicare payments far in excess of the original projections. Pending confirmation of this preliminary assessment, CMS will be reviewing data from actual claims under the RUG-IV system as it becomes available. CMS will then evaluate the necessity of recalibrating the case-mix weights in the FY 2012 final rule.

In addition to discussing the SNF PPS payment rate update for FY 2012, this proposed rule would:

• Propose to implement section 6101 of the Affordable Care Act, which requires Medicare SNFs and Medicaid nursing facilities to disclose certain information in a standardized format to HHS and other entities regarding the ownership and organizational structure of their facilities;
• Propose to revise the definition of group therapy and to require allocation of group therapy minutes in assigning RUG-IV payment groups;
• Propose a new Medicare-required assessment to be completed by SNFs when changes occur in the intensity of therapy.
• Propose to modify the required schedule for completing the MDS 3.0;
• Propose a revision to the policy regarding line-of-sight supervision of therapy students.

The proposed rule went on display on April 28 at the Federal Register’s Public Inspection Desk and will be available under “Special Filings."

Public comments on the proposal will be accepted until June 27. Once the comment period closes, CMS will need to work quickly, because their intent is to issue the final rule by August 1, 2011. The American Health Care Association (AHCA) is already in the process of developing a detailed summary of the proposed rule. In addition, there are several action steps they have already identified to move ahead with over the next few months:

1. AHCA will conduct an independent analysis of the market basket calculation to determine if it is correct.

2. AHCA will gather the data and recheck the CMS calculations to determine the alleged “overpayment” from RUGS-IV, if any. While it is possible that there was not revenue neutrality with the implementation of RUGS-IV, it is critical that CMS not “overshoot” in an attempt to remedy that error.

3. Officials at CMS have indicated a willingness to talk with AHCA to discuss these approaches and their impacts. Among other arguments, we will discuss the debilitating impact the overreach in the first approach would have to nursing homes across the country, particularly at a time when many face huge Medicaid challenges.

4. Providers from Minnesota—and other states—will have an opportunity to talk about the implications of these proposed rules before they are finalized at the July AHCA congressional conference. If you haven’t decided whether or not to attend this event, now there is a really, really good reason to tell our story to our members of Congress.

Patti Cullen, CAE
952.851.2487
pcullen@careproviders.org