On Friday, July 29, 2011, the Centers for Medicare & Medicaid Services (CMS) announced a final rule reducing Medicare skilled nursing facility (SNF) prospective payment system (PPS) payments in FY 2012 by $3.87 billion, or 11.1 percent lower than payments for FY 2011. While we expected a payment reduction (see details below), we had urged CMS to phase in the reduction over time to avoid major disruption, and to ensure that accurate data was being used to determine the “overpayment.”

CMS is now recalibrating the case-mix indexes (CMIs) for FY 2012 to restore overall payments to their intended levels on a prospective basis. The SNF PPS uses a resource classification system known as resource utilization groups version 4 (RUG-IV), which assigns a patient to a RUG group to determine a daily payment rate. Each RUG group consists of CMIs that reflect a patient’s severity of illness and the services that a patient requires in the skilled nursing facility (SNF). In transitioning from the previous classification system to the new RUG-IV, CMS adjusted the CMIs for FY 2011 based on forecasted utilization under this new classification system to establish parity in overall payments. SNFs have been paid under RUG-IV since Oct. 1, 2010.

CMS found that the parity adjustment made in FY 2011, which was intended to ensure that the new RUG-IV system would not change overall spending levels from the prior year, instead resulted in a significant increase in Medicare expenditures during FY 2011. This increase in spending was primarily due to shifts in the utilization of therapy modes under the new classification system that differed significantly from the projections on which the original parity adjustment was based.

The FY 2012 recalibration of the CMIs will result in a reduction to skilled nursing facility payments of $4.47 billion or 12.6 percent. However, this reduction would be partially offset by the FY 2012 update to Medicare payments to skilled nursing facilities. The update — an increase of 1.7 percent or $600 million for FY 2012 — reflects a 2.7 percent increase in the prices of a “market basket” of goods and services reduced by a 1.0 percent multi-factor productivity (MFP) adjustment mandated by the Affordable Care Act. The combined MFP-adjusted market basket increase and the FY 2012 recalibration will yield a net reduction of $3.87 billion, or 11.1 percent.

Along with recalibrating and updating the SNF PPS payment rates for FY 2012, this final rule makes a number of additional revisions:

• The rule modifies the patient assessment windows and grace days to minimize duplication and overlap in observation periods between assessments.

• The final rule also clarifies circumstances when SNFs must report breaks of three or more days of therapy.

• Eliminates the distinction between facilities regularly furnishing therapy services on a 5- or 7-day basis for purposes of setting the date for the end of therapy (EOT) other Medicare required assessment (OMRA).
• Streamlines procedures for documenting situations involving a brief interruption in therapy, where therapy resumes without any change in the patient’s RUG-IV classification level.
• Introduces a new change of therapy (COT) OMRA to capture those changes in a patient’s therapy status that would be sufficient to affect the patient’s RUG-IV classification and payment, even though they may not increase to the level of a significant change in clinical status.
• Provides for the allocation of a therapist’s time for group therapy (defined in the rule as a single therapist leading four patients in a common activity) to ensure that Medicare payments better reflect resource utilization and cost for these services, and specifically that the therapist’s time is being appropriately counted and reimbursed.

• Discusses the impact of certain provisions of the Affordable Care Act, and announces that proposed provisions regarding ownership disclosure requirements set forth in the Affordable Care Act will be finalized at a later date.

Patti Cullen, CAE
952.851.2487
pcullen@careproviders.org

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