Medicare Compliance & Reimbursement

Recommendations for 2006 PPS changes offer big payment shifts but little assistance.

The Medicare Payment Advisory Commission's recommendation to freeze inflation adjustments to payment rates for skilled nursing facilities has long-term care providers steaming.

A rebuke from the American Health Care Association and the Alliance for Quality Nursing Home Care coincided with a Dec. 9 MedPAC report outlining the SNF prospective payment system for 2006. A market basket update is critical to helping SNFs defray rising health care costs, the LTC organizations argue. MedPAC's recommendation has left many LTC providers fearful that the commission will continue to recommend withholding SNF inflation adjustments into 2007.

"This recommendation would lead to devastating cuts in funding for Medicare patients at skilled nursing facilities," says Keith Weikel, Alliance chairman. "Increasing labor costs, out of control litigation-related costs and escalating drug prices are all driving up the cost of delivering quality care. [Not to] update Medicare's funding mechanisms to reflect these basic facts would be careless and harmful."

"It is simply incomprehensible that MedPAC does not recognize the need for a normal inflationary adjustment to an industry with the lowest margins in all of healthcare," adds Bruce Yarwood, AHCA president and CEO.

MedPAC Assures Payments Are Adequate

SNFs are the most commonly used post-acute care settings, MedPAC acknowledges in its report. Under the PPS, Medicare covers SNF services for inpatient nursing or rehabilitation services following a minimum three-day hospital stay, taking into account nursing care, therapy services and routine service costs. SNFs receive payment at a predetermined rate for each day of care. These rates will cover all of the operating and capital costs required to furnish most SNF services, MedPAC upholds.

"It is evident that the profession's commitment to quality is creating results, but a stable funding environment is needed in order to ensure that the progress continues," says Yarwood.

New Classification System Creates Additional High-Payment Categories

The new rule does more than withhold a market basket update--it also overhauls the SNF case-mix classification system, which has nursing homes bracing for $750 million in new federal funding cuts next year, according to Weikel.

But effective Jan. 1, 2006, CMS will replace the 44-group RUG-III payment classification system with the new RUG-53 system. Nine additional RUG categories could improve payment rates through more accurate classification. The system weights payments for each RUG-53 accordingly to adjust base payments for variations in patients' expected resource use.

In the new RUG-53 system, periodic assessments determine patients' characteristics, service needs and resource requirements based on the following factors:

• The patient's weekly therapy requirements;

• The patient's need for skilled nursing care or extensive services;

• The patient's conditions and illnesses;

• The patient's ability to perform the four daily living activities (eating, toileting, bed mobility and transferring); and

• Depression.

CMS increased the payment weights in all RUGs to provide more appropriate payments. But this move is inadequate in achieving its goal, because it fails to target payment for nontherapy ancillary services, MedPAC says.

Medicaid Cuts Rub Salt On The Wound

Medicaid spending cuts put SNF funding at even further risk. Two out of three nursing home patients rely on Medicaid, which in turn underpays by nearly $13 per day, AHCA maintains. Adequate Medicare payments are critical to SNFs, who must now find a way to recover the costs of inadequate Medicaid payments.

"It is clear from MedPAC's staff recommendation that they are not recognizing--nor are they addressing--the basic fact that increases in the costs of providing long-term care outpace inflation," Yarwood concludes.