Health Care Reform and SNF PPS Recalibration – Fast and Furious

September 2011

Health Care Reform has taken center stage again in Washington D.C. now that the Debt Ceiling talks are momentarily behind us.  Specifically, the Centers for Medicare and Medicaid Services (CMS) has issued a variety of Federal Register notices updating program policy for hospitals, skilled nursing facilities, home health agencies (SNF), hospice providers and physicians.

While annual program updates are expected, the news in the Federal Register releases also came with surprise reductions in reimbursement or recalibrations of scoring systems that will make it harder to achieve higher paying plans of care.

The Affordable Care Act (ACA) (March 2010), in part, attempted to redesign our current national health system that functions basically on a foundation of illness and then treatment.  Essentially, when you get sick you go to the doctor or hospital to get better.  For a number of reasons, the current medical model does not effectively work for our population going forward.

The World Health Organization (WHO) states that the United States health care model suffers from inverse care, impoverished care, fragmented care, unsafe care and misdirected care.  These inadequacies lead to a high cost delivery system.  If the outcomes of care were desirable or comparable to other industrialized nations, we could argue that our investment was well spent.  However, that is not true.  We lag far behind other industrialized nations in achieving desirable outcomes and outspend them by an even greater margin.  Not to mention, we are the only industrialized nation that does not provide health care insurance for all of our citizens.

CMS is now working at a fever pitch to change programming from one of illness and then treatment to one of prevention and wellness.  Payment structures will, if not now for some providers, be based on outcomes and not sheer volume payments.  Patient surveys will be conducted with the results factoring into what a hospital, nursing home or home health agency ultimately receives for reimbursement under some programs.

All the Medicare changes are enough to make CEOs and CFOs heads spin.  But, throw in Medicaid rate reductions to the equation, and it becomes more burdensome to try to serve the needs of the community as vital state and federal dollars keep being taken away.

As part of our series of ongoing health care program updates, the following summarizes recent policy and reimbursement changes in SNFs.

SNFs were recently hit hard by the 2012 SNF PPS Final Rule issued in the Federal Register at the end of July.  Some highlights, effective October 1, 2011, follow:

  • Market Basket Update – The market basket was increased in fiscal year (FY) 2012 to 2.7%.  However, SNFs lost a portion of that as required by the ACA to help finance the massive health care changes passed in that legislation.  The net market basket passed on to SNFs was 1.7% net.
  • SNF Medicare Payments – CMS recently transitioned the SNF reimbursement system from Resource Utilization Group (RUG) III to RUG IV.  The newer system is more sophisticated in capturing data.  The transition was expected to be budget neutral but was not by a long shot!  First quarter results indicated budget neutrality was off by $400 million.  The FY 2012 final Federal Register issued instructions that recalibrated and adjusted the overall payment structure.  The recalibration actually decreased payments by approximately (11%).  The top 23 RUG categories, therapy driven, were impacted significantly, essentially looking to recapture the payments that exceeded the budget neutrality expectation, according to CMS, in FY 2011.  Industry associations are furious and, in an uncharacteristic move, are challenging Washington to revisit the recalibration now even though there is a final ruling.  Insiders are looking at the states’ reaction to this decrease payment as it negatively impacts the Provider Tax revenues enjoyed by their treasuries.  If Medicare revenue shrinks, so will the collection of provider taxes that were used to fund increases to long-term care Medicaid providers and/or assigned to the General Fund.
  • Minimum Data Set (MDS) Reporting – CMS has finalized Therapy Student Supervision requirements, clarified Group Therapy definitions, as well as qualified therapy activity with regard to numbers of patient groups, allocation of minutes, the therapy cap and group therapy documentation.  Additionally, there are changes to the Patient Assessment Schedule that should be reviewed by the MDS team.

In preparing for operations post October 2011, SNFs should be looking at three things:

  1. Familiarizing themselves with the ACA changes that will be in place through 2013.  Between now and then many new sections of the ACA will be implemented impacting SNF operations and challenging its market.
  2. Benchmarking costs and performance against their peer group and market competitors.
  3. Calculate the potential loss in revenue due to the recalibration of the FY 2012 SNF Prospective Payment System (PPS) RUG rates.

If you would like to speak more about health care reform and the FY 2012 SNF PPS reimbursement changes or arrange for a presentation to your Board, please contact your BNN advisor at 1.800.244.7144.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.