Nursing homes brace for new Medicare payment system

Nursing homes across the country are rethinking their operational strategy as they prepare for a drastically new payment model that goes into effect in less than five months.

The Patient Driven Payment Model, or PDPM, which takes effect Oct. 1, significantly changes how skilled-nursing facilities have traditionally been paid under Medicare by moving away from a system that determines reimbursement based primarily on the volume of therapy services a patient receives to one that takes into account a patient’s unique health characteristics.

The new model is an attempt by the CMS to transition the long-term care sector to value-based payment, and it’s forcing nursing homes to reevaluate how they assess patients.

For some nursing homes, the model is a welcome change, but for others it may be a tough transition. It all depends on how much the facility has relied on the volume of therapy services for its operational strategy, stakeholders say.

“I wouldn’t say that a building that offers ultra-high therapy services is going to fail, but (they) are going to have some work to do to adopt a whole-person assessment process and service delivery arrangement,” said Mike Cheek, senior vice president of reimbursement policy at the American Health Care Association, which represents post-acute providers.

The new model was finalized by the CMS last July to replace the long-standing Resource Utilization Group payment system, known as RUG, with general support from the post-acute care industry. As nursing facilities care for sicker patients, many claim the RUG system doesn’t adequately reimburse them for their services because it looks at therapy minutes as a primary basis for payment. More skilled-nursing patients are too frail or won’t benefit from large amounts of therapy and the RUG system doesn’t support the other aspects of care provided like dementia management or speech therapy. As a result, patients were either given unnecessary amounts of therapy or nursing homes received lower payments for those patients because less therapy was provided.

“We often take medically complex patients who can’t tolerate the highest level of therapy, and under the old system we didn’t get paid for that higher-acuity level. Under PDPM we will,” said Robin Hillier, director of reimbursement and quality metrics at Welcome Nursing Home in Oberlin, Ohio.

At the same time, the transition to the new model has some facilities, particularly those that treat patients with high therapy needs, concerned they need to change their patient case mix or risk lower reimbursement.

Aaron Tripp, vice president of reimbursement and financing policy at LeadingAge, an association that represents not-for-profit long-term care providers, said he has received calls from members asking if they should change the types of patients they treat. That isn’t the right route, he said. 

“The goals of the organization should be the same,” he said. “It isn’t a case of you should stop doing therapy and start doing something else. It’s a matter of what are the best practices of your facility.”

Still, nursing homes that care for a high percentage of complex patients are more likely to benefit financially from the PDPM model compared with providers that rely heavily on therapy services as a source of revenue.

“It’s detrimental to those who provided high levels of therapies to individuals who weren’t otherwise medically complex,” Hillier added. She projects PDPM will increase reimbursement at Welcome Nursing Home because the 108-bed facility treats medically complex patients. 

And yet, it’s unclear how many nursing homes still rely on therapy services as a viable business model. 

“The reality is therapy services have dwindled significantly already in nursing homes,” said Matthew Bavolack, national healthcare services leader at Marcum, an advisory firm for post-acute care providers.

He pointed to the trend of sending more patients home post-surgery rather than to a skilled-nursing facility. As a result, patients that do end up in nursing homes now are inherently sicker and don’t need high levels of therapy.

The new Medicare payment system also comes at a time when most residents in a typical skilled-nursing facility are Medicaid beneficiaries. For instance, at Dillsburg, Pa.-based Presbyterian Senior Living, just 11% of its patients were covered by Medicare fee-for-service in 2018, whereas 65% were insured by Medicaid, which is about average for skilled-nursing facilities.

Medicare pays at a much higher rate than Medicaid and therefore accounts for a substantial percentage of a nursing facility’s revenue. On average, about 75% of patients in nursing homes are covered by Medicaid whereas about 11% of patients are covered by Medicare, but those Medicare patients can account for as much as 30% of the nursing home’s overall revenue, Bavolack said. 

Given those numbers, the new payment system could either help or hurt a facility’s bottom line.

“Medicare is a viable resource and we will continue to expect it to be a viable resource for years to come,” said Brian Stever, director of health informatics at Presbyterian.

Under the new model, payment is determined by patients’ needs in five clinical components: nursing; physical therapy; occupational therapy; speech language pathology; and nontherapy ancillary, such as having cystic fibrosis or needing a feeding tube. A sixth component is the adjusted daily rate over the course of the patient’s stay.

To capture a patient’s needs in the five clinical metrics, skilled-nursing facilities are required to complete a patient assessment called the Minimum Data Set, or MDS, within the first eight days of the patient stay.

Nursing homes are already familiar with the MDS assessment as it’s used in the current payment system to log therapy services, but its other clinical components haven’t been used as a vehicle for payment until PDPM, according to the AHCA’s Cheek.

Nursing homes are already familiar with the MDS assessment as it’s used in the current payment system to log therapy services, but its other clinical components haven’t been used as a vehicle for payment until PDPM, according to the AHCA’s Cheek.

Also different is the number of times the MDS assessment is completed. Under the RUG system, the assessment is conducted multiple times throughout the patient’s stay. Under the new model, nursing homes are only required to complete it twice—within the first eight days of arrival and at the end of the stay. 

Given the importance of that initial assessment to determine payment under PDPM, nursing homes are focusing on how to improve their evaluation of patients before admission and upon arrival at the facility.

Under the current payment system, Welcome Nursing Home has a few weeks to fully evaluate the scope of a patient’s health needs. To prepare for the new payment model, the facility has revamped its patient assessment process to get a complete picture of the patient’s needs within a few days. 

Hospital visits to potential Welcome Nursing Home patients now involve a detailed conversation with the patient and family members about their overall health concerns. Previously, nurses spent the visit focused on the diagnosis that brought them to the hospital, but that doesn’t always correlate with the reason a patient needs skilled-nursing care. And under PDPM, the primary diagnosis a nursing facility selects is critical because it determines the case-mix groups the patient is assigned to in two of the five payment components: physical and occupational therapy. 

A few days after the patient arrives at the nursing home, the patient and family members meet with the clinical team again to review the full scope of the patient’s health history, so caregivers get a good sense of what the primary diagnosis should be.

“We are excited about this because I think it’s going to lead to better care plans, and it will help reduce rehospitalization rates since we know more right away about the person,” Hillier said. 

At Good Samaritan Society, which operates 150 nursing homes nationally, staff have been educated on the criteria for each of the five clinical payment components to ensure that essential information is captured during the initial MDS assessment. For instance, for the nontherapy ancillary component, patients are assigned a score based on their comorbidities. There are 50 conditions and services facilities can choose from. 

There has also been a major emphasis on the importance of teamwork during annual training sessions and bimonthly calls across Good Samaritan. Each component of the PDPM requires expertise from different clinical staff including nursing, therapy and social workers. 

“It really needs to be a team effort across all disciplines to make sure the (initial assessment) is accurate,” said Tom Syverson, Good Samaritan’s chief operating officer.

Good Samaritan is also benefiting from additional resources through its recent merger with Sioux Falls, S.D.-based Sanford Health. 

The organizations combined earlier this year and Good Samaritan is leveraging Sanford’s ICD-10 coding capabilities to help transition to the new payment model.

Although nursing homes technically were part of the transition to ICD-10 along with hospitals and physician practices in 2015, they haven’t been using the codes as part of the MDS assessment for payment, which is required under the new payment system. 

Over the past few months, Sanford has tasked its coders to train Good Samaritan’s health information team on proper ICD-10 documentation. 

“That is a great example of how we can help them be prepared for this transition,” said Martha Leclerc, Sanford’s vice president of contracting and strategic payment.

Other skilled-nursing facilities, like those operated by New Jersey-based CareOne, charge their nurses who focus solely on MDS assessments to do the coding. They are often called MDS coordinators. 

Along with those nurses, all other CareOne nurses are being trained on proper ICD-10 documentation. “We are an organization that is working to elevate the next leaders so when we are ready to promote them to another role, they are always prepared and feel confident,” said Toya Cornelious, chief clinical officer of CareOne, which has 43 skilled-nursing facilities in six states.

PDPM also requires some changes to the MDS assessment, so nursing homes are working with their electronic health record vendors to ensure their systems are ready for the update in October.

Although the CMS is eliminating the RUG system, there is some confusion about what that will mean for some state Medicaid plans that rely on it to set rates. 

The CMS recently acknowledged this and has created another assessment specifically for states that use the RUG system, but it will be retired in September 2020. This is causing uncertainty about what will happen after that option ends. 

A CMS spokesman said states can implement PDPM for their case-mix payments but they aren’t expected to. “We want to ensure that the Medicaid agencies have all the information necessary for them to choose what is best for their programs and providers, be it transitioning to the PDPM system or utilizing an alternative reimbursement system,” he said. 

Transitioning to PDPM may take time and even face legal hurdles depending on the state. For example, Pennsylvania mandates using RUG for case-mix payments in Medicaid. 

“In order to make the change to PDPM, they actually have to revise and amend the law,” said Presbyterian’s Stever, whose system has facilities in the state. Although Stever said he isn’t concerned yet about the discrepancy, it’s something Presbyterian is “paying special attention to.” 

Details on the transition are still in short supply.

“We don’t have much information about this issue at this time but will in the near future,” Dianne Hasselman, deputy executive director of the National Association of Medicaid Directors, said in an email.

Tripp at LeadingAge said states have some time, “but they probably need to start to think about that, what that means in the near future, if they haven’t already.”