Start of Main Content

How a patient-driven payment model affects skilled nursing facility payouts

How a patient-driven payment model affects skilled nursing facility payouts

As of October 1, 2019, the Centers for Medicare and Medicaid Services (CMS) has rolled out its second attempt at adjusting the RUG-IV skilled nursing facility (SNF) reimbursement plan, known as the patient-driven payment model (PDPM). This has been in the works for some time now. Back in May of 2017, CMS announced a proposal for a full RUG overhaul in the form of the Resident Classification System , Version 1 (RCS-1) with an aim to shift patient care from volume- to value-based.

One of the largest concerns raised regarding the proposal was how its changes would immediately affect therapy services and staging in skilled nursing facilities. Interested parties may be surprised to discover that the changes in question have largely remained intact for this latest model revision.

What is RUG-IV?

The previous SNF payment model proved to be problematic in the long-term. Under RUG-IV, skilled nursing facilities would often place patients in the upper-most RUG categories to receive the maximum reimbursement available. For example, according to CMS, over 60 percent of Medicare-covered SNF stays were billed under 1 of 3 (out of 66 total) rehabilitation buckets, and group therapy sessions had become common practice to optimize profit margins.

What is a Patient-Driven Payment Model?

Patient-driven payment models have been implemented with the hope of reducing the SNF incentive for unnecessary therapy services. In fact, renewed focus on patient condition over total number of therapy minutes changes the financial incentives for therapy services so drastically that skilled nursing facilities now actually receive higher reimbursement when they do not provide residents with any therapy at all. 

What are PDPM critics saying?

Critics of this new model wonder if the pendulum hasn’t swung from too much therapy to not enough therapy too quickly. Consequent of these major changes, many therapists have reported large cutbacks in available work hours and even layoffs since PDPM’s deployment.

Definitive Healthcare long-term care data shows that out of the 20 most reported diagnoses by SNFs in 2019, approximately 50 percent could result in the need for therapy services. See below: 

 Top 20 SNF Diagnoses in 2019

RankICD-10 codeICD-10 DescriptionClaims volume
1J189Pneumonia, unspecified organism71,125
2N390Urinary tract infection, site not specified68,131
3M6281Muscle weakness (generalized)50,652
4Z471Aftercare following joint replacement surgery40,120
5A419Sepsis, unspecified organism41,146
6Z5189Encounter for other specified aftercare33,848
7I639Cerebral infarction, unspecified34,097
8J441Chronic obstructive pulmonary disease with (acute) exacerbation35,422
9Z4789Encounter for other orthopedic aftercare28,474
10I10Essential (primary) hypertension31,278
11I509Heart failure, unspecified32,274
12R531Weakness22,334
13J449Chronic obstructive pulmonary disease, unspecified33,765
14J9601Acute respiratory failure with hypoxia23,917
15S72001DFracture of unspecified part of neck of right femur, subsequent encounter for closed fracture with routine healing18,530
16N179Acute kidney failure, unspecified22,284
17S72002DFracture of unspecified part of neck of left femur, subsequent encounter for closed fracture with routine healing17,633
18S72142DDisplaced intertrochanteric fracture of left femur, subsequent encounter for closed fracture with routine healing15,456
19I4891Unspecified atrial fibrillation19,676
20G9341Metabolic encephalopathy18,285

Fig 1: Based on annual Medicare data pulled from Definitive Healthcare’s data analytics platform. Current data set includes skilled nursing facility diagnoses up to mid-2019. Remaining CMS data will be released in Fall 2020.

All forms of general or muscle-specific weakness (M6281, R531) and encounters for aftercare or routine healing (Z471, Z4789, S72001D, etc.) may require at least some level of brief or continuous therapy (either physical or occupational).

In response to this shift in skilled nursing facility incentives, it is possible—based on reports surfacing from currently working therapists—that many patients may not receive the attention they need or deserve in an attempt to keep reimbursement payouts higher.

The upsides of PDPM

As mentioned, the primary intent of a patient-driven payment model is to place a greater focus on the individual. One strong benefit for the patient stemming from these changes is an end to the prevalence of potentially exploitative group therapy sessions.

Under PDPM, there is a 25 percent limit on concurrent and group therapy per individual—meaning if a patient is recommended 100 hours of therapy, only 25 of those hours can be in a group setting. So, theoretically, when a patient does receive therapy, it should entail more personalization and improved care when compared to the divided attention supplied through group settings.

Ultimately, whether or not a patient receives extensive therapy should be unrelated to any conversations about how much reimbursement an SNF can be awarded, and the fact that some providers may choose to reduce therapy time or staff should reflect more on the institution’s commitment to quality patient care and less on how the CMS has decided to handle payment for the time being.

Learn more

For more information regarding SNFs and the evolution of the CMS reimbursement model (what happened to the RCS-1 plan?), read our article Skilled Nursing Facility Reimbursement: Trouble Ahead?—then browse through the rest of our content to catch up on healthcare industry happenings and more.

Definitive Healthcare

About the Author

Definitive Healthcare

This blog was written by a former contributor at Definitive Healthcare.At Definitive Healthcare, our passion is to transform data, analytics and expertise into healthcare…

Author profile