Crunching the PDPM Numbers to Avoid ‘Catastrophic’ Skilled Nursing Pitfalls

With less than a year to go before the Patient-Driven Payment Model takes effect, skilled nursing providers must move beyond the planning stages and get into the facility-level details that will make or break them under the new model.

On a webinar hosted by Skilled Nursing News and software provider Optima Healthcare Solutions last week, the software company’s founder and senior product strategist Michael Katri warned that the time to act is now.

“It is not business as usual when PDPM starts next October,” Katri said. “And it won’t be business as usual, 100%, in the year ahead as well. A lot of planning, a lot of work needs to be done.”


Once the model takes effect on October 1, 2019, skilled nursing providers will no longer see reimbursements linked to therapy hours; instead, in a move to help curb the potential overuse of therapy services while also more closely aligning reimbursements to outcomes, CMS will base therapy rates more on the complexity of each patient’s individual needs.

Crunching the numbers

Using data from July through September 2017, tracking about 16,300 patient days, Katri broke down the differences between current reimbursement levels under the Resource Utilization Group, Version IV (RUG-IV) system and the projected outcomes under PDPM. For the selected set of data, the provider would see a 4.38% increase in total reimbursements after the shift from RUG-IV to PDPM, with daily average per-patient intake of $472.28 — up from $451.58 under current rules, for a three-month gain of more than $339,000.


But there are variations within those gains. Katri further broke down the data population by their functional scores, with 63% falling in the 10 to 23 range — indicating moderate independence. Under RUG-IV, a provider would see about $466.66 per day for these residents, but that number falls to $463.47 under PDPM. In contrast, the most dependent residents in a SNF, those with functional scores of 0 to 5, would bring in about 10% more reimbursement dollars, which Katri classified as a significant increase.

Katri repeatedly emphasized that while the PDPM system is designed to be budget neutral — in that CMS won’t be spending any more or less on skilled nursing care as a result of the changes — that doesn’t extend to the individual facility or operator level.

“It’s a budget-neutral system. So we’d expect, if there’s a 4.38% increase overall for these facilities, somewhere else, in other facilities, that’s being subtracted in other ways,” Katri said. “And it can depend a lot on the case loads that you’ve had historically.”

New metrics for a new system

Measuring the efficacy of therapy services will require a new set of metrics to track. For instance, providers could look at their efficiency of functional improvement (EFI), which compares the total amount of labor hours to the change in functional score across all patients.

Katri gave the example of an improvement of 853 points as a result of 1,600 total labor hours, giving this particular SNF an EFI of 0.53. The higher the EFI, the more efficiently a SNF is allocating its resources.

Other new stats could include the cost of incremental functional improvement, which compares average functional improvement scores against the labor cost spent on each resident, giving an idea of how much each additional functional-score point costs. Katri also pointed to days per incremental functional improvement — in other words, tracking how many days it takes a given patient in the SNF to achieve a single-point improvement in function.

No matter what metrics a SNF eventually picks, Katri emphasized that providers need to focus on the nexus of therapy minutes and resident outcomes.

“In the past, productivity or efficiency has been the major metric used by most therapy providers across the country, and that still has its place,” he said. “But more than ever, we really have to balance metrics that are going to really align what you’re trying to achieve in a facility — what’s the measuring stick you’re going to use?”

New liabilities

With new rules come new liabilities, including one that most providers might find counterintuitive.

The Department of Health and Human Services (HHS) Office of the Inspector General has frequently cracked down on operators for artificially goosing profits through the provision of unnecessary therapy hours, but the risk could work the other way under PDPM. Because fewer hours could mean higher margins in some cases, skilled nursing providers must be mindful that residents still must receive the level of care they need — and not to take shortcuts by going too far in the other direction.

“If an adverse event occurs and attorneys see the delivery of care was significantly less than it was for similar patients under the RUG model, that’s fuel that they can use in a case to try to prove that there was a deliberate act of under-delivering therapy to pad margins for the provider,” Katri said.

He suggested reviewing all contracts between SNFs and third-party therapy providers to make sure that one side isn’t left holding the bag amid accusations of insufficient therapy hours.

“If the language isn’t clarified in your contracts, the impact on your business truly could be catastrophic from a financial perspective,” Katri said.

That risk extends to group and concurrent therapy models. CMS capped those services at 25% of an individual patient’s total hours under the new model, a move that the American Health Care Association opposed as a government intrusion into the physician-patient relationship. But Katri, like others, noted that most providers offer less than 1% of therapy services in the group and concurrent setting, and even with extensive planning and potential benefits under PDPM, 10% to 15% represents something of a ceiling for most providers.

Still, Katri urged providers not to see group and concurrent as a fallback option if they don’t have sufficient therapist coverage on a specific day: Each move into that setting should come with a detailed care plan and a reasoning behind it.

“You can’t mandate to therapists that [they] do 25% group and concurrent on your patients,” he said. “That’s potentially the quickest way to an OIG investigation. That’s not the way you want to do business, and that’s not the way that good [SNF] customers are going to want you to do business in the PDPM world as well.”

Written by Alex Spanko

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