CMS Moves to Slow PDPM’s Impact on Medicaid Rates for Skilled Nursing Facilities

The Centers for Medicare & Medicaid Services (CMS) last week made a small policy change that could have a major beneficial impact for skilled nursing providers that rely on Medicaid.

CMS updated its guidance for the Patient-Driven Payment Model (PDPM), indefinitely extending a key workaround for states that base Medicaid rates on the existing Medicare system. Without this subtle shift, experts say, state-level governments would have needed to make substantial decisions about the future of their Medicaid rates in just a few short months.

“This provides a longer timeframe, and my guess is the states will start to get together and think about what directions they want to go in, and how much to migrate to some or all of the elements of PDPM,” Brian Ellsworth, vice president of public policy and payment transformation at the consulting firm Health Dimensions Group, told SNN. “But they can do that now at a little bit more leisurely pace.”


Under PDPM, which takes effect October 1, many of the resident assessments required under the current Resource Utilization Group (RUG) system will be retired, with payments based instead on a single — and critically important — five-day assessment. This change was necessary, according to CMS, as the government shifted its priorities for the overall skilled nursing prospective payment system (PPS).

“Given the focus on stable patient characteristics, rather than frequently changing service utilization, as the basis for payment under the SNF PPS, it will no longer be necessary to have as many assessments as currently exist under the SNF PPS to track changes in service provision over time,” CMS wrote in its exhaustive PDPM FAQ.

However, state Medicaid programs often base their rates on the multiple assessments required under the current RUGs system, which the federal government plans to stop supporting completely as of fiscal 2021. According to research from the American Health Care Association, 29 states currently use some kind of RUG-based system to determine Medicaid payments to nursing homes.

Source: American Health Care Association

This caused concern among providers that the upheaval of PDPM would also create immediate Medicaid problems — and with the program representing more than half of the average building’s income, operators could ill afford any additional stress.

Enter the Optional State Assessment (OSA), a kind of adapter that allows state Medicaid programs to continue using the old system while developing new models for a post-RUGs world. Initially set to sunset on September 30, 2020, CMS removed the expiration date entirely last week, giving states crucial room to maneuver while weathering the seismic shift.

“There is currently no definitive timeline for retiring the OSA,” CMS wrote on page 41 of its PDPM FAQ. “Once states are able to collect the data necessary to consider a transition to PDPM, CMS will evaluate the continued need for the OSA, in consultation with the states.”

The old paragraph, specifying that the OSA would only be in effect from October 2019 to September 2020, has been crossed out. While certain other passages in the updated FAQ seem to imply that the OSA still has a fiscal 2021 sunset date, a spokesperson for CMS confirmed to SNN that the “no definitive timeline” language is indeed correct.

“They’re just figuring that there may be some states that are going to take a little longer with the PDPM type of transition,” Robert Lane, a director at the accounting and advisory firm BKD, told SNN.

Breathing room

Lane had spoken about the potential headaches that the PDPM-to-Medicaid trickle-down effect could have on skilled nursing providers last month at the American College of Health Care Administrators’ (ACHCA) annual convocation, positing that such a quick shift could put additional stress on Minimum Data Set coordinators and other billing professionals on the building level.

“They’re going to have to be juggling,” Lane said. “What’s the opportunity there for mistakes to be made?”

And any mistake could be devastating for providers. Medicaid programs across the country have historically underfunded nursing homes, with providers in multiple states turning to novel supplement programs just to survive — while in some states, such as Massachusetts and Wisconsin, scores of buildings could end up having to close their doors unless lawmakers raise Medicaid reimbursements to more closely match the cost of care.

The average building in Massachusetts loses nearly $1 million per year caring for Medicaid patients, according to a trade group in the state, while Medicaid pressures in Wisconsin were cited as a major factor in the forced receivership of eight properties formerly operated by Dycora Transitional Health and Living last week.

“PDPM basically cutting out some of those interim assessments would have potentially upset the apple cart in some states,” Ellsworth said.

Temporary reprieve

While CMS’s move granted operators a temporary reprieve, that doesn’t mean that change won’t come to state-level Medicaid reimbursements for nursing homes.

With a little more time to work with, Ellsworth predicted, states could soon take a hard look at some of the add-on payments they offer to providers. For instance, while the baseline nursing care rate that forms the backbone of long-term Medicaid care isn’t likely to change substantially, Ellsworth said, the move to PDPM could prompt shifts in reimbursements for certain specialty services such as ventilator or tracheostomy care. Whether or not those changes would be positive or negative for operators remains to be seen, but Medicaid should be on providers’ radar as they overhaul their Medicare reporting systems for PDPM.

“Those kinds of decisions are very state-specific, having to do with their regulatory climate, approval process, degree of competition, and issues such as that,” Ellsworth said.

In addition, Medicare Advantage plans are under no obligation to follow either RUGs or PDPM, but could use the change to reassess their reimbursement strategies moving forward. In a perfect world, Ellsworth said, operators, state Medicaid plans, and managed-care payers would come together in advance to ensure that all parties’ strategies were aligned; otherwise, operators could soon find themselves navigating a landscape where Medicare fee-for-service, Medicare Advantage, and state Medicaid plans are even further apart.

“Then the providers can really get a head of steam in terms of reorienting their documentation processes and admissions processes and technology platforms and staffing and everything for kind of a wholesale switch to PDPM,” Ellsworth said.

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