Despite Relief, PDPM Could Create Medicaid Headaches for Skilled Nursing Operators

Skilled nursing providers across the U.S. could be forgiven for feeling like they’re trapped in a word problem out of an algebra textbook when assessing the reimbursement for Medicaid patients — often the majority of residents inside a given facility.

And despite some promising signs from the federal government, the coming changes to the Medicare system could still create trickle-down problems in states that don’t move quickly to adapt.

With the introduction of the Patient-Driven Payment Model this fall, state Medicaid programs could be looking at more than the pressures of state budget jockeying, several panelists noted during the Wednesday webinar “Solving Tough Medicaid Math Problems,” hosted by Skilled Nursing News.


For 25 states that use a case-mix system for Medicaid, the major challenge will be transitioning to a model without the old Resource Utilization Group (RUG) Medicare math, Robert Lane, director at the accounting and advisory firm BKD, explained. Because these states use the current Medicare system to calculate Medicaid rates, the change will have wide-ranging effects in statehouses across the country.

“There are going to be some challenges as these states struggle to move towards a world without a RUGs-based calculation system,” Lane said on the webinar. “Therein lies the necessity to adopt the Optional State Assessment (OSA) — intended to help replace the RUGs-based approach to getting the billing codes — to be able to appropriately bill for the Medicaid services.”

The OSA was originally meant to be a temporary adapter to let state Medicaid programs keep using the RUG system while developing new models for Medicaid, with a sunset date of September 30, 2020. But earlier this year, the Centers for Medicare & Medicaid Services (CMS) announced that it would indefinitely extend the workaround.


That indicates that CMS is responding, to some degree, to the concerns states have about the change to PDPM, Lane said on the webinar.

For states with a non-case-mix Medicaid system, the challenge is a bit different. Even though CMS has backed off the September 30, 2020 cutoff, those states might still find themselves having to quickly come up with a new payment system right around that time, Lane noted.

“No RUGs-based calculation system means that those states and their Medicaid programs are going to have a lack of familiarity with the way in which PDPM is going to be calculating,” Lane said. “So going from a cost-based [system] … that unfamiliarity may prove to be very challenging for these non-case-mix states, to the point that there may be a temptation to be late to the party if you will, in terms of readiness.”

The problem is more than academic. Many states pay less than 80% of allowable costs for Medicaid reimbursement, and the shortfalls for Medicaid per diem rates range from $9 to $63 a day, Brian Ellsworth, vice president of public policy and payment transformation at the consulting firm Health Dimensions Group, noted.

Given that Medicaid pays for the care of six in 10 nursing home residents, according to data from the Kaiser Family Foundation, it’s by far one of the most crucial problems for operators to navigate — and any hiccups could be devastating to operators.

“Where our boat floats or where it sinks is oftentimes with Medicaid,” Eddie Parades, senior vice president of government affairs with StoneGate Senior Living, said during the webinar.