Researchers Find ‘Perverse Incentives’ for Skilled Nursing Operators Under PDPM

The new Medicare payment model for nursing homes was designed to eliminate the temptation to make key care decisions based solely on reimbursements, and not on individual residents’ needs.

Though the early results from the Patient-Driven Payment Model (PDPM) have largely been positive for the industry, a group of researchers this week raised concerns about the potential for similarly problematic incentives under the new system.

“The PDPM brings welcome changes to SNF reimbursement by prioritizing patient needs over service volume, but it also carries the risk of new unintended consequences,” the group wrote in their analysis, published Monday in the April edition of the American Journal of Managed Care. “These potential problems, which are features of other value-based payment systems, should be closely monitored and rigorously studied.”


The commentary — titled “The Patient-Driven Payment Model: Addressing Perverse Incentives, Creating New Ones” — does contain some praise for PDPM’s improvement over the former Medicare payment system for nursing homes, while also taking issue with some of the levers that operators can pull to potentially raise total reimbursements.

“The PDPM has introduced new incentives that may be problematic, potentially leading to unintended consequences,” the researchers wrote.

In particular, the analysis highlights the unequal weighting of certain resident conditions when calculating payment rates under the non-therapy ancillary (NTA) category.


“Certain co-morbidities and services in this payment component can greatly increase reimbursements, and they thus carry the risk of being over-reported and over-utilized,” the team noted. “An SNF located in an urban area, for instance, receives per-diem payments that are $175 higher during the first three days for a patient with diabetes and chronic obstructive pulmonary disease compared with payments for a patient without these two conditions.”

The team also pointed out the vastly increased payments that skilled nursing facilities receive for the first three days of a resident stay, when their needs — and, by extension, operator costs — are likely highest.

Based on those incentives, the researchers argue, skilled nursing facilities could begin selectively admitting residents with more acute needs than other patients, while also discharging people home faster due to the gradual decline in reimbursement rates over time. Because therapy no longer generates direct payments, the group also pointed out the potential for under-provision of therapy.

“Whereas the RUG system incentivized longer SNF stays and more therapy, the PDPM incentivizes shorter stays with less therapy through an adjustment factor for physical therapy, occupational therapy, and non-therapy ancillary conditions and services,” they wrote.

Concerns over unsafe reductions in therapy under PDPM made it to the mainstream media shortly after the model’s October 1 introduction, with the New York Times publishing a piece highlighting the potential for therapy cuts in late November.

But as industry leaders — and the researchers themselves — have pointed out, the new model was largely a reaction to controversies about the improper over-provision of therapy under the former Resource Utilization Group (RUG) model, which provided direct incentives for operators to reach certain therapy volume thresholds.

“Between 2002 and 2016, the use of the ultra-high category increased from 7% to 63% of all SNF days reimbursed by Medicare — a nine-fold increase,” the researchers noted, referring to the level of therapy that provided the greatest reimbursements to operators under the RUG system. “There was no corresponding change in case mix during this period.”

Moving forward, the group recommended that the government closely monitor provider behavior for any evidence of improper care based on PDPM payment incentives.

“Policymakers should maintain close oversight of SNF billing practices and patient outcomes as the PDPM takes effect to mitigate potential unintended consequences,” the team concluded.