PDPM Boosts Medicare Rate 9% Early in COVID-19 Crisis: ‘RUGS-IV Would Have Been a Fiscal Disaster’

Skilled nursing facilities received a 9% Medicare reimbursement boost during the early days of the COVID-19 crisis under the new Patient-Driven Patient Model, a new analysis has determined — providing a crucial fiscal lifeline that may not have existed under the structure that PDPM replaced.

“RUG-IV would have been a fiscal disaster for SNFs dealing with COVID,” Zimmet Healthcare Services Group and affiliated data firm CORE Analytics concluded in a new report released last week.

The New Jersey-based Zimmet and CORE drew on Medicare claims submitted by the more than 1,300 SNFs that submit data to its proprietary CORE database.

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Of those, more than 1,000 shared at least eight claims from February — before the full impact of COVID-19 hit U.S. nursing facilities — and April, the first month when providers could bill for services provided to residents with COVID-19 under a specific ICD-10 code.

In February, Medicare reimbursements averaged $615.23 per patient day; for patients billed under the COVID-19 code in April, that rate was $668.61 per patient day, or a gain of 9%. Within April, facilities with COVID-19 diagnosis codes received about $35 per day more than those without coronavirus patients.

Source: Zimmet Healthcare Services Group, Z-CORE Analytics

“Instead of $669 per day, RUG-IV was so distorted by therapy volume, rates could have been hundreds of dollars lower,” the analysis found. “In fact, Medicaid coverage would have generated higher net revenue than Medicare RUG-IV (with no therapy or isolation) in many states.”

Zimmet and CORE acknowledged that the data does not necessarily represent an unweighted snapshot of the “average” skilled nursing facility in the United States: The database’s active users consist of 1,300 facilities in about 40 states, 91% of which are for-profit and 84% are located in urban areas.

But Zimmet president Marc Zimmet has frequently argued that there is no such thing as “national” skilled nursing data given the variations in lengths of stay, Medicare Advantage penetration, and other factors in markets across the country — a point that the firms emphasized in the report.

“Accordingly, our findings cannot be used as a formal reflection of national performance,” the firms determined. “That said, if our reach extended to every SNF claim filed this year, the dataset would still not reflect national performance — just an amalgamized collection of hundreds of ‘local’ health care ecosystems.”

Still, on its face, the data seems to validate the federal government’s entire rationale for replacing the former Resource Utilization Group (RUG) system with PDPM last October 1.

Unlike the RUGs model, which largely based payments on the provision of therapy, PDPM was designed to more closely link Medicare reimbursements with resident acuity; in other words, the updated model sought to acknowledge the reality that patients with more advanced medical needs generally require more resources and thus more baseline funding to treat appropriately.

The early days of the COVID-19 crisis proved that out in practice, with the Nursing and Non-Therapy Ancillary (NTA) components of the PDPM rate helping drive the rate upwards for the care of residents with COVID-19, according to the report.

“PDPM is not perfect and requires refinement, but RUG-IV was a statistical disgrace — embraced by many providers for financial survival and perpetuated by an array of complex variables led by geography,” Zimmet and CORE concluded.

The Zimmet-CORE analysis aligns with a growing consensus around PDPM’s favorable impact during the COVID-19 crisis, which has triggered substantial increases in costs — for resources such as staffing and personal protective equipment (PPE) — at nursing homes already dealing with thin margins.

“RUGs incentivized operators to admit short-term rehab patients only,” Sabra Health Care REIT (Nasdaq: SBRA) Rick Matros said last month. “Since we’ve had PDPM in place, we expanded the kinds of patients that have been admitted to the facilities to include a lot of nursing conditions, more complex nursing care, and that has positioned our portfolio to be stronger going into the pandemic.”

The most recent set of Zimmet data builds on earlier analyses of PDPM, which have generally shown increased reimbursements alongside cost savings, though a previous Zimmet report found that declines in length of stay could wipe out any per-day rate gains.

In fact, prior to the COVID-19 pandemic, much of the conversation around PDPM focused on concerns that the Centers for Medicare & Medicaid Services (CMS) could soon implement clawbacks or downward payment adjustments on Medicare rates, given that the model was intended to be revenue-neutral; that is, any payment “winners” would be offset by an equal number of payment “losers.”

“It’s just not sustainable with this many winners,” Luann Gutierrez, managing director at Greystone & Co., said during a panel discussion at the National Investment Center for Seniors Housing & Care (NIC) conference in early March, the last major industry event prior to the COVID-19 lockdowns.

With the backdrop of COVID-19, CMS did not propose any substantial changes to the PDPM payment calculus in its 2021 payment rule, initially floated in April. Should CMS confirm the rule as proposed, operators will receive a 2.3% payment bump.

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