CMS to Adjust PDPM ‘As Quickly as Possible’ Amid Evidence of $1.7B Nursing Home Payment Increase

The federal government is mulling several options to recalibrate the Medicare payment structure for skilled nursing facilities as it seeks to achieve its intended goal of budget neutrality — with the aim of shutting off excess payments sooner rather than later.

The Centers for Medicare & Medicaid Services (CMS) this week determined that the Patient-Driven Patient Model (PDPM) increased payments to nursing homes by about 5% in fiscal 2020, for a total gain of $1.7 billion.

That’s a potential problem for both operators and Washington: CMS had intended to spend the same amount of Medicare money on nursing home care through PDPM as it had under the system it replaced. And while the agency acknowledged that the impact of the COVID-19 pandemic may have scrambled the PDPM math in ways it could not have anticipated, CMS is set on making sure that the additional payments don’t last forever.


“We believe that, based on the data from this initial phase of PDPM, a recalibration of the PDPM parity adjustment is warranted to ensure that the adjustment serves its intended purpose to make the transition between RUG-IV and PDPM budget neutral,” the agency wrote in its proposed final rule for the fiscal 2022 prospective payment system (PPS) for nursing homes.

CMS didn’t mince words about the urgency of its desire to make that change.

“As we move forward with programs designed to enhance and restructure our post-acute care payment systems, we believe that payments under the SNF PPS should be established at their intended and most appropriate levels as quickly as possible,” the agency noted.


CMS pointed to the swift action it took to reduce payments during the last major reimbursement shift in 2011, when the agency slashed rates by 12.5% to cut Medicare spending on nursing homes by $4.47 billion.

“Similar to what occurred in FY 2011 with RUG-IV implementation, we have observed significant differences between expected SNF PPS payments and case-mix utilization, based on historical data, and the actual SNF PPS payments and case-mix utilization under the PDPM, based on FY 2020 data,” CMS observed.

CMS laid out multiple potential strategies for achieving the goal of budget neutrality for PDPM, with two broad types: delayed and phased implementation. Under the delayed model, CMS would give providers a certain number of years to prepare for a blanket cut in the PDPM case-mix index — the example the agency gave was a 5% reduction — while a phased model would reduce the index by a smaller amount per year to arrive at the same-sized cut, such as a pair of 2.5% drops in consecutive years.

Some combination of the two types could also be considered, CMS noted.

“We are considering these approaches as they may be warranted to mitigate potential negative impacts on providers resulting from implementation of such a reduction in the SNF PPS rates entirely within a single year in the event we determine that recalibrating the parity adjustment is necessary to achieve budget neutrality,” the agency noted.

But CMS was clear about its intentions to rein in payments over those that would have been made under the now-defunct Resource Utilization Group (RUG) model.

“We believe that these alternatives would continue to reimburse in amounts that significantly exceed our intended policy in excess of the rates that would have been paid had we maintained the prior payment classification system rather than in a budget neutral manner as intended, and as we stated above, we believe it is imperative that we act in a well-considered but appropriately expedient manner once excess payments are identified,” CMS warned.

In addition, CMS asserted that the COVID-19 public health emergency (PHE) may not have had a significant impact on the overall payment boosts.

“Moreover, we do believe that there is clear evidence that PDPM alone is impacting certain aspects of SNF patient classification and care provision,” CMS concluded.

The federal government granted several waivers designed to free up hospital beds and provide uninterrupted care to seniors during the pandemic, including a suspension of the three-day stay hospital stay rule for subsequent SNF Medicare coverage and an additional 100 days of eligibility for skilled nursing care.

In theory, that extra emergency coverage would drive up Medicare reimbursements to nursing homes independent of PDPM, but CMS claims that the data doesn’t back up that hypothesis.

“Even when removing those using a PHE-related waiver and those with a COVID-19 diagnosis from our dataset, the observed inadvertent increase in SNF payments since PDPM was implemented is approximately the same,” CMS noted.

Shifts in therapy provision also occurred almost immediately after PDPM’s implementation in October 2019, several months before the pandemic took hold. The new model was explicitly intended to eliminate the financial incentive, baked into the RUG system, for operators to provide as much therapy as possible, essentially moving the service from a payment generator to another cost for providers to manage.

As a result, a long-predicted decline in therapy provision was quick and significant, with a 30% drop from 91 minutes per day in fiscal 2019 to 62 minutes per day in the immediate wake of the PDPM transition. Group and concurrent therapy services, which had historically accounted for 1% of total therapy minutes, ballooned to 29% and 32% in October 2019 respectively — before dropping back down to the single digits amid COVID-era restrictions on communal activities.

At the same time, CMS observed no substantial changes in a variety of health outcomes for SNF residents in the wake of substantially lower therapy minutes.

“We will continue to monitor these and other metrics to identify any adverse trends that may have been caused by changes in care patterns that accompanied the implementation of PDPM,” CMS noted.