PDPM is a Start, But Rising Acuity at Nursing Homes Demands Building New Payment Models for Adequate Reimbursement 

As acuity continues to rise among nursing home residents, providers say reimbursement needs to change too – and not just the dollar amount.

Incentives should be based on quality of care, and the industry will need to build out specific reimbursement models to match expanded acuity specialities, especially as value-based care becomes more and more present in facilities, experts say.

This means facilitating the creation of more institutional special needs programs (I-SNPs), which have been associated with benefits such as fewer rehospitalizations and health outcomes. Moreover, come October, changes to the minimum data set (MDS) may complicate reimbursements for higher acuity services still further.

Steve LaForte, director of corporate affairs and general counsel for Idaho-based Cascadia Healthcare, said the Patient-Driven Payment Model (PDPM) is a step in the right direction to incentivize providers to dive into specialized acuities like bariatric, cardiac rehab or traumatic brain injuries.

“It’s a cost intensive care model. It’s a higher acuity care model. There’s more comorbidities to manage – and not a lot of operators do it,” said LaForte. “We need to come up with models that incentivize that type of care, that care for [traumatic brian injuries] outside of hospitals or [long-term care hospital] settings, because there’s more of a demand for it.”

Behavioral health is another major service that will need its own speciality rate, LaForte added, as another component of incorporating managed care and building out quality.

Trilogy Health Chief Nursing Officer Rhonda Dempsey said she’d like to see future reimbursement models continue to consider resident diagnosis and condition, somewhat mirroring PDPM.

Dempsey added that three of the states in which Trilogy operates already give incentives based on quality of care, but more states and federal agencies need to pull this lever more often.

The extra reimbursement helps facilities continue to invest in their employees, she said, while putting more of a focus on value-based care.

“Incentivizing operators to create I-SNPs and to dive into those waters – from a quality standpoint, from a continuum of care standpoint, from a reduction in rehospitalization standpoint – are all things that we should be looking at,” said LaForte.

Proper reimbursement for specializations, with specializations being defined with more clarity by CMS, will result in better care and care at a higher level of acuity, he added.

Properly capturing acuity in reimbursement

Properly capturing degrees of acuity within the industry’s two major payers, Medicare and Medicaid, and having acuity accurately and consistently represented and understood in data, is an area that needs attention, Marc Zimmet told Skilled Nursing News. Acuity levels are, after all, impacted by previously missed diagnoses for certain conditions.

“Respiratory therapy is a classic example. It’s a very powerful reimbursement driver. It’s not that patients weren’t getting respiratory therapy nebulizers [before the pandemic or PDPM]. It’s that we got a lot better at documenting and capturing it and that makes the patients look sicker,” said ZImmet, CEO of Zimmet Healthcare Services Group.

PDPM was originally developed in order to classify residents not just receiving therapy, but focusing overall on the individual patient and their characteristics, LeadingAge Health Services Policy and Regulatory Affairs VP Janine Finck-Boyle said in an email.

And so since reimbursement is based on diagnosis, she said, making accurate assessments is key to proper reimbursement for specialities. Missed diagnosis, of course, means missed reimbursements.

Misrepresentation in the data, is therefore, one issue responsible for so much damage within the SNF reimbursement model, Zimmet noted. Long-term care patients in case-mix index states look a lot sicker than those in states without acuity-based payment systems.

This distortion transcends reimbursement; quality ratings are impacted and plaintiff lawyers use it against facilities, he explained.

While PDPM is a better system than what the industry has seen in years past, it’s not ideal, Zimmet added. Payments should eventually be based on diagnosis specifically for the long-term care population, similar to what I-SNPs use via a series of hierarchical condition codes.

Amy Seils, controller of revenue and reimbursement for Cascadia, said PDPM has helped take the focus off therapy minutes, but major services like bariatric and behavioral health need to be taken into account.

“Those two items take extra care, and it’s not really being reflected in the PDPM rates,” she said. And while some states have started offering speciality rates for bariatric services or tracheostomies, others have not. There’s a lack of consistency and that impacts payments, according to Seils.

And there are other factors impacting payments when it comes to adequate reimbursement. when it comes to properly capturing acuity in reimbursement. Seismic changes in October for MDS may throw yet another curve ball, Dempsey said.

“Without knowing the full impact of the changes, the real challenge is how to prepare for the future without a full grasp of what’s to come,” Dempsey said of reimbursement and MDS changes. “Facilities will need to be doing a lot of training to get ahead of the rollout, all without truly understanding how the changes will impact reimbursement and the star rating system.”

Shifting profits and accountability

Americans are living longer, and the average length of stay in a nursing home is increasing, LaForte said, while many aging people in the country don’t have savings beyond six months.

All are factors to consider when industry leaders and policymakers think about restructuring Medicaid reimbursement, he said.

“We’re going to have to come up with some payment system where the Feds are ensuring that states are compliant with paying … sustainable Medicaid rates for long term care, or we’re going to lose that care component on the continuum,” noted LaForte. “There’s no other provision for it.”

RIght now, Medicare’s healthier margin is supporting Medicaid’s lack of a margin – something Medicare was never designed to do, he added.

The same sort of oversight is needed for managed care, he said. LaForte called on federal agencies to hold large insurance players accountable for “really high margins.”

Nicole Fallon, vice president of integrated services and managed care for LeadingAge, said it’s “impossible” to talk about SNF reimbursement structure without discussing how MA plans pay – along with their standard practice for reimbursement.

MA plans pay on average about 60% to 80% of Medicare FFS, Fallon said, and work to reduce the number of days in a SNF. What’s more, members have reported MA plans pressuring them to “down code” MDS assessment outcomes that are used to determine PDPM rates.

“Plans will disagree with the outcome of a patient’s assessment and pressure the provider to reduce the level of need determined by the assessment,” Fallon said in an email to SNN. “The plan instructs the provider that they must submit a claim for reimbursement at the lower PDPM rate or they will deny it.”

Managed care providers’ denial of service means that operators lose out in the end.

“Their margins aren’t just generated because of maximum efficiency, their margins are generated in part because they’re able to cut the average fee-for-service Medicare reimbursement rate by $150 to $200 when they’re in charge of reimbursing it,” said LaForte. “There’s a lot of profitability there that is off the backs of operators.”

In other words, treating higher acuity with managed care shouldn’t be about profit shifting from operators with FFS Medicare to insurance companies under managed Medicare.

“The managed care, Medicare Advantage plans, with commercial insurance, is really where we’re struggling right now,” said Seils. “We’re even seeing some of the facilities start to limit which contracts, which HMO providers they want to deal with, because of the rates and the reimbursement system.”

Beyond Medicaid rebasing

Accounting for acuity through rate reconstruction and allocation is needed, Zimmet said, beyond simply increasing Medicaid rates.

How funding gets distributed is as important as funding itself. States have a finite amount of dollars for Medicaid payments, he said, and what winds up happening is operators learn the system to get higher rates, to optimize their case mix for better reimbursement.

“If everybody gets their [CMI] scores up in the state, and everybody’s reimbursement goes up let’s say 5%, and the state that had $100 million allocated now spends $110 million … they don’t necessarily pay out $110 million,” said Zimmet. “What happens is they will do a budget adjustment factor. So, everybody’s case mix is worth a little bit less.”

In other words, when there’s a fixed pool of Medicaid dollars and a possibility the state will reduce everyone’s rate to account for a budget adjustment factor, SNFs are in competition with each other to get proper reimbursement first, Zimmet said.

It’s a race to the top, only everyone’s running up a down-escalator. Incidentally, this is exactly what happened with Medicare – it’s what the recalibration was all about, Zimmet said.

“People always talk about Medicaid reimbursements in terms of funding, funding funding – that’s only half the battle,” said Zimmet. “These are revenue allocation systems, that’s all they are. And for the most part it’s a zero sum game; somebody gets more, somebody gets less. It’s time to rationalize the entire SNF reimbursement model.”

Medicaid rate construction and allocation doesn’t factor in inflation either, Seils said. The way budgets are set up in state governments, operators aren’t able to easily change reimbursement methodology. States aren’t timely with these issues either, she said.

PDPM as an evolutionary stepping stone

The overall shift from fee-for-service reimbursement to more quality-driven, value-based reimbursement is impossible to do overnight, LaForte said. PDPM is a step in the right direction, a stepping stone to a different way of calculating reimbursement.

Other experts agree. “I’d like to see all payers go on the same model for consistency across states and to continue to improve the PDPM model. That’s the most realistic option,” said Zimmet of the PDPM model.

And while PDPM addresses acuity somewhat, it still needs to better address quality metrics, LaForte said. Specifically, specialized care needs to be better incentivized under PDPM, along with creating I-SNPs and following patients along the continuum of care.

“What [PDPM] did with therapy was necessary and is positive,” said LaForte.

He refers to the trend of some therapy providers, especially third-party therapy providers, driving therapy minutes to increase their reimbursement.

“You had a lot of therapy companies, and we had a lot of operators that got caught driving minutes in a questionable manner,” added LaForte. “But I think you went to such an extreme on the other level, where time really isn’t really factored in and there are people who aren’t getting as much therapy.”

Operators that are unable to fully invest in a more PDPM-driven model likely won’t beable to best allocate therapy given the existing PDPM, he said. And that is his “biggest concern” with regard to PDPM and acuity-conscious reimbursement.

However, LaForte says PDPM isn’t a one and done change in reimbursement. There will likely be other models in the next decade or so to address issues in sustainability for a patient-driven model.

“I think PDPM, ultimately, will be an evolution along the way to getting to a more fully value-based, quality-driven payment model,” LaForte said.