As the Medicaid payment system transitions across states from RUGS to the Patient-Driven Payment Model (PDPM), nursing home operators must be wary of misconceptions – including that the transitions will always lead to additional Medicaid funds being available – while putting in place the right practices to ensure appropriate payments.

The complexities of Medicaid transitions among states, and the impact on case mix and payment rates, along with the need for proper documentation and communication to identify resident acuity in the new system, were among the topics addressed at the recent Zimmet Healthcare Annual Conference.

One note of caution for providers: As states switch to PDPM-based models for Medicaid, they are not all increasing the total dollars available to nursing homes.

“There’s a misconception that the pizza pie is getting larger, right? That there’s an opportunity to capitalize when there’s a Medicaid payment system, that’s it’s going to result in additional funds being added,” said Zimmet Director of Analytics Vincent Fedele. “The reality is, unless the state adds additional funds to the Medicaid program, the pie doesn’t get larger at all.”

A total of 35 states currently have some form of the case mix index (CMI) system that’s used to establish the Medicaid rates for nursing homes, Fedele said. Twenty of the 35 states have opted for the nursing component of PDPM, he said, pushed primarily by one contractor, accounting firm Myers and Stauffer, that services a majority of states in the country.

“It’s probably the most straightforward in terms of adjusting to it at the building level,” said Fedele. All states must have a plan in place to transition to PDPM by October 2025.

These changes at the state level relate to the introduction, in 2018, of the Patient-Driven Payment Model for determining Medicare Part A reimbursement to SNFs. Related to the switch to PDPM, long-awaited changes to the Minimum Data Set (MDS) took place last year – including the elimination of Section G – that propelled the need for states to adjust their Medicaid models.

As states pursue various different options for making this transition, Fedele and Zimmet COO Michael Sciacca ran through a step-by-step process to optimize reimbursement under likely state PDPM updates. 

First, operators can identify residents that are included in the CMI calculation, which varies by state, then maintain compliance with minimum data set (MDS) requirements and conduct regular interdisciplinary meetings to review CMI updates.

Operators can also identify reimbursement sensitive clinical acuities based on the payment system in each state, including add-on items, and speak with attending physicians for additional medically appropriate, active, reimbursement sensitive diagnosis codes. Clinical staff can then review clinical documentation for compliance and code the MDS assessment while adhering to RAI manual coding guidelines.

Lastly, operators can monitor for changes by reviewing electronic medical records for any clinical acuity changes throughout the collection window that may warrant MDS completion.

Most states will base transition on nursing component

For Medicare Part A, PDPM includes five case-mix adjusted components: physical therapy (PT), occupational therapy (OT), speech-language pathology (SLP), non-therapy ancillary services, and nursing. Of course, the long-stay Medicaid population primarily is in need of nursing services, which informs the state-level approaches to basing their Medicaid methodologies on the PDPM framework.

Some states, like Wisconsin, use a nursing and non-therapy ancillary system, while Texas has a proposed system for September 2025, a blended hybrid between nursing with condensed categories, non-therapy ancillary with condensed categories, and a small credit for impaired cognition.

“Even if a state had multiple components, the heaviest weighted component in most of these states has been nursing,” said Fedele.

About 11 states haven’t announced how they’re going to transition to PDPM, but Sciacca and Fedele believe most states are being pushed by their contractors to go with the nursing component of the rate, and the states are pushing back for more components, similar to what Wisconsin and Texas are doing.

The payment system transition results in a redistribution of dollars, as some providers jump on the opportunity, while others fall behind, Fedele said. And, it’s often a short-lived advantage for those that are on top of the change, as over time the system adjusts for those that have lagged.

States do a good job of knocking that pie down to size as well via budget adjustment factors. Or, as the case mix score increases and the pie gets bigger, the state recalibrates dollars downward, Fedele said.

How operators can prepare for state transition to PDPM

When looking at PDPM data, nursing home operators should compare their scores to other operators rather than their old RUGS score, said Sciacca. Or, they should compare their performance to the nursing component on the Medicare side.

Operators would do well to focus on clinical proficiencies too, properly capturing in-house services typically thought of as high acuity, like respiratory therapy and IVs. And, providers should focus on where a state has stricter documentation guidelines for certain components like shortness of breath, isolation or IV fluids.

“Clinical programs that are deemed reimbursement sensitive under a PDPM system are going to become more prevalent in the next year as more states transition,” said Sciacca. “If you’re not thinking about it now, you probably should take this down and go back to your team to see if this is something that’s possible.”

Strategies for improving Medicaid case mix and special care capture rates – including proper documentation of shortness of breath for COPD assessments in particular – starts with a better understanding of the distribution of special care within state acuity levels to optimize reimbursement.

Properly coding for Section GG is another tip to maximize reimbursement under transitioned Medicaid, again properly capturing information from a clinical perspective.

“It really has a crippling impact on your CMI, and we’re seeing that on Medicaid, which makes sense … we don’t see it with Medicare,” Fedele said of special care capture rates. “It’s a problem that we haven’t had to face in our Medicare PDPM system and it’s really a defining feature of the long-term care PDPM construct that’s either in place or being proposed in many of the states.”

In other words, the special care component is a far cry from what was captured in RUGS – mostly therapy-based services. It’s not an issue with Medicare since higher acuity is already being captured in short-term rehabilitation stays.

States like Maryland are already implementing enhanced documentation guidelines as part of their PDPM transition, making it much harder to capture some of these items in Medicaid compared to under the RAI manual for Medicare, Sciacca noted.