What is PDPM and How Will It Affect Skilled-Nursing Properties?

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Seniors housing providers need to get ready to navigate the new Medicare payment model for skilled nursing facilities.

Starting Oct. 1, the Patient-Driven Payment Model (PDPM) for skilled nursing facilities will replace the Resource Utilization Group, Version IV (RUG-IV) system for calculating Medicare reimbursements.

The new system should provide a similar amount of funding to skilled nursing facilities (SNFs) overall, according to experts. However, the way Medicare calculates these payments will change.

PDPM to focus on patient need

“The RUG-IV methodology creates an 'artificial reimbursement ceiling' based on the amount of therapy provided to any given resident by establishing payment levels relative to therapy volume thresholds and ADL scores," according to Marc Zimmet, CEO of Zimmet Healthcare Services Group and a Managing Director at Greystone. “At the highest levels, co-morbidities (with few high-acuity exceptions) have no 'reimbursement-sensitivity' at all."

“PDPM is not a single payment system, but four distinct components that are essentially independent systems that require diverse skill sets to manage. Each component is based on patient diagnosis, condition, or service, irrespective of the amount of therapy a resident receives (even if they receive none at all).

Reimbursements likely to remain stable

The new system will reduce the administrative burden on skilled nursing facility providers, according to federal officials. PDPM also “improves payments to currently underserved beneficiaries without increasing total Medicare payments," according to CMS.

CMS officials designed the PDPM to be budget-neutral. Therefore, Medicare reimbursements shouldn't go down overall. However, if the new reimbursement model suggests that Medicare reimbursements for particular services should increase or decrease, compared to existing spending levels, then CMS may adjust the model to keep spending on track with the budget.

“At first I was certain that providers would quickly change behavior to take advantage of new payment opportunities and CMS would step in the following year and 'recalibrate' (lower) base rates to maintain budget neutrality," says Zimmet. “But I now expect aggregate payment changes to be more modest than originally forecast. CMS's initial focus should therefore be directed towards adjusting PDPM's structural mechanics and case-mix indices, as they were developed using data from the imperfect RUG-IV system. Once the model is sufficiently sound, expect auditing to mitigate much of the payment creep, unless spending dramatically exceeds the budget. But there are thousands of variables and consequences to consider and correct before a truly balanced model is realized."

Skilled nursing facilities should get ready

SNF operators should already be aware of the changes—and how they will affect their particular operating model. CMS has released a stack of guidance on the PDPM system, including the new reimbursements. Operators can use these materials to understand how they will have to submit their reports to CMS, starting in October.

And even more importantly, SNF operators should make it a priority to train their staff on the PDPM before it launches later this year.

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