MLR Alert

New CMS Updates to MDS in Nursing Facilities Has Impact on RUG Based Acuity Payment Systems and UPL Demonstrations

September 2022

Medicaid Disproportionate Share Hospital (DSH)

January 2019

CMS released a State Medicaid Director’s Letter (SMD# 22-005) on September 21, 2022. This letter, coupled with the release of draft Minimum Data Set (MDS) changes on September 1, 2022 has several implications for state Medicaid programs and their nursing facility reimbursement systems.

  • Beginning 10/01/2023 MDS items necessary for resident classification under a Resource Utilization Group (RUG) based acuity system (RUG-III and RUG-IV) will no longer be available on the standard MDS item sets.
  • States wishing to maintain a RUG-based acuity system after 10/1/2023 will need to implement and require submission of an Optional State Assessment (OSA) as of that date.
  • CMS will support the use of an OSA by state Medicaid agencies through 9/30/2025.
  • CMS provided guidance related to the use of a Patient Driven Payment Model (PDPM) approach for required annual Upper Payment Limit (UPL) demonstrations. Guidance requires use of only PDPM components that align with services included in the Medicaid NF per diem rate.
  • A change in historic state UPL demonstration approach may have implications for existing state supplemental or directed payment programs.

States should review their current nursing facility reimbursement systems and evaluate the need to implement an OSA or transition to a new resident acuity based system like PDPM. Additionally, states should evaluate the use of PDPM for UPL demonstration purposes, how the services included in their Medicaid NF per diem rate (nursing therapies, drugs, etc.) align with the components of PDPM for Medicare part A reimbursement, and how existing supplemental or directed payment methodologies may be affected. The following considerations are designed to assist states in evaluating and implementing a strategy that best meets the goals and objectives of the state.

OSA Considerations

  • States will have the option of requiring the use of the OSA to maintain RUG based systems with the continued support from CMS through September 30, 2025. CMS has been contacted to provide additional details relating to the level of ongoing acceptance, support, and validation of OSA submissions.  Further details will be disseminated once a response has been received from CMS.
  • Use of the OSA on or after October 1, 2025 would require a separate state specific system to collect and validate MDS assessment data as well as calculate the RUG classification.
  • The OSA contains all items necessary for resident classification under a RUG-III or RUG-IV resident classification system.
  • Review internal systems to ensure OSA information can be captured, collected, and processed.
  • If a decision is made to implement the OSA, evaluate the need to update applicable regulations, relevant administrative code sections, Medicaid State Plans, and existing policy guidance prior to implementation.
  • Develop OSA implementation strategies to determine appropriate submission intervals. It is recommended that states require OSA submission in conjunction with current federal MDS submission intervals. This will help ensure budget neutrality with OSA implementation and serve as a linkage between assessments needed for reimbursement and those needed for purposes of federal compliance. This linkage is particularly important for states leveraging Section S within their reimbursement systems, as Section S is not available on the OSA.
  • Nursing facilities and their MDS software vendors may need time to update software platforms to allow for OSA use and to streamline the assessment completion process. Work with nursing facility provider trade association representatives to contact MDS software vendors and enlist their support in streamlining OSA submissions.
  • Consider developing and implementing provider communications and training for appropriate OSA completion and required submission intervals.

PDPM Rate Considerations

  • PDPM was first introduced for the SNF Medicare part A reimbursement methodology in October 2019, and has been available for data collection for state Medicaid programs and their recipients as of October 1, 2020.
  • Review the state Data Management System (DMS) application parameters to determine whether your state systems are currently requiring, validating, and collecting the MDS fields necessary for PDPM resident classification.
  • Evaluate the different components of PDPM to determine which are applicable to your Medicaid program and the services paid under your nursing facility inpatient service benefit. We anticipate states will utilize the Nursing component of PDPM at a minimum in rate methodology design. As soon as feasibly possible, determine appropriate base year cost reporting information and begin modeling the rate impacts of PDPM acuity.
  • Evaluate the statewide and facility specific fiscal impacts to current nursing facility supplemental and directed payment programs due to a transition in acuity classification.
  • Engage your provider association representatives and other relevant stakeholders in transition discussions.
  • Consider the need for a phase-in of reimbursement rates which temper the facility specific upward and downward rate impacts for a limited period of time to allow nursing facilities sufficient time to adjust operations and expenditures to reflect new reimbursement levels.
  • Evaluate the need to require an OSA as part of transition planning.
  • CMS recently released an Informational Bulletin dated August 22, 2022, which references The White House Fact Sheet dated February 22, 2022. The Fact Sheet focused on initiatives to improve the quality of nursing facility care. These initiatives continue to evolve and become more defined. Review initiatives to identify if there are any new policies that could be evaluated along-side the transition to PDPM or at a later date.
  • Conduct a review of relevant legislation that governs reimbursement, any associated administrative rules, and Medicaid state plan amendments. A comprehensive understanding of what changes might be required, as well as the level of effort and timing required to accomplish such changes, is essential in developing a transition strategy.

PDPM UPL Demonstration Considerations

  • SMD #22-005 provided long awaited CMS guidance relating to acuity-based payment approaches for required state UPL demonstrations and defined specific criteria related to the use of PDPM for UPL demonstration purposes. The major areas of note within the SMD are as follows:
    • States may continue to utilize a RUG based payment approach for UPL demonstrations at their discretion. There were no changes to current RUG based UPL payment calculation mechanics proposed by CMS. However, after 10/01/23 this would require the state to implement an OSA in order to utilize a RUG based payment approach.
    • PDPM contains 5 (PT, OT, SLP, Nursing, NTA) case mix adjusted components. Only the PDPM components that relate to services included in the state’s nursing facility inpatient per diem rate may be considered for UPL purposes.

    EXAMPLE: If Medicaid PT, OT, and SLP services for a nursing facility resident are billed separately from the Medicaid NF per diem, then the PT/OT/SLP base components of PDPM may not be utilized in the calculation of UPL.

    • CMS did not provide guidance on the treatment of the Non-Therapy Ancillary (NTA) component of PDPM where only portions of the component (pharmacy, lab, radiology) are reimbursed outside of the per diem. Clarification has been requested from CMS in relation to the treatment of this component and additional information will be disseminated after receipt.
    • CMS will more stringently review Medicaid state plan amendments and associated upper payment limit demonstration submissions to ensure alignment between services included in the nursing facility per diem and PDPM components utilized in the upper payment limit.

    State Medicaid agencies will need to closely evaluate the impact of the new CMS guidance as it may have material impacts on current reimbursement system and annual UPL compliance.  States should at a minimum consider the following:

    • States should model a PDPM based UPL demonstration to understand the impact to long term UPL demonstration compliance.
    • For states utilizing Medicare upper payment limit differentials for supplemental and directed payment programs, consider performing detailed calculations of the differential between PDPM and current UPL calculation approaches to determine fiscal impacts at the statewide and provider specific level.
    • States should review regulatory language, Medicaid state plan language, and directed payment program filings to ensure language supports current operations or desired changes due to UPL modeling efforts.
    • States should closely evaluate how they pay for nursing home resident therapies (PT/OT/ST) to ensure a full understanding of fiscal impact realities and UPL compliance activities have been considered for the short and long term future of the nursing facility program.

How Myers and Stauffer Can Help 

Myers and Stauffer is the nationwide leader in assisting state Medicaid agencies in modernizing nursing facility reimbursement systems and consulting on complex program strategic decisions and issues like the matters discussed above.  We have extensive experience in providing data driven and informed solutions to states that meet program-specific goals and needs and optimize financial flexibilities.  The information and decisions discussed above represent some of the largest changes and considerations for nursing facility reimbursement programs since the inception of case mix in the late 1990s.  Myers and Stauffer is here to assist states through these evaluations and decisions each step of the way.