Patient-Driven Payment Model:

What Should You Be Doing Now?

Medicaid Disproportionate Share Hospital (DSH)

January 2019

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What Should You Know?

Effective October 1, 2019, the Centers for Medicare & Medicaid Services (CMS) is replacing the current Medicare Skilled Nursing Facility Prospective Payment System (SNF PPS) case-mix classification system, the resource utilization group (i.e., RUG-III/RUG-IV), with the Patient-Driven Payment Model (PDPM). The PDPM is a new system for classifying skilled nursing facility (SNF) patients in a Medicare Part A covered stay into payment groups under the SNF PPS. The change between RUGs and PDPM will be a “hard” transition, which means the two systems will not run concurrently.

While this change directly relates to Medicare, it will also have considerable short- and long-term implications for state Medicaid programs. For example, many states leverage aspects of the Medicare SNF PPS to establish Medicaid nursing facility reimbursement, supplemental payment programs, and annual upper payment limit (UPL) compliance demonstrations. Recognizing these implications, CMS is affording states the opportunity to maintain current systems, with modification, until they are positioned to fully integrate the necessary aspects of PDPM into their reimbursement systems.

Under the former Medicare RUGs system, a large portion of nursing facility residents are classified into a therapy payment group, which primarily uses the volume of therapy services (therapy minutes) provided to residents as the basis for payment classification. This creates an incentive for providers to furnish therapy to patients regardless of the resident’s unique characteristics, goals, or needs. PDPM aims to eliminate this incentive by classifying patients into six payment groups, five of which are case-mix adjusted to address utilization of resources that vary according to patient characteristics.

Given these changes in the Medicare payment landscape, states need to evaluate their ability to maintain current reimbursement systems while planning for the future.

Things to consider in order to maintain your state’s existing RUGs system

  • PDPM will result in modifications to the minimum data set (MDS) resident assessment instruments, as well as elimination of several of the existing Medicare Part A assessments. To address the significant differences in items and item coding between RUGs and PDPM, CMS has created a new Optional State Assessment (OSA).
  • Through September 30, 2020, all MDS assessment item sets will continue to contain sufficient information to classify residents into a RUG category; however, with the retirement of Medicare Part A assessments on October 1,  2019, states need to determine whether to use CMS’s new OSA as a replacement for some or all of the retired Medicare Part A assessments. If states have not yet made this determination, they should immediately evaluate the fiscal impact for failing to adopt the OSA, as it may have implications for provider-specific reimbursement rates.
  • Beginning October 1, 2020, it is anticipated that the OSA will be the only federally available assessment containing sufficient information to classify a resident into a RUG category. Additionally, this will also be the only assessment containing RUG-III or RUG-IV Health Insurance Prospective Payment System (HIPPS) codes, which some states use for resident classification purposes. Prior to this date, States need to decide whether to require submission of the OSA. States also need to update appropriate regulations, Medicaid State Plans, and RUG calculation processes to ensure compatibility with use of the OSA.
  • Your state may continue to use a RUG-based methodology to calculate their annual Medicare upper payment limit (UPL) Once four complete quarters of MDS assessment information is available for Medicaid residents to be classified in a PDPM case-mix group, CMS may require states to transition to a PDPM-based UPL demonstration calculation. We anticipate states will be able to establish a non-Medicare resident PDPM classification beginning October 1, 2020. It will be important for states to communicate with their CMS Regional Office regarding continued UPL demonstration compliance.
  • CMS guidance notes the OSA will be available However, our discussions with the Agency’s PDPM Implementation Leadership team suggest that the OSA will eventually be retired, meaning case mix states will need to transition to PDPM at some future date. Given the complexities associated with changing reimbursement systems, states should begin planning for this transition as soon as possible.

Things to consider if your state is ready to begin transitioning to PDPM

  • Evaluate the different components of PDPM and determine which are applicable to your Medicaid program.
  • Be prepared to begin modeling as soon as data is We anticipate states will be able to establish a non- Medicare resident PDPM classification for these purposes, beginning October 1, 2020.
  • Engage your provider association representatives and other relevant stakeholders in PDPM transition discussions early and often.
  • Conduct a review of relevant legislation that governs reimbursement, any associated administrative rules, and Medicaid state plan 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.
  • Develop a formal PDPM implementation plan. Considerations may include provider education and training; development of mechanisms to communicate provider-specific fiscal impact; incorporation of a phase-in approach for new reimbursement rates.