This chapter discusses Medicare's prospective payment systems for post-acute care settings like skilled nursing facilities. It describes how Medicare uses a per diem payment model and adjusts payments based on a facility's costs and a patient's care needs, which are assessed using the Minimum Data Set and classified into Resource Utilization Groups. Facilities are reimbursed using an adjusted per diem rate based on the patient's RUG classification and length of stay. The chapter also explains how these payment systems aim to ensure beneficiaries receive appropriate high-quality care in the least costly post-acute care setting.

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Principles of Healthcare Reimbursement
Sixth Edition
Anne B. Casto, RHIA, CCS

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Chapter 8
Medicare-Medicaid Prospective Payment
Systems for Postacute Care
• Learning Objectives
– Describe Medicare’s all-inclusive per diem
rate for skilled nursing facilities
– Differentiate the specialized collection
instruments that exist in postacute care
– Explain the classification models and payment
formulae associated with reimbursement
under Medicare and Medicaid prospective
payment systems in postacute care
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Skilled Nursing Facility Prospective
Payment System
• Key Terms
– Postacute care (PAC)
– Base rate
– Skilled nursing facility (SNF)
– Consolidated billing (CB)
– Minimum Data Set (MDS)
– Activities of daily living (ADLs)
– Resource Utilization Group (RUG)
– Nursing component
– Therapy component
– Non-case-mix adjusted component
– Non-case-mix component
– Non-case-mix therapy component
– Nursing per diem amount
– Nursing index
– Therapy per diem amount
– Therapy index
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Introduction to Postacute Care (PAC)
• Settings that provide patients with
healthcare services for their
recuperation and rehabilitation
after illness or injury
– PAC allows continuing safe
recovery in settings less intensive
and more appropriate than acute-
care inpatient hospitals
• Medicare’s overarching goal for
PAC:
– Ensure beneficiaries receive
appropriate high-quality care in
least costly settings appropriate for
their clinical conditions
• Four settings designated by
Medicare Payment Advisory
Commission (MedPAC)
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Skilled nursing facilities
(SNF)
Long-term care
hospitals (LTCH)
Inpatient rehabilitation
facilities (IRF)
Home health agencies
(HHA)

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PAC Similarities
Require data collection
Based on a classification
system
Base rate converts
relative weight to dollars
Geographic adjustment
for cost of labor
Provisions and
adjustments for patients
with atypical
characteristics and
facilities with special
situations
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IMPACT of 2014
• Improving Medicare Post-Acute
Transformation Act of 2014
– PAC providers will report standardized patient
assessment data, standardized quality
measures, and resource-use measures
– CMS will modify existing data collection tools
to meet the requirements of IMPACT
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Skilled Nursing Facility PPS
Nursing Home
• Healthcare facility licensed by states
• Offers 24-hours per day skilled nursing care and
personal care services
Skilled Nursing Facility
• Provides short-term skilled nursing care and
rehabilitation services to beneficiaries after an
acute-care inpatient hospitalization
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Basic Concepts
ADL
Basic personal
activities such as
bathing, eating,
dressing, etc.
Used to measure
person’s dependency
on requiring
assistance to perform
any or all activities
Personal Care
Services
Custodial care
Assistance with ADLs,
self-administration of
medications, light
housekeeping, etc.
Person would typically
complete if they did
not have a disability
Rehabilitation
Services
Restore function
Physical therapy,
occupational therapy,
speech therapy or any
combination of these
therapies
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SNF Facilities
• Sites of SNFs
– Freestanding facilities (~95% of stays)
– Hospital-based units
– Swing beds in acute care hospitals
• Small, rural hospitals or critical access hospitals
• Swing beds used for inpatient acute care and
skilled nursing care
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Reimbursement Methodology
• Per diem payment
– Includes all costs that efficient facilities would be
expected to incur furnishing most SNF services
• Operating
– Skilled nursing care
– Rehabilitation services
– Ancillary services
• Capital costs
• Other goods and services
– Excludes high-cost, low-probability services
(reimbursable separately)
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Consolidated Billing
• Requires the SNF to pay for outpatient
services that a resident may receive from a
vendor
– Includes
• Laboratory
• X-ray
• Pharmacy
– Excludes emergency medical services; inpatient
services; extensive procedures; and certain high-
cost, low probability-ancillary services
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Data Collection
• Data collection tool
– Minimum Data Set (MDS) 3.0
• Extensive data base of clinical data that represents
documentation of the resident’s care
• Part of the health record
• Assessments must be completed within required
time frames
– See table 8.1 in the textbook
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Structure of Payment
• Per diem base rate
– Based on SNF cost reports
– Wage index adjusted
• See figure 8.2 in the textbook
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Structure of Payment
• Resource Utilization Groups (RUGs)
– Adjusts the base rate for patient resource
intensity
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Nursing
component
Therapy
component
Non-case-
mix adjusted
component

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RUGs IV
66 RUGs
52 Upper Groups
Minimum 45 total
therapy minutes per
week or require skilled
or extensive services
14 Lower Groups
Residents typically do
not require skilled care
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RUGs IV – Upper Groups
66 RUGs
52 Upper
Groups
Rehabilitation
Plus Extensive
9 RUGs
Rehabilitation
14 RUGs
Extensive
Services
3 RUGs
Special Care
High
8 RUGs
Special Care
Low
8 RUGs
Clinically
Complex
10 RUGs
14 Lower
Groups
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RUGs IV – Lower Groups
66 RUGs
52 Upper Groups 14 Lower Groups
Behavioral
Symptoms and
Cognitive
Performance
4 RUGs
Reduced Physical
Function
10 RUGs
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RUGs IV Assignment
• Takes into consideration
– Total therapy minutes, type of therapy,
number of days in therapy, mode of therapy
– Presence of conditions and diagnoses; for
example, tracheostomy status, ventilator
status, depression
– ADL score
• See figure 8.4 in the textbook
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Reimbursement
• See table 8.2 in the textbook for sample
payment calculation
– The per diem rate for the RUG is wage index
adjusted to create the adjusted per diem rate
– The adjusted per diem rate is multiplied by the
number of Medicare days (LOS) to determine
the reimbursement amount
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