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Repisodic Blog

Sharing insights, impact and successes in our mission to help health systems discharge every patient.

The New Reimbursement Method: Patient Driven Payment Model


Healthcare is a balance between giving patients the care they deserve while keeping costs low. With a projected 64 million Americans on Medicare by 20201, the government is constructing new ways to reduce costs and increase efficiency, while trying to appease patient’s standards of better, specialized, transparent care. In the passing of the Affordable Care Act and the IMPACT Act, the healthcare industry and CMS regulations are shifting the healthcare agenda to prioritize patient-centered, value-based care. In the newest manifestation of this trend, CMS is replacing the old reimbursement model for Skilled Nursing Facilities– Resource Utilization Group, Version IV (RUG-IV)–with a Patient Driven Payment Model (PDPM), starting October 1, 2019. This model was not intended to change the foundation of skilled nursing, but to make reimbursements mirror the specificities of a patient and their care needs.

PDPM was established to reorganize the foundations of Medicare Part A insurance reimbursements. This insurance, which covers the care at skilled nursing facilities for a limited time and in certain conditions, will now focus on the condition of the patient rather than a volume benchmark or financial incentive.2,3 To CMS, the PDPM represents an improvement over the RUG-IV model, in the capacity of “payment accuracy and appropriateness by focusing on the patient, rather than the volume of services provided; significant reduction in administrative burden on providers; and improvement in SNF payments to currently underserved beneficiaries without increasing total Medicare payments.”4

Payment accuracy and appropriateness are addressed by classifying patients into payment groups based on specific characteristics. RUG-IV had two case-mix adjustment characteristics, Therapy and Nursing. PDPM has expanded the amount of characteristics by making them more specific: Physical Therapy (PT), Occupational Therapy (OT), Speech Language Pathology (SLP), Non-Therapy Ancillary (NTA), and Nursing. Instead of combining all the factors that go into a patient’s care and reducing it to a classification of a single group, PDPM sees all five characteristics as individual, important factors that better summarize the goals, needs, and characteristics of a patient.

Within each of those five components, there is a clinical category and a functional status. One of the biggest changes within a component has been the therapy hours. Under the RUG-IV model, therapy time was the basis of payment classification, creating an incentive for longer therapy sessions regardless of the patient’s needs or goals. With the new PDPM, there are specific restrictions over the services, ensuring that patients are getting the appropriate type and quantity of therapy. It eliminates the incentive of high volume therapy by not reimbursing SNFs after a capped volume, but also ensures that there will be penalties for facilities that under-deliver.5,6,7 Specifically, “if the total amount of group/concurrent minutes, combined, comprises more than 25% of the total amount of therapy for that discipline, a warning message is issued on the final validation report.”8 These new rules are encouraging providers to reevaluate their therapy plans to ensure that a patient’s therapy time is used efficiently.

Additionally, to capture the patient’s unique characteristics, PDPM is rewarding providers that correctly record their patients’ health to ensure that all medical issues are clearly documented. 9 Within each of the five case-mix adjusted components, there are various scores, levels, and categories that help numerate all the conditions. For example, for therapy, PDPM has also created a scoring system based on “Section GG” items, which have specifics for self-care and mobility.10 This meticulous account of a patient’s status pushes providers to familiarize themselves with the rules, their patients, and the reimbursement system.

Another big change is the per diem payment system. Under RUG-IV, per diem rates were held constant throughout the patient’s stay and therefore do not reflect changes in resources utilization. This could result in too few resources initially being allocated to the providers. Therefore, PDPM will implement variable per diem rates that change over the course of the patient’s stay to reflect variability in patient costs. This adjustment will influence the payment rates for all patients, but particularly those with specific health conditions, like AIDS. Under RUG-IV, this patient population had a 128% increase in per diem rate during their stay. CMS determined that the approximate constant per diem costs were not correctly representing the necessary care these patients needed and the dynamic per diem rates will better account for the changing cost of AIDS-related care.11 In an effort to make sure SNFs do not readmit and transfer patients in attempt to reset the variable per diem schedule, PDPM has an interrupted stay policy which combines multiple SNF stays into a single stay to account for readmissions.

This new payment model is an attempt to improve the accuracy, reduce burdens, and improve payments to underserved CMS beneficiaries. However, with these changes, there will be both intended and unintended consequences that will impact the reimbursements as well as the type of care patients will receive at SNFs. For example, with the increased focus on quality over quantity in therapy hours, SNFs may see a potential loss in therapy reimbursement. However, it is anticipated that this can be neutralized by an increase in reimbursement in nursing care. Although this new payment model’s strict regulations may seem like a burden to post-acute care providers, it will likely improve the quality and efficiency of their rehabilitation as SNFs will now need to be diligent and precise in documenting how they provide patient care. When treating their patients, SNFs will need to develop data-driven care plans based on clinical evidence since reimbursements are now based on patient’s quality of care and their outcomes.12 Specific classifications of patients and variable per diem rates may incentivize facilities, who would have previously seen a negative impact on their revenue, to take in more complex patients. Skilled Nursing News predicts that respiratory therapy and services, like ventilator and tracheostomy care, could be potentially emerging as a key revenue sources due to their high reimbursement rates.13 With this transition on October 1st, CMS will most likely be making changes in the coming years as more research is produced.

Patient centered care has always been at the root of Repisodic. Our hospital discharge solution, Repisodic Choice, allows case managers to quickly and easily identify the best post-acute care options for each individual patient based on their unique medical needs. Repisodic Choice offers a catered approach to hospital discharge to ensure that patients get the care they deserve in a timely and effective manner.

1 Who Relies on Medicare? A Profile of the Medicare Population

2,9 Under PDPM, Benefits of In-House Medicare Advantage Plans Will Go Beyond Money

3 PDPM 101: What Skilled Nursing Providers Need to Know Now

4,8,10,11 PDPM: Background & Finalized Changes to the Skilled Nursing Facility (SNF) Prospective Payment System (PPS)

5 Patient-Driven Payment Model: Frequently Asked Questions (FAQs)

6 Post-Acute Care Providers Worry About Patient-Driven Payment Model

7,12 Understanding The Patient-Driven Payment Model (PDPM)

13 Respiratory Therapy’s ‘Massive’ Skilled Nursing Opportunity Under PDPM