Improving Care for the End of Life, Online Edition The Palliative Care Policy Center

Sourcebook : 9.1 Medicare Payments for Fee-for-Service Programs : 9.1.2 Skilled Nursing Facilities

The BBA also instituted a new Prospective Payment System (PPS) for Medicare in skilled nursing facilities (SNFs). Under the PPS, SNFs receive per diem payments. There will be a three-year, phased transition from facility-specific rates (reflecting the individual facility's historical cost experience) to standardized federal rates. Medicare's changes here are aimed to affirm that the Medicare SNF benefit is \I\only\R\ a postacute, short-term benefit, meant to decrease hospital use.

The per diem payments that the new PPS makes are case-mix adjusted to reflect the actual resource intensity a resident needs. To make the case-mix adjustment, the SNF PPS clinically groups SNF residents by using the Resource Utilization Groups, version III (RUG-III), a classification system that groups residents according to average daily care needs. Under the new PPS, the Minimum Data Set (MDS) will determine rates for each SNF resident by placing patients in one of the 44 RUG-III groups. Although the MDS was developed for clinical evaluation and guidance for the care plan, it will now be the foundation for determining each SNF resident's Medicare payment.

Because Medicare SNF reimbursement depends on a "skilled need," only the most acute first 26 RUG-III categories are sure to be reimbursed. The higher payments are connected to intensive rehabilitation services, such as physical therapy following orthopedic surgery. The increment for unstable medical conditions is small, and most patients with serious and complex but stable illness will not qualify for any Medicare payment. For example, if a family caregiver can be trained to provide an ongoing service, it is generally difficult to claim that the service continues to be a skilled one (even if the SNF requires a nurse to provide it). Each RUG corresponds with a set per diem payment rate: The higher the ranking, the higher the payment.

Residents receive a single RUG-III ADL (Activities of Daily Living) score that measures their ability to perform these activities (on a scale of 4 to 18; higher scores represent greater functional dependence and a need for more assistance). The major categories include (in hierarchical order) rehabilitation; extensive services; special care; clinically complex; impaired cognition; behavior problems; and reduced physical function. The first 26 RUG-III categories always qualify for Medicare Part A coverage. Other categories require individual coverage determination.

The chart categorizes patients by rehabilitation needs: The ADL score (second column) coupled with the category-specific score (third column) correspond to the RUG code (fourth column).

Table 9.1 Average Daily Rate for Highest RUG Code, by Category
CategoryADL Score RequiredRUG CodeAverage daily rate for highest
RUG code in each category
(nursing, rehab, and
nontherapy case mix)
Ultra-high rehab16-18RUC$424.97 urban
$359.28 rural
Very high rehab16-18RVC$327.57 urban
$272.97 rural
High rehab15-18RHC$300.33 urban
$245.46 rural
Medium rehab15-18RMC$295.70 urban
$239.48 rural
Low rehab4-13RLA$198.00 urban
$160.13 rural
Extensive services*CIGreater than 7SE2$242.20 urban
$188.70 rural
Special Care17-18SSC$210.71 urban
$164.70 rural
Clinically Complex **DI17-18CC2$209.71 urban
$163.78 rural
Clinically Complex **DI4-11CA2$157.66 urban
$155.66 rural
*CI is the abbreviation for clinical indictors
**DI is the abbreviation for depression indicators.

Stays that follow unusually brief hospital stays (early discharges), and vice versa (bounce-backs), come under complex rules that make the facilities financially responsible for some of one another's actions. One net effect of these billing changes is to force SNFs to take a lead in integrating services. It is not clear yet what results that will yield.

Other than hospice investigations, the care that SNFs provide to dying patients has not come under scrutiny for fraud or abuse. Of course, dying residents will usually retain Medicare coverage for their SNF stay for just a short time, perhaps two weeks after a hospital discharge. They usually do not qualify for rehabilitation, and their conditions, while complex and hazardous, are often stable for long periods. Thus, these patients may not qualify for substantial periods of Medicare coverage in a skilled nursing facility.

Managers addressing SNF coverage for residents who are sick enough to die face perplexing financing issues in considering whether to field a special or enhanced set of services. They will have to understand both the option of using hospice services and the potential for reimbursement under Medicaid and from private sources. Certainly, the experience in Oregon and elsewhere shows that very frail and very sick persons living in SNFs can receive good care until death without being moved to hospitals. However, the Medicare SNF benefit is not a prominent factor in financing that care.

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This online version of the book Improving Care for the End of Life: A Sourcebook for Health Care Managers and Clinicians is provided with permission of Americans for Better Care of the Dying [ ] and Oxford University Press. All rights reserved.

For further information on quality improvement in end-of-life care visit The Palliative Care Policy Center [ ].

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