Forecasting fiscal 2007: why the federal market basket increase may mislead you.

When the updated Medicare Part A Skilled Nursing Facility Prospective Payment System (SNF PPS) rates for fiscal year 2007 were issued at the end of July 2006, the only changes were minor adjustments to the wage index. Meanwhile, CMS estimated that, nationwide, Medicare payments to nursing homes would increase by approximately $560 million, or 3.1%, for fiscal year 2007.

Although the increase in the federal market basket was just over 3%, facilities will find that their fiscal year 2007 rates actually vary quite a bit this year. Why? Because the rates fully transition from the old Metropolitan Statistical Area (MSA) wage indices to the new Core-Based Statistical Area (CBSA) wage indices, which supposedly better reflect local labor costs.

Using Florida as an example, increases in SNF PPS rates will range from zero in Palm Beach County to 7.6% in Indian River County.

Not so lucky were SNFs in Flagler County. That county changed from the urban classification to rural, resulting in a 5%-13% decline in rates for most of the deemed categories at Flagler facilities. As another example, rates in Georgia's rural counties decreased slightly, whereas one urban area had an increase of more than 15%.

The RUG factor

In addition to the effect of the full CBSA wage index, facilities are also dealing with a change in their revenue stream resulting from the implementation of the new Resource Utilization Group (RUG) system, better known as RUGs 53.

Since taking effect in January 2006, RUGs 53 has made Medicare Part A revenue forecasting more difficult than usual. However, recent samples of claims data for Florida facilities indicate that nursing homes have adapted better than expected to the new categories.

Although the impact on a specific facility's revenue will depend on its status as an urban or rural facility and its geographic locale, the following preliminary overview looks encouraging.

New RUGs sweep up

An analysis done by Orlando, FL-based Moore, Stephens, Lovelace, PA, compared volume by RUG of claims paid during calendar year 2005 to a similar analysis for claims paid from January through August 2006.

For 2006, the nine new RUG categories accounted for almost 35% of claims, and, as expected, almost 89% of these claims appeared to have shifted out of the old rehab categories. Using the unadjusted federal rates resulted in a rate increase of approximately 10% for urban facilities and only slightly less for rural ones.

For example, a facility that reported 5,000 Medicare Part A days in 2006 received an increase of $185,000. Again, because a SNF's wage rate may have changed, its results might look different.

The labor-related share of the federal rate for fiscal year 2007 remained at approximately 76%. CMS continues to use the hospital wage index to adjust the labor-related portion of the federal rate.

Finally, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 provision providing for a temporary 128% increase in the SNF PPS per-diem payment for any residents with HIV/AIDS remains in effect until the Department of Health and Human Services secretary certifies that there is an appropriate adjustment within the case-mix system for these residents. Because CMS has yet to address the certification of the HIV/AIDS add-on, it remains in effect for qualified residents.

RELATED ARTICLE: The move to core-based.

Reimbursement rates are now calculated on the Core-Based Statistical Area (CBSA) wage indices, instead of the Metropolitan Statistical Area (MSA) wage indices. The government's reason for the change is that it claims CBSA wage indices are a more accurate calculation tool for labor costs.

Metropolitan and micropolitan statistical areas are geographic terms used by the U.S. Office of Management and Budget to collect, tabulate, and publish federal statistics. A metropolitan area is defined as containing a core urban area of 50,000-plus people. A micropolitan area is described as one with a core urban area of at least 10,000 people, but fewer than 50,000.

According to the information on the U.S. Census Bureau Web site (www.census.gov/population), CBSA is a collective term for both metropolitan and micropolitan areas.

-Chad Berndtson

BY STEVEN R. JONES, CPA 

Steven Jones is a shareholder at Moore, Stephens, Lovelace, P.A. Certified public accountants, and is Director of the firm's Skilled Nursing Facility Practice Group. Steve has more than 27 years of experience in public accounting, primarily serving clients in the long-term care industry. Contact Steven at [e-mail].