Medicare may raise nursing home pay.

Proposed rule would better account for non-therapy ancillary costs

A PROPOSED REGULATION FOR CASE MIX refinement under the Medicare prospective payment system for skilled nursing facilities has been published by the Health Care Financing Administration (HCFA). The proposed rule, which first appeared April 10 in the Federal Register, better accounts for medications, medical supplies, and other non-therapy ancillaries.

Medicare payments to nursing homes would rise by 5.8 percent, says Nancy-Ann DeParle, administrator of HCFA. The rate hike would translate to an estimated $15.5 billion for nursing homes in fiscal year 2001, an increase of more than $900 million over the current year's allocation.

After a 60-day public comment period, the final rule is expected to be published about Aug. 1, 2000, and to become effective Oct. 1, 2000.

The proposed refinement is also important because its implementation will end the 20 percent adjustment to 15 selected resource utilization groups that began April 1 under the Balanced Budget Refinement Act of 1999 (BBRA).

Maintaining the general structure of the RUG III system, the proposed refinement adds 14 new RUG groups (for a total of 58) as well as a four-group medical ancillary index (MAI) to better account for the wide variation in non-therapy ancillary costs across RUG groups. The MAI will apply to the top 40 RUG groups representing the majority of Medicare SNF residents. (The bottom 18 RUG groups represent the majority of Medicaid patients). With these changes, the total number of RUG groups is now 178.

In addition, HCFA developed and evaluated both weighted and unweighted indices. An unweighted index assigns a level (and associated dollar amount) based on a simple count of the minimum data set (MDS) items. A weighted index assigns weights to selected MDS items based on differences in costs associated with the MDS item.

The proposed rule also includes discussion of other minor SNF provisions, such as the immediate election to the federal rate, the special SNF populations addressed, and the Part B add-on for demonstration SNFs. HCFA also announced that it is delaying medication data collection under Section U until Oct. 1, 2001.

The aggregate impact of these changes, HCFA estimates, will be an annual increase of $900 million. This reflects the ongoing transitions to full federal rates and the new options to elect full federal rates; implementation of other provisions of the BBRA; and increases as part of the fiscal year 2001 rates (market basket adjustment) and the 4 percent adjustment overall.

Continuation of the present system would mean an estimated additional $1 billion in expenditures because of continuation of the 20 percent adjustment, HCFA says, adding that the 20 percent adjustment contains perverse incentives because higher payments are offered when less therapy is provided.

Health Dimensions reimbursement consultant Jade Gong applauds the move. "The system didn't recognize the acuity of SNF patients and that creates access problems. You can't have a system that doesn't recognize the cost of IV patients and think they'll be welcomed in facilities. Obviously the system could be simplified, but on balance it's great."

Another consultant, who asks not to be identified, says a variety of large providers can be expected to oppose the proposed refinement. "The way the 20 percent add-on was given, you don't need to take a complex patient to get the money, so certain facilities are doing better than they will under the new system where they'll have to actually incur the costs. But what the industry will say to kill or delay its implementation is it's too complex."