News, Skilled Nursing Facility

CMS seeks comment on RUG-IV replacement

On April 27, the Centers for Medicare & Medicaid Services (CMS) published an Advanced Notice of Proposed Rulemaking (ANPRM) or pre-rule in the Federal Register, seeking public comment on proposed options for revising certain aspects of the existing skilled nursing facility (SNF) prospective payment system (PPS) payment methodology to improve its accuracy, based on the results of CMS’ SNF Payment Models Research project.

In particular, CMS is seeking comments on the possibility of replacing the SNF PPS’ existing case-mix classification model, the Resource Utilization Groups, Version 4 (RUG-IV), with a new model, the Resident Classification System, Version 1 (RCS-1).

Comments are due no later than 5 p.m. on June 26, 2017.

Reasons behind the change

Changes to the SNF PPS also come as a result of reports and suggestions from other notable sources, including the Office of Inspector General (OIG) and the Medicare Payment Advisory Commission (MedPAC).

Reports from the OIG determined the following:

December 2010—Questionable Billing by Skilled Nursing Facilities: In this report, the OIG found that “from 2006 to 2008, SNFs increasingly billed for higher paying RUGs, even though beneficiary characteristics remained largely unchanged” and among other things, recommended that CMS should “consider several options to ensure that the amount of therapy paid for by Medicare accurately reflects beneficiaries’ needs.”

November 2012—Inappropriate Payments to Skilled Nursing Facilities Cost Medicare More Than a Billion Dollars in 2009: In this report, the OIG found that “SNFs billed one-quarter of all claims in error in 2009” and that the “majority of the claims in error were upcoded; many of these claims were for ultrahigh therapy.” Among its recommendations, the OIG stated that “the findings of this report provide further evidence that CMS needs to change how it pays for therapy.”

September 2015—The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated: Among its findings, the OIG found that “Medicare payments for therapy greatly exceed SNFs’ costs for therapy,” further noting that “the difference between Medicare payments and SNFs’ costs for therapy, combined with the current payment method, creates an incentive for SNFs to bill for higher levels of therapy than necessary.” Among its recommendations, the OIG stated that CMS should “change the method of paying for therapy,” further stating that “CMS should accelerate its efforts to develop and implement a new method of paying for therapy that relies on beneficiary characteristics or care needs.”

In MedPAC’s March 2017 Report to Congress, they recommend that Congress “should…direct the Secretary to revise the prospective payment system (PPS) for skilled nursing facilities” and “…make any additional adjustments to payments needed to more closely align payment with costs,” stating further that “almost since its inception the SNF PPS has been criticized for encouraging the provision of excessive rehabilitation therapy services and not accurately targeting payments for non-therapy ancillaries”

These observations highlight the fact that providers have been working with a payment system that rewards service provisions ordered for financial reasons rather than resident needs.

CMS believes that the RCS-I model represents an improvement over the RUG-IV model because it would better account for resident characteristics and care needs by discarding minutes and basing care upon resident characteristics.

RCS-1 goals and proposed changes

CMS’ goals in developing RCS-1 are as follows:

  • To create a model that compensates SNFs accurately based on the complexity of the particular beneficiaries they serve and the resources necessary in caring for those beneficiaries; and
  • To address our concerns, along with those of OIG and MedPAC, about current incentives for SNFs to deliver therapy to beneficiaries based on financial considerations, rather than the most effective course of treatment for beneficiaries; and
  • To maintain simplicity by, to the extent possible, limiting the number and type of elements we use to determine case-mix, as well as limiting the number of assessments necessary under the payment system.

The RCS-1 payment model would replace minutes with determined care based on resident characteristics and Resource Utilization Groups (RUG) would be replaced with Resident Classification System (RCS). CMS would assign a resident to a Resident Group for each component. Below is an overview of the proposed resident groupings and related data sources:

Physical Therapy and Occupational Therapy

  • Resident Characteristics:
    • Clinical categories
    • Functional score
    • Cognitive score
  • Number of case mix groups: 30
  • Data sources:
    • MS-DRG
    • MDS (late loss ADLs)
    • MDS: Cognitive, Functional, Scale 9CFS)

Speech-Language Pathology (SLP)

  • Resident Characteristics:
    • Clinical categories
    • Swallowing disorder
    • SLP Comorbidity or Cognitive Impairments
  • Number of case mix groups: 12
  • Data sources:
    • MS-DRG
    • MDS
    • MDS and CFS

Non-Therapy Ancillary Services (NTAS)

  • Resident characteristics:
    • Comorbidity score (associated with list of 27)
    • NTAS Tiers
    • Age
  • Number of case mix groups: 16
  • Data sources:
    • Diagnosis codes (acute and SNF)


  • Resident characteristics:
    • Extensive services
    • Special care high
    • Special care low
    • Clinically complex
    • Behavioral symptoms and cognitive performance
    • Reduced physical function
  • Number of case mix groups: 6

Additional proposed changes include:

  • A simplified MDS structure. The pre-rule proposes using the five-day SNF PPS scheduled assessment to classify a resident under the RCS-1 model for the length of the Part A stay.
  • Significant Change in Status Assessment (SCSA). The pre-rule proposes to allow providers to reclassify residents from the initial five-day classification using the SCSA when the resident presents a significant change in function.
  • Discharge assessments likely to continue. The pre-rule proposes additions to the discharge assessment in order for CMS to track therapy minutes during the Part A stay.
  • “Front loading” or “block pricing” approach. This payment method will pay a percentage of a stay a day, providing higher payments in the initial few days of stay. CMS’s rationale for this approach is that the highest therapy and NTAS costs are during the first few days of a resident’s stay and will drop significantly afterwards. CMS also sees this as an opportunity to shorten the lengths of stays, according to a summary published by AHCA.
  • “Interrupted stay rules.” For discharges and readmits of less than or equal to three days, the pre-rule proposes that the current stay will continue and the normal variable payment system will apply (ie. higher payments will be provided at the start of stay and will decline over time). For discharges and related readmissions of greater than three days, a new stay will begin and a new five-day assessment will generate a new payment period.
  • Therapy delivery. An additional limit may be placed on therapy delivery, with concurrent therapy limited to 25% of total therapy minutes, in addition to the existing 25% limitation on group therapy.