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From SNF PPS Final Rule to Medicare Remit: How Much $ Will You Get?

By Caralyn Davis, Staff Writer - December 18, 2018

Due to how payments are calculated in the Medicare Part A Skilled Nursing Facility Prospective Payment System (SNF PPS), there’s always been a slight difference between the federal payment rate tables that are published annually in the SNF PPS rules and the adjusted rates that SNFs actually receive from their Medicare administrative contractors (MACs). The potential difference increased slightly in fiscal year (FY) 2018 with the launch of the Skilled Nursing Facility Quality Reporting Program (SNF QRP). However, financial discrepancies could be larger than ever now that the Skilled Nursing Facility Value-Based Purchasing (SNF VBP) program impacts SNF PPS payment effective with FY 2019, which began on Oct. 1, 2018.


To avoid problems in such key areas as accounts receivable and budget forecasting, nurse assessment coordinators (NACs) and billing staff need to understand the basic rules for how SNF PPS payment rates are created and adjusted, especially now that SNF QRP and SNF VBP are in the mix. The key steps discussed below (and presented graphically in a flow chart at the end of this article) lead from:


(1)   The unadjusted federal payment rates that the Centers for Medicare & Medicaid Services (CMS) publishes in the SNF PPS rules, to

(2)   The adjusted rates that SNFs bill on Part A claims, to

(3)   The Medicare remittance advices that MACs use to explain final claim adjudication and payment information.


Market basket update


Every fiscal year, CMS sets new base per-diem (i.e., daily) federal SNF PPS rates for both urban and rural facilities. These rates, initially developed from allowable costs in a base year pulled from hospital-based and freestanding SNF cost reports and revised for inflation, are updated annually per statutory requirement.


CMS does this annual update via the SNF market basket index, which is used to compute a market basket update percentage change that reflects changes over time in the prices of the most commonly used cost categories for SNF routine services, ancillary services, and capital-related expenses. CMS uses several factors to adjust the market basket update, including (as needed) a forecast error correction and a multifactor productivity adjustment, as well as any congressionally mandated adjustments. The market basket update for FY 2019 (Oct. 1, 2018 – Sept. 30, 2019) is 2.4 percent.


CMS uses the market basket update to develop four updated base components of the unadjusted urban and rural federal rates: nursing case mix, therapy case mix, therapy non-case mix, and non-case mix. In the FY 2019 SNF PPS final rule, Table 4 shows the market-basket-updated “FY 2019 Unadjusted Federal Rate per Diem—Urban,” and Table 5 shows the “FY 2019 Unadjusted Federal Rate per Diem—Rural.”


Note: FY 2019 is the last fiscal year that the unadjusted federal daily rates will have four components. Effective with the implementation of the Patient-Driven Payment Model (PDPM) in FY 2020 beginning Oct. 1, 2019, six rate components will be set using the existing market basket update process: nursing case mix, non-therapy ancillary (NTA) case mix, physical therapy (PT) case mix, occupational therapy (OT) case mix, speech-language pathology (SLP) case mix, and non-case mix.


Case-mix adjustment


Once the federal SNF PPS base rates are set, CMS makes further payment adjustments to individualize federal payments to account for facility case mix (i.e., the relative resource utilization of different patient types). For FY 2019, SNF PPS uses MDS 3.0 clinical data to assign residents into one of 66 groups in the RUG-IV case-mix classification system, which is then used to calculate federal urban and rural case-mix-adjusted per-diem payments. In the FY 2019 SNF PPS correction notice, Table 6 shows the “RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes—Urban,” and Table 7 shows the “RUG-IV Case-Mix Adjusted Federal Rates and Associated Indexes—Rural.”


Note: Effective with FY 2020, SNF PPS will switch from RUG-IV to the PDPM case-mix classification system, which will use 59 case-mix groups: 16 PT and OT groups; 12 SLP groups; 25 nursing groups; and six NTA groups. SNF PPS will use MDS 3.0 clinical data to assign residents into a PDPM group for each of the five case-mix components. The PDPM group payments will be adjusted by the specific day in the variable per-diem adjustment schedule, and those five case-mix component payments and the non-case mix component payment will be added together to create a resident’s total case-mix-adjusted PDPM per-diem rate.


In FY 2019 under RUG-IV, providers receive an additional 128 percent add-on payment applied to the case-mix-adjusted RUG group payment (after other adjustments) for any SNF residents with HIV/AIDS who are appropriately identified on the Medicare claim. Neither of the above tables (6 and 7) reflects adjustments related to the HIV/AIDS add-on payment.


Note: Under PDPM starting in FY 2020, the 128 percent add-on will be discontinued, but providers will be able to receive an 18 percent add-on to the nursing payment component for patients with HIV/AIDS, and HIV/AIDS will be used in calculating the comorbidity score for the NTA payment component as well.


Wage-index adjustment


After setting the federal urban and rural case-mix-adjusted RUG rates, CMS uses a wage index based on hospital inpatient wage data (due to a lack of SNF-specific wage data) to adjust for geographic differences in wage levels. Every fiscal year, CMS calculates a revised labor-related share for each RUG group. In the FY 2019 SNF PPS final rule, Table 9 shows the “RUG-IV Case-Mix Adjusted Federal Rates for Urban SNFs by Labor and Non-Labor Component,” and Table 10 shows the “RUG-IV Case-Mix Adjusted Federal Rates for Rural SNFs by Labor and Non-Labor Component.”


The wage-index adjustment, identified by the Office of Management and Budget’s Core-Based Statistical Area (CBSA) geographic designations, is applied to the labor-related portion of the federal case-mix-adjusted RUG rate. CMS maintains a SNF PPS wage index website, where the wage index tables from the FY 2019 SNF PPS correction notice can be found.


Then the updated labor-related portion and non-labor-related portion are added together to calculate the adjusted per-diem RUG rate. This final adjusted RUG payment rate—adjusted with the market basket update, the case-mix adjustment, and the wage-index adjustment—is the per-diem amount that SNFs submit on Part A claims to their MACs.


Note: Effective with FY 2020, SNF PPS will continue to use this same general wage-index adjustment process for PDPM.


Here are the key additional adjustments that occur to the adjusted per-diem rates once MACs receive a claim:


SNF QRP adjustment


Effective with FY 2018, one additional factor may impact the market basket update: A 2 percent reduction is applied after all of the other market basket adjustments (e.g., the multifactor productivity update, etc.) for any SNF that failed to meet the data submission threshold requirement for the applicable SNF QRP program year. To meet that requirement, SNFs have to submit 100 percent of the required SNF QRP data elements on at least 80 percent of the 5-day PPS MDSs and Part A PPS Discharge assessments submitted for the program year. Note: CMS posts the required data elements for each program year here.


For FY 2019, SNFs had to meet the 80 percent data submission threshold requirement for MDSs

submitted for admissions on and after Jan. 1, 2017, and discharges up to and including Dec. 31, 2017. Due to technical issues, CMS made May 15, 2018, the sole compliance deadline for submitting calendar 2017 data for the FY 2019 program year. All noncompliant SNFs that failed to meet the data submission threshold requirement by the submission deadline (absent exceptional circumstances such as natural disasters) receive the 2 percent SNF QRP adjustment, meaning their FY 2019 market basket update is 0.4 percent, not 2.4 percent.


Note: If SNFs fail to meet what’s also called the annual payment update (APU) requirement for a future SNF QRP program year, it will be possible for the 2 percent SNF QRP adjustment to result in those SNFs having a market basket update of less than zero for that fiscal year (i.e., lower base payment component rates than in the preceding fiscal year).


“From a billing standpoint, noncompliant SNFs don’t have to do anything different on their Part A claims for the SNF QRP,” points out Denise Gadomski, CPA, a partner with a Healthcare/Senior Care Focus at Plante Moran in Cleveland, OH. “CMS will automatically deduct the 2 percent at the claim level.”


For example, a noncompliant SNF submits a Part A claim with an adjusted RUX per-diem payment of $835 (adjusted with the market basket update absent any SNF QRP adjustment, the case-mix adjustment, and the wage-index adjustment) for 10 Medicare days at a total payment of $8,350. The MAC will deduct the 2 percent SNF QRP adjustment from the market basket update at the claim level and then adjust the per-diem and total payments the SNF receives for those 10 days billed at RUX, explains Gadomski.


SNF VBP adjustment


While the SNF QRP adjustment only impacts noncompliant SNFs, the SNF VBP adjustment affects all SNFs paid under SNF PPS. Effective with FY 2019, the SNF VBP cuts adjusted federal per-diem payment rates by 2 percent, as required under Section 1888(h)(6)(A) of the Social Security Act. However, CMS is redistributing 60 percent of the total amount withheld via incentive payments. The amount that a SNF does—or doesn’t—get back hinges on how well they performed on the SNF 30-Day All-Cause Readmission Measure (SNFRM).


For FY 2019, CMS used a baseline period of calendar 2015 (Jan. 1 – Dec. 31, 2015) and a performance period of calendar 2017 (Jan. 1 – Dec. 31, 2017) to award each SNF a performance score (i.e., a numeric score ranging from 0 to 100 that is the highest of a SNF’s achievement, improvement, or benchmark scores) on the SNFRM. A logistic exchange function then translates the SNF performance scores into value-based incentive payments using an incentive payment multiplier, which for FY 2019 ranges from 0.9802457176 to 1.0164677296. Note: Find the updated FY 2019 ranking file and other SNF VBP information, including how to access quarterly and annual confidential feedback reports for the FY 2020 program, here.


“Just like with the SNF QRP, from a billing standpoint SNFs don’t have to do anything different on their Part A claims for the SNF VBP program,” says Gadomski. “CMS will automatically make the necessary positive or negative adjustments at the claim level after all other payment adjustments are applied.” Note: For details, see the June 2018 CMS transmittal 4077.


For example, a SNF with an incentive payment multiplier of 0.9802457176 submits a Part A claim with an adjusted ES1 per-diem payment of $500 (adjusted with the market basket update absent any required SNF QRP adjustment, the case-mix adjustment, and the wage-index adjustment) for 10 Medicare days at a total payment of $5,000. The SNF met the SNF QRP data submission threshold for the FY 2019 program year, so the MAC doesn’t do a SNF QRP adjustment.


The MAC will multiply the $500 adjusted ES1 per-diem payment by the FY 2019 incentive payment multiplier of 0.9802457176 for a SNF VBP-adjusted ES1 per-diem payment of $490.12, which will then be used to calculate the total payment for the 10 Medicare days, explains Gadomski. “Providers should see this netted as part of the contractual adjustment line on the remittance advice as it is not separately identified as the sequestration payment is.”


In this same scenario, a SNF with an FY 2019 incentive payment multiplier of 1.0164677296 will receive a SNF VBP-adjusted ES1 per-diem payment of $508.23.


Sequestration adjustment


Since April 2013, CMS has made a 2 percent payment adjustment on all Medicare Parts A and B fee-for-service claims submitted by every type of healthcare provider. Known as “sequestration,” this mandatory payment reduction is applied to all claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payer adjustments. In the March 3, 2016, MLN Connects Provider eNews, CMS announced that sequestration will continue “until further notice.”


With no annual notification from CMS over the past few years, staff members who aren’t directly involved with billing sometimes forget about the sequestration adjustment. “However, the sequestration will continue,” says Gadomski. “It will be a net lump-sum amount that will come off the total remittance advice like it has in the past.”


What to do about the SNF QRP and SNF VBP


SNFs that failed to meet the SNF QRP data submission threshold and also failed to perform well on the SNFRM in the SNF VBP program face a fairly significant financial shortfall for FY 2019, says Gadomski. “Providers were notified if they are subject to the 2 percent SNF QRP withhold for FY 2019, and they were also notified what their SNF VBP incentive payment multiplier is for FY 2019. So no one should be surprised by anything on their Medicare remits from the MACs.”


However, the lines of communication in a SNF sometimes get crossed, notes Gadomski. “So it’s important to review your first FY 2019 Medicare remit in detail. If the calculations don’t make sense, make sure you reach out to your MAC to get clarity and assistance.” Note: Providers also can submit questions about SNF QRP payment reductions to and questions about the SNF VBP program to Find other key e-mail addresses here.


Billing staff also should compare the Medicare remit to the accounts receivable ledger in the billing software, suggests Gadomski. “Each billing software system probably addresses the SNF QRP and the SNF VBP a little bit differently, but the software should be able to calculate the necessary payment adjustments so that your accounts receivable ledger is fairly close to or even matches what the actual Medicare remit is.”


If the billing software isn’t calculating correctly, “this is your opportunity to go back and get it corrected,” continues Gadomski. “Having one month of the net amount on the Medicare remit not match what you were expecting is a solvable problem. However, continuing that way month after month will make your accounts receivable aging really messy.”


In addition, billing staff should double-check how their software is handling the SNF QRP and the SNF VBP for Medicare Advantage plans. Both programs apply only to SNF PPS claims. “So if managed care organizations pay providers the full RUG amount (and you want to confirm that with each MCO because they can set payment rates however they negotiate with providers), then you have to make sure your billing software calculates RUGs one way for fee-for-service Medicare SNF PPS and another way for managed care organizations to be sure your accounts receivable is correct,” says Gadomski.

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