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RCS-1: What's changing and how you can prepare: Part 2

Jan 05, 2018
Billing Alert for Long-Term Care

By Stefanie Corbett, DHA, postacute regulatory specialist for HCPro

Skilled nursing facility (SNF) providers are on the edge of their seats as they anticipate the Centers for Medicare & Medicaid Services' (CMS) consideration of a replacement for the Resource Utilization Group (RUG) system, which will change the way facilities are reimbursed for SNF Medicare Part A residents beginning FY2019. The Resident Classification System, Version 1 (RCS-1) will be the most significant change in the current reimbursement model, which has been in place for nearly two decades. Since being published in the Federal Register on April 27, 2017, providers and advocacy groups have submitted public comments and recommendations on the SNF prospective payment system (PPS) payment methodology proposed in the Summary of Advance Notice. Many concerns have been raised, especially regarding the reimbursement methodology for therapy services.

How does RCS-1 differ from RUG-IV?

Providers will have to prepare for several differences between RCS-1 and RUG-IV. These changes are as follows:

Case-mix index: Under RUG-IV, residents are classified into one of 66 categories based on a case-mix index. Skilled nursing and therapy services are the two components for reimbursement rates, where therapy days and minutes primarily drive reimbursement. RCS-1 allows for a more equal distribution of reimbursement for therapy and nursing services. It classifies residents into case-mix groups, assigning distinct reimbursement rates based on the following four components:

  1. Physical and occupational therapy (PT/OT): 30 case-mix indexes
  2. Speech-language pathology (SLP): 18 case-mix indexes
  3. Non-therapy ancillary (NTA): 6 case-mix indexes
  4. Nursing: 43 case-mix indexes

The non–¬case mix component will be maintained from RUG-IV to RCS-1 to cover the utilization of SNF resources not impacted by resident characteristics (i.e., therapy evaluations for residents who do not receive therapy). The non¬–case mix reimbursement rate will cover the cost of room and board, administrative costs, and capital-related costs.

Using data entered in the MDS as active diagnoses, residents are assigned to one of 10 clinical categories:

  • Major joint replacement or spinal surgery
  • Non-surgical orthopedic/musculoskeletal
  • Orthopedic surgery (except major joint)
  • Acute infections
  • Medical management
  • Cancer
  • Pulmonary
  • Cardiovascular and coagulations
  • Acute neurologic
  • Non-orthopedic/musculoskeletal surgery

Specifically, for the PT/OT per diem, residents are categorized according to one of the following reasons for skilled care:

  • Joint replacement or spinal surgery
  • Other orthopedic surgery
  • Non-orthopedic surgery
  • Acute neurological
  • Medical management

CMS also considers clinical, functional, and cognitive impairments, which are taken from MDS data.

The SLP category is separate from PT/OT in the RCS-1. The per diem rate for SLP depends on five elements:

  1. Whether the resident’s clinical category is acute neurologic or not (with acute neurologic paying approximately $25 more per diem)
  2. Whether the resident has a swallowing disorder
  3. Whether the resident has a mechanically altered diet (adding $30–$50 more per diem depending on how CMS interprets the qualifier)
  4. Whether the resident has an SLP-related comorbidity (certain diagnoses, such as ALS, or functional impairments, including aphasia, apraxia, dysphagia, or slurred speech, can raise the per diem rate)
  5. Whether the resident has mild or greater cognitive impairment

Current cost regressions show that certain comorbidities and extensive services are highly predictive of resident NTA costs; therefore, considerations include basing a resident’s NTA score on a weighted count methodology.

MDS 3.0 & PPS assessments: The PPS MDS assessment schedule is reduced significantly under RCS-1. Only the five-day assessment and discharge assessment, as well as necessary significant change assessments, are required. The five-day MDS assessment will determine payment for the entire skilled stay unless a significant change assessment is submitted. The Omnibus Budget Reconciliation Act (OBRA) MDS assessment requirements will not be changed.

The MDS will continue to drive the care for the long- and short-stay population under the RCS-1 model, as well as impact five-star quality measures and survey areas of focus. RCS-1 reimbursement is to be almost exclusively driven by resident characteristics data from the MDS.

An interrupted stay policy may be considered in cases where a resident is discharged from a SNF and returns to the same SNF within three calendar days, with the possibility of treating the resident’s stay as a continuation of the previous stay. This consideration is for purposes of both resident classification and the variable per diem adjustment schedule.

Reimbursement: RUG-IV pays a consistent per diem rate for each day in the assessment period. RCS-1 “front loads” payments, providing greater reimbursement at the beginning of a resident’s stay and then decreasing it under what CMS calls the variable per diem adjustment schedule. This change comes as a result of CMS’ analysis of SNF costs and claims, concluding that costs and resource utilization decline over the stint of a resident’s stay for therapy and NTA services, but not for SLP services. SLP rates will not decrease due to CMS analysis supporting that costs and resource utilization do not change or decrease over time.

Under the proposed payment model, the CMS variable per diem adjustment schedule provides 100% of the reimbursement rate for PT/OT through day 14 of a resident’s stay. For days 15+, the reimbursement rate will decrease by 1% every third day. For example, PT/OT payments decrease steadily after day 14 down to 0.71 of the base per diem rate by day 99.

Providers should anticipate a reduction in reimbursement for PT/OT services due to the variable per diem adjustment schedule; however, CMS proposes that RCS-1 will provide greater reimbursement for nursing case-mix categories, which should help to offset the impact of this change on revenue.

Therapy services: The transition from RUG-IV to RCS-1 will introduce a transition from volume-based therapy care (days/minutes of treatments) to resident classification (resident characteristics). Next, providers will need to increasingly focus on residents’ diagnoses, conditions, functional abilities, goals, and risk factors. Upon initial assessment of nursing and therapy needs, facilities will need to be especially astute in assigning the appropriate level of care for residents, as an extended length of stay could result in less revenue.

Under RUG-IV, providers have been careful to primarily provide individual therapy to maximize reimbursement. With RCS-1, providers will be incentivized with greater reimbursement for providing therapy treatments to residents while utilizing fewer resources. As group and concurrent therapy treatments require fewer therapists, RCS-1 will allow therapists to receive greater reimbursement for these treatments, as long as at least 50% of the therapy provided is individualized. Also, group and concurrent treatments must not surpass the threshold of 25% of all treatments for each resident.

It is now more important than ever for facilities to achieve quality resident outcomes and effectively manage costs.

How are daily rates calculated?

The daily reimbursement rates are calculated using an unadjusted federal per diem rate (urban or rural), which is then adjusted twice. The first adjustment is for the application of the four case-mix categories (PT/OT, SLP, NTA, and nursing). The second adjustment is for the application of declining payments under the variable per diem adjusted schedule. The two case mix¬–adjusted rates are then added to the non¬–case mix component to create a single, declining per day rate for each resident.

The advantages of RCS-1

In its April 2017 report, Acumen listed the eight key advantages of RCS-1 as follows:

  • Removes therapy minutes as the basis for therapy payment
  • Establishes separate case mix–adjusted component for NTA services, thereby improving targeting of resources to medically complex beneficiaries and increasing payment accuracy for those services
  • Enhances payment accuracy for nursing services by making nursing payment dependent on a wide range of clinical characteristics (as originally contemplated in RUG-IV) rather than being primarily a function of therapy minutes and ADL scores
  • Improves targeting of resources to beneficiaries with diverse therapy needs by dividing therapy component into two separate case mix–adjusted components, PT/OT and SLP
  • Provides additional resources to facilities for treating potentially vulnerable populations, including beneficiaries with the following characteristics
  • High NTA utilization, extensive services (ventilator, respirator, or infection isolation)
  • Dual enrollment in Medicare and Medicaid
  • End-stage renal disease (ESRD)
  • Longer qualifying inpatient stays
  • Diabetes
  • Wound infections
  • IV medication

Enhances payment accuracy for all SNF services by

Basing payment for each component on predicted resource utilization association with clinically relevant resident characteristics

Introducing variable per diem payment adjustments to track changes in resource use over a stay

Promotes simplicity and transparency by:

Using only the most important predictors of resource utilization to set payment for each component

Largely maintaining the current model for resident classification for nursing payment

Implementing a simple variable per diem schedule

Promotes consistency with other Medicare and postacute payment settings by basing resident classification on objective clinical information while minimizing the role of service provision in determination of payment

The disadvantages of RCS-1

As proposed, RCS-1 presents several disadvantages for providers. First, facilities must make every effort to reduce the amount of therapy and a resident’s length of stay under a Medicare Part A benefit to receive higher reimbursement. While this eliminates the incentive for over-utilization, this may discourage facilities from providing therapy services and result in under-utilization, which could impact resident outcomes.

Another disadvantage is that in the absence of a resident exhibiting a significant change, the per diem will remain the same throughout a resident’s Medicare Part A stay. Reducing payments using the variable per diem adjustment schedule does not allow for facilities to be reimbursed based on a resident’s assessed condition.

Additionally, opponents of RCS-1 do not believe the higher reimbursement rates for nursing case-mix categories will compensate for the reduced therapy reimbursement rates. According to MedPAC, the average operating margin for SNFs is 1.8%. Reduced reimbursement under RCS-1 could be detrimental to SNFs’ financial sustainability.

The Center for Medicare Advocacy’s attorney Toby S. Edelman expressed a concern that RCS-1 was developed without reviewing any data on maintenance therapy costs, and therefore those are not reflected in the proposal. Although Acumen suggested future modifications of the reimbursement system to include maintenance therapy once data is available, there is a concern about whether such data actually exists, which may mean that the initial implementation of RCS-1 will not include payment rates for maintenance therapy.

How facilities can prepare

While RCS-1 has not been finalized, providers can anticipate a whirlwind of change beginning as early as FY2019. It is critical that facilities become familiar with the proposed changes to the current SNF reimbursement model and begin making preparations. While policymakers are working to finalize the details of the proposed model, providers can be sure of the implications: a call for high quality and effective management of resource utilization for Medicare residents.

Keep the following tips in mind while preparing for RCS-1:

  • Focus on MDS accuracy to ensure the appropriate RCS-1 category and reimbursement rate for each resident
  • Focus on diagnosis code accuracy to appropriately capture residents' diagnoses and conditions
  • Ensure that documentation thoroughly supports MDS assessment and Medicare claims with comprehensive and accurate observations of residents' clinical, cognitive, and functional impairments
  • Establish policies and procedures to effectively monitor residents for significant changes and complete significant change assessments timely, as needed, to ensure that reimbursement appropriately reflects each resident’s needs
  • Evaluate and strengthen quality improvement efforts to achieve and maintain high-quality outcomes
  • Assess your facility’s unique dynamics, resident population, and competencies
  • Evaluate therapy and nursing staffing models based on your facility’s needs and changes in nursing and therapy reimbursements (i.e., group/concurrent treatments, extensive nursing services, etc.)


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