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3/26/2010
Analyzing the Financial Impact of RUG-IV
The “IV” Questions
Analyzing the Financial Impact of RUG-IV
By Marc Zimmet
March 26, 2010
The August 11, 2009 Federal Register detailed Medicare’s plans to transition from the current iteration of the skilled nursing facility prospective payment system (“SNF PPS”) to an updated version utilizing the Minimum Data Set (“MDS”) 3.0 and RUG-IV classification methodology, effective October 1, 2010.
As we explained in a previous Alert, the recently passed “Patient Protection and Affordable Care Act” postpones for one year RUG-IV implementation to October 1, 2011. However we are confident that the schedule will be restored to the original effective date due to significant practical difficulties associated with decoupling RUG-IV from MDS 3.0 and other mandated provisions.
As we await notice of Congressional action on this matter and publication of the 2011 SNF PPS rule, providers should begin thinking about how these changes will impact operations and financial performance.
Why is this payment system change different from other payment system changes?
Unlike the switch from “cost-based” reimbursement to the Prospective Payment System, Medicare stressed that the transition to MDS 3.0 / RUG-IV does not represent a reduction in overall reimbursement rates. The term “Parity” is used repeatedly to explain that industry-wide gross reimbursement under RUG-IV will presumably equal the amount that would have been paid had the current system continued unchanged.
This putative financial assumption may hold true when calculating the net impact across all providers, however any time a parity change in payment is implemented, the industry is invariably split between distinct “winners” and “losers,” and this initiative is no different.
The question being asked by more than 16,000 SNF operators is of course, “Will my facility be a winner or a loser?” The answer depends largely on how you answer the following four questions.
1. How much rehab do you provide?
RUG rates are comprised of various components including a “nursing index” and a “therapy index.” Higher acuities carry greater indices and thus greater payment rates. RUG-IV represents a fundamental shift in the relative weighting of acuities. Specifically, RUG-IV increases the relative weights of nursing acuities at the expense of therapy. For example, the nursing index of a typical wound care resident (RUG-III score of SSB) will increase from 1.05 to either 1.58 or 2.02 (depending on depression, RUG-IV score of HD1 or HD2), while the therapy index for “Very High” rehab decreases from 1.41 to 1.28. Expressed as a per diem rate, the difference between an RVB and SSB today is $143.26 (using fiscal 2010 urban unweighted rates). Under RUG-IV, the difference between two similar residents is expected to be as low as $51.
This is a complex issue, but the bottom line is that facilities that bill below average rehab RUG days should, all other issues below being equal, be a “winner” under RUG-IV as their current nursing scores’ payment will increase.
The “parity” calculations are based on 2007 RUG days “cross-walked” into RUG-IV payments groups. The national average rehab RUG ratio in the fourth quarter 2007 was 86.4%. Accordingly, if your current RUG distribution includes less than 86.4% rehab RUG days, you are one step closer to the “Win” column.
2. How many X/L RUGs do you capture?
Among the most significant system changes incorporated into MDS 3.0/RUG-IV is the loss of the “phantom IV.” Under the current system, facilities may “lookback” into the hospital for intravenous medications/fluids to capture a high paying Rehab + Extensive Services RUG. This allowance is removed by two distinct changes: First, RUG-IV does not recognize most services rendered to beneficiaries “While not a resident” of the SNF. Second, IV medications/fluids will no longer serve as Extensive Services qualifiers (IV medications provided in-house will qualify for Clinically Complex).
Extensive Services qualifiers under RUG-IV include only ventilator and tracheostomy care (while a resident) and isolation due to active infection. If you do not provide this level of care, you will never capture an “X/L” category. While the rates for the standard rehab RUGs (those that end in A, B, C) are projected to increase under RUG-IV, they will still be below the current X/L payment. As such, if you have been enjoying above average X/L capture (about 38% of total days nationally), that will work against you next year.
3. What is your average ADL score?
This issue is related to the shift in relative weights described above. Activities of Daily Living (“ADLs”) are directly related to the nursing index. Therefore, if your resident population has above average ADL needs, you can expect additional reimbursement next year, especially if you realize a disproportionate ratio of RUGs that end in “X” and “C.”
The following represents the 4th quarter 2007 national averages of ADL splits within the rehab RUGs. How you compare to these figures will be a major factor in your RUG-IV revenue:
R-X/C = 35.3%
R-L/B = 52.6%
R-A = 12.2%
Note that ADL miscoding is a systemic problem throughout the industry, one that will likely be exacerbated by the heightened sensitivity of ADL scoring on the MDS 3.0. We strongly recommend closely reviewing your scoring performance leading up to October.
4. How much concurrent therapy do you provide?
This is the greatest variable in the equation. First, a definition from CMS:
“Concurrent therapy is the practice of one professional therapist treating multiple patients at the same time while the patients are performing different activities. In the SNF Part A setting, concurrent therapy is distinct from group therapy, where one therapist provides the same services to everyone in the group. In a concurrent model, the therapist works with multiple patients at the same time, each of whom can be receiving different therapy treatments.”
Concurrent therapy (“CT”) has become the standard of practice in many facilities. Anecdotally, we began noticing the trend in 2004 as our therapy operations analysis performed on behalf of our clients began showing that therapist productivity was (sometimes significantly) exceeding 100%.
Simply put, a facility can realize two, three or even four plus hours of revenue generating treatment time for every one hour a therapist physically treats.
Effective October 1, 2010, the MDS 3.0 places considerable constraints on CT. The document includes three distinct entries for therapy: “Concurrent,” “Group,” or “Individual.” Revenue generating treatment minutes may no longer exceed therapist treatment time (with limited exceptions for Group therapy). CT may only be provided to two patients per session, with any such concurrent time split evenly and applied to the utilization thresholds for qualification into their rehab RUG level (e.g. two residents treated concurrently for one hour would each realize 30 minutes toward rehab RUG requirements). In other words, Medicare Part A is mandating a “one-on-one” treatment model.
This is the dirty little secret of the “Parity” doctrine discussed above. While Medicare revenue across all SNFs should remain at the level that would have been realized had RUG-III continued, many facilities may be forced to add therapy resources in order to generate the same revenue.
The bottom line is that if you have avoided the practice of concurrent therapy, you should enjoy a healthy increase in revenue. If you utilized it aggressively, you will likely be forced to augment/supplement therapy time to compensate for the loss of revenue generating time.
If your therapy department is contracted to an independent management company, you should begin conversations with them specific to how they are positioned to manage this challenge, and if they will be altering their rate structure accordingly.
Conclusion
The parity factor in the transition to MDS 3.0 / RUG-IV means that there will be distinct winners and losers under the new system. The issues raised within should provide a realistic guide to facility-specific performance under RUG-IV.
ZHSG will present a detailed analysis of these issues at our annual conference in Atlantic City on August 4 – 5. For more information on this event, please visit our website, www.zhealthcare.com.
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