MedPAC Advisors Consider FY 2017 SNF Payment Recommendations

An Alternative to Waiting for Reform of the SNF PPS is to Take Small Steps to Rebase

At the December 10-11, 2015 meeting, the Medicare Payment Advisory Commission (MedPAC) assessed current payments and developed draft recommendations for next year, which begins the cycle of developing recommendations for their annual March report to Congress.  The Commission advises Congress on issues affecting the Medicare program, and also develops reports and policy recommendations to Congress. 

During the December meeting, MedPAC discussed payment recommendations affecting post-acute care facilities, physicians, hospitals, Medicare Advantage plans, outpatient dialysis and hospice services.  For skilled nursing facilities (SNFs), MedPAC’s analyst shared research to address whether the current Medicare payments for SNF care are adequate and how payments should change for fiscal year (FY) 2017.  The presentation for SNFs is available at http://www.medpac.gov/documents/december-2015-meeting-presentation-assessing-payment-adequacy-and-updating-payments-skilled-nursing-facility-services.pdf?sfvrsn=0.

MedPAC staff presented, “the broad circumstances for SNF’s have not changed, and the prospective payment system (PPS) continues to favor therapy over medically complex care.”  The Commission has determined, “the level of Medicare’s payments remains too high, and there is wide variation in margins that reflects patient selective service provision, and cost control.”  MedPAC’s preliminary analysis shows: 

  • Payments are driven by the amount of therapy furnished, not patient characteristics;
  • Therapy payments exceed therapy costs;
  • Payments for non-therapy ancillary (NTA) services do not track these services’ costs;
  • Intensive therapy days reflect 81% of the days in 2014, in comparison to 24% of total days in 2000;
  • Payments for therapy and non-therapy ancillary services are more inaccurate than previously; and

Overpayments for therapy services are larger, which is evidence of unnecessary therapy, and payments for NTA services are poorly targeted.

MedPAC’s data also reflects mixed performance for SNF quality measures.  Their presentation indicates there was no significant difference in rates of “change in function” for patients from 2013 and 2014 and there was also not much improvement in one or more mobility activities of daily living (ADLs) during that same time period.   Also, their data shows the adequacy of Medicare’s payments — freestanding SNF Medicare margins (i.e., changes in Medicare costs and payments) – reflect the 15th year of margins that are above 10 percent.  They say the SNF Medicare margin in FY 2014 was 12.5 percent, and marginal profit was 20 percent.  Additionally, MedPAC’s analysis states Medicare fee-for-service per diem payment rates are higher than Medicare Advantage/managed care rates.  They highlight that four publicly traded firms report seeking managed care business, suggesting the payments are attractive.

SNF Payment Reforms Recommended.  Overall, the Commissioners were supportive of the Chairman’s draft FY 2017 payment recommendation:

SNF Draft Payment Recommendation

“The Congress should eliminate the market basket update for 2017 and 2018 and direct the Secretary to revise the prospective payment system for skilled nursing facilities.  In 2019, the Secretary [CMS] should report to the Congress on the impacts of the reformed PPS and make any additional adjustments to payments needed to more closely align payments and costs.”

The draft recommendation is consistent with the Commission’s expressed impatience with the Centers for Medicare and Medicaid Services (CMS), and the Congress to consider changes to the SNF PPS.  A budget-neutral revised PPS would shift payments across providers.  Additionally, the Commission supports reforming the PPS first, then rebasing the level of payments to help protect low margin SNFs.  MedPAC staff also presented that an alternative to waiting until CMS comes forward with SNF PPS reform, is to set small rebasing steps in motion while the PPS is revised.  This draft recommendation was mentioned in last year’s MedPAC report to Congress and stated more prominently in this presentation.  This would be a step that CMS could take in the SNF PPS payment update rule in April, 2016 to deal with therapy utilization. CMS has been moving at a slow rate with their contractor, Acumen, on developing recommendations for reform of the Medicare Part A resource utilization groups (RUG) payment system.

MedPAC Commissioners will vote on the final SNF FY 2017 payment recommendation next month. They also expressed support for draft recommendations to not increase payment rates next year for inpatient rehabilitation facilities or long-term care hospitals.  For home health payments, the Commission would rebase the payments over two years, starting in 2018, and eliminate therapy as a factor in setting the payments

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