May 2008

CMS Proposes Major Change in Medicare SNF Rate Formula

On May 1, 2008, CMS issued a proposal that would change Medicare payment rates of skilled nursing facilities (SNFs) effective October 1, 2008.  For the first time the proposal includes a recalibration of the case-mix indices (CMIs) used to establish the 53 different payment rates under the prospective payment system.

According to CMS, the recalibration of the CMIs is necessary to re-establish budget neutrality.  In general, CMS found unexpected payment patterns after the system changed from one using 44 different resource utilization groups to the current system that uses 53 resource utilization groups.  If adopted, the recalibration would reduce payments to SNFs by approximately $770 million.  

Offsetting a good portion of the negative adjustment associated with the recalibration, CMS has proposed to apply a market basket adjustment factor of 3.1 percent.  That factor would increase payments to SNFs by approximately $710 million.

Consequently, aggregate payments to SNFs would decrease by approximately $60 million ($710 million - $770 million). 

While combined payments would decrease, actual rates to individual facilities would vary because, as in prior years, individual SNF payment rates are influenced by geographic wage indices.  As a result, some Connecticut facilities would realize payment increases while other SNFs would realize payment decreases. 

However, unlike prior years, rates of individual SNFs would not be uniformly affected.  In fact, some rates for individual SNFs would increase, while other rates for the same individual SNFs would decrease.  And, the percentage change for each of the 53 rates would be different.  This unusual phenomenon is directly associated with the recalibration.

In another unusual twist, the CMS proposal would also change the classification of Litchfield County, Connecticut from urban to rural.  The change would affect all SNFs located in Litchfield County. 

Based upon the proposal we have estimated the rates for each location in Connecticut and we have published the results.   See link to proposed rates above. The results can be downloaded directly from the PDF file. 

Individual SNFs are encouraged to use the estimated rates and to apply their own estimated billing mix to determine the impact of the CMS proposal on their individual budgets.  Given the Connecticut Medicaid rate freeze for year ending June 30, 2009, budgeting revenues will be very important when projecting operating results.    

Providers should feel free to contact Vincent Ruocco, LLC, CPA with questions.  Mr. Ruocco can be reached at (203) 932-2931.