Skilled Nursing Prospective Payment System Medicare Regulations

Medicare's prospective payment system is the method that the government's health insurer uses to pay skilled nursing facilities (SNFs) for treatment of its beneficiaries. After nearly a decade of double-digit growth in SNF payments, Medicare changed its system from one of reimbursements of costs, within limits, to a rate that was predetermined and calculated prior to care: the prospective payment system (PPS). SNF services include the following: nursing care; physical, occupational and/or speech therapy; drugs and/or biologicals; and bed and board.

History

• The Balanced Budget Act of 1997 required Medicare to change its SNFs reimbursement policy to one that was "prospective," or effective after patient evaluation. The policy was initiated in 1998. According to The Urban Institute, a government research and analysis organization, the PPS has curbed Medicare expenses, provided beneficiaries with wide-ranging services and provided flexible funding to SNFs. Funding has been provided for research into ways to improve the PPS.

Calculating PPS Rates

• PPS rates are calculated on a daily basis and largely determined on a case-mix system. Since patients require a range of different services, with some more complex and costly than others, classification systems have developed to rank a beneficiary's needs and, hence, costs. The most widely system used is Resource Utilization Groups (RUGs). Also calculated into daily rates, which are updated annually, are different fees for urban and rural areas and for geographical areas.

RUGs

• The present RUG classification, effective as of 2006, ranks patients in 1 of 53 levels with payments assigned to each level. The level is determined by such patient needs as physical, occupational or speech therapy; specialized feeding or respiratory therapy; and the existence of possible conditions like pneumonia or dehydration. Another consideration is the amount of assistance required in daily living. Overall, the RUGs has three major components: nursing, therapy and room and board.

SNF

• A SNF can be a hospital-based or freestanding facility. It can also be a swing-bed facility, usually a small rural hospital with the ability to swing assigned beds from acute care to skilled nursing services. In 2007, 90% of SNFs were freestanding facilities.