Medicare SNF PPS Final Rules
 
September 1, 1999
 

The Health Care Financing Administration (HCFA) announced final rules for Medicare's prospective payment system (PPS) for skilled nursing facilities (SNFs) and consolidated billing on July 30, 1999. (64 Fed. Reg. 41644.) At the same time, HCFA announced that the annual payment increase for the federal portion of SNF PPS rates will be 2.1% starting October 1, 1999. (64 Fed. Reg. 41684.)

The basic structure of PPS for Medicare Part A SNF residents will remain a per diem rate for residents classified according to resource utilization groups (RUGs). PPS became effective for SNF cost reporting periods beginning on or after July 1, 1998. The phase-in includes a three-year transition from facility-specific rates to case mix adjusted federal rates. Different PPS rates are established for urban and rural areas and adjusted for geographic wage variations.

Unfortunately for the long-term care industry, in its final rules HCFA adopted narrow interpretations of statutory provisions and made few changes to the interim final rules (63 Fed. Reg. 26252 (5/12/98)), despite receiving more than 500 comments. HCFA declined to adjust payments for high-cost outlier patients. Instead, the agency said it will consider problems of payment accuracy through changes in the case mix classification system as part of the annual update process.

Consolidated billing rules, which require SNFs rather than suppliers to submit all bills to Medicare, became effective with the start of PPS for Part A residents but remain suspended for Part B residents until sometime after January 1, 2000, due to HCFA's Y2K compliance problems.

HCFA did not address potential fraud and abuse implications under consolidated billing rules, which allow SNFs to pay suppliers less than the full amount of reimbursement received from Medicare. Instead, HCFA deferred to the Inspector General on such fraud and abuse issues.

Although not directly related to SNF PPS, separate regulations have converted Medicare payment for outpatient rehabilitation therapy services from cost-based reimbursement to fee-schedule payments based on HCFA's Common Procedure (HCPCS) codes. In addition, separate $1500 caps have been imposed on combined outpatient physical therapy/ speech therapy expenses and occupational therapy/ audiology expenses for Part B residents. In combination, these reimbursement changes have imposed dramatic payment reductions on the long-term care industry. Recent estimates have placed the amount at as much as $16 billion over 10 years. In response to widespread dissatisfaction with these changes, several members of Congress have introduced or are preparing legislation to reform various aspects of Medicare reimbursement for long-term care, such as modifications to the Part B therapy caps and revamping the entire SNF PPS framework for Part A. President Clinton has announced a plan to restore $7.5 billion in payment cuts made by the Balanced Budget Act. Meanwhile, the health care industry has lined up to demand almost $60 billion in Medicare adjustments in view of the projected federal budget surplus. However, the amount and allocation of any adjustments to Medicare will ultimately depend on the legislative process that continues to unfold.