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April 13, 2022

CMS is cutting nursing home pay rates. What will be the consequences?

Daily Briefing

    CMS on Monday released a proposed rule that would decrease payments for some skilled nursing facilities (SNFs), adding to three other proposed payment rules for fiscal year (FY) 2023 announced earlier this month.

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    Proposed updates for SNFs

    Under CMS' proposed rule for SNFs, a 3.9%, or $1.4 billion, update would be made to the payment rates for nursing homes in FY 2023. This proposed change is based on a 2.8% SNF market basket update, as well as a 1.5 percentage point market basket forecast error adjustment less a 0.4 percentage point productivity adjustment.

    In addition, CMS proposed a recalibration of the Patient Driven Payment Model (PDPM), which was implemented in 2019. Although the model is intended in to be budget neutral, CMS data found that there was an unintended increase in payments of approximately 5%, or $1.7 billion, in FY 2020.

    Because of the Covid-19 public health emergency (PHE), CMS decided not to make the PDPM budget neutral in FY 2022. Instead, the agency solicited feedback from stakeholders to develop a new methodology for PDPM recalibration for FY 2023.

    After considering the feedback, CMS proposed a PDPM recalibration using a combined methodology with a subset population that excludes patients with a Covid-19 PHE-related waiver or who had been diagnosed with Covid-19. A one-year control period would be based on months with low Covid-19 prevalence in FY 2020 and FY 2021.

    To achieve budget neutrality in the PDPM for FY 2023, CMS is proposing a 4.6%, or $1.7 billion, reduction in SNF payment rates. Overall, the payment policies in this proposed rule would result in a decrease of approximately $320 million in Medicare Part A payments to SNFs in FY 2023 compared with FY 2022.

    In addition, CMS proposed a permanent 5% cap on annual wage index decreases, as well as updates to PDPM ICD-19 code mappings and the SNF Quality Reporting Program. The proposed updates to the SNF Quality Reporting Program include revised compliance dates for certain SNF reporting requirements, revised regulation text for data submissions, and required influenza vaccination data from health care workers.

    CMS proposes new quality measures, staffing minimums

    In an effort to advance President Joe Biden's plan to improve the quality of nursing homes, CMS has proposed updates to the SNF Value-Based Purchasing Program, which provides nursing home incentive payments based on the quality of their care.

    Currently, the SNF Value-Based Purchasing Program only uses one measure, hospital readmissions, to assess performance, but CMS can add new measures beginning Oct. 1, 2023. Some proposed new quality measures include the number of health care-associated infections requiring hospitalizations, total nursing hours per resident per day, and successful discharges to the community starting in FY 2027.

    In addition, CMS is seeking input on the potential effects of minimum staffing requirements for nursing homes. The agency will also conduct a study on optimal staffing levels for nursing homes and issue a proposed rule for minimum staffing requirements within the year.

    "The [Covid-19] pandemic has highlighted serious problems at some of the nation's nursing homes that have persisted for too long. And we have seen the tragic impact that inadequate staff resources can have on residents and staff," said CMS Administrator Chiquita Brooks-LaSure. "The Biden-Harris Administration has promised that we will work with all stakeholders to do better for nursing home residents, and today's proposed rule includes important steps toward our goal to promote safety and quality of care for all residents and staff."

    However, several members of the long-term care industry, including the American Health Care Association and the National Center for Assisted Living, have previously voiced concerns over the planned minimum staffing requirements, arguing that nursing homes are already struggling to hire workers.

    In addition, Mark Parkinson, president and CEO of the American Health Care Association, noted that a potential reduction in payments due to the proposed PDPM-related changes "could deepen the economic crisis currently within the long term and post-acute care sector. Many nursing homes already face imminent closure."

    Other proposed payment rules

    Earlier this month, CMS released three other proposed payment rules for hospices, inpatient psychiatric facilities (IPFs), and inpatient rehabilitation facilities (IRFs).


    Under a proposed rule, hospice payment rates would see a 2.7%, or $580 million, increase for FY 2023. The proposed increase is based on an estimated 3.1% inpatient hospital market basket update reduced by a 0.4 percentage point productivity adjustment.

    The hospice payment update also includes a statutory aggregate gap limiting overall payment per patient to $32,142.65 for FY 2023—a 2.7% increase from FY 2022.


    For FY 2023, CMS proposed a 2.7% increase for the IPF Prospective Payment System, based on a proposed IPF market basket update of 3.1%, less a 0.4 percentage point productivity adjustment. This update would adjust IPF payments by an estimated 1.5%, for $50 million, in FY 2023.


    CMS proposed a 2.8% update to the IRF Prospective Payment System, based on an IRF market basket update of 3.2%, less a 0.4 percentage point productivity adjustment. Overall, IRF payments for FY 2023 are expected to increase by 2%, or $170 million in FY 2023. (Goldman, Modern Healthcare, 4/11; CMS FY 2023 SNF Proposed Payment Rule fact sheet, 4/11; CMS SNF Proposed Payment Rule press release, 4/11; CMS FY 2023 Hospice Payment Rate Update Proposed Rule fact sheet, 3/30; CMS FY 2023 IPF Prospective Payment System Proposed Rule fact sheet, 3/31; CMS FY 2023 IRF Prospective Payment System Proposed Rule fact sheet, 3/31)


    Advisory Board's take

    There will be harsh consequences to CMS' decision to cut nursing home pay rates

    By Monica Westhead and Blake Zissman

    In light of a recent report on the unsustainability of payments and regulations affecting skilled nursing facilities (SNFs), it's all the more unfortunate to see CMS make a financial pay cut to nursing home pay rates. With staffing mandates coming in the near future—essential to protect vulnerable patients and workforce, but without any kind of dedicated funding source—CMS risks causing SNF closures that will only jam up throughput for the entire health care delivery system. These successive policy changes to the SNF industry indicate a tone-deaf approach to fixing problems that have persisted in the industry since before the pandemic, and which will be worsened by reductions in funding.

    While there isn't much to be done about funding, leaders can and should focus on shoring themselves up in two areas:

    1. First, continue to drive good quality outcomes both to avoid penalties and to become a more attractive partner to upstream providers. 
    2. Second, and related: increase focus on new and existing partnerships to drive volume to nursing homes. SNFs are still paid under a fee-for-service model, and the best way to increase reimbursement is to increase volumes coming in.  

    It's a frustrating time to be a SNF leader, but leaders can always take action and be prepared for what's to come—even when things are outside of your control.

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