prospective payment system (PPS)

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Introduction

PPS enacted in hospitals in 1983 via DRGs. Growth in SNFs & postacute care stimulated Congress to enact PPS for postacute care in SNFs which was implemented 01/01/98 (Balanced Budget Act of 1997).

per diem payment system modified by case mix adjustments
per diem covers all routine, ancillary, capital-related costs
separate adjustments for urban & rural areas, geographic labor costs & Medicare part B services
SNF rate now based on resources used
- based on resident's need as defined by RUGs grouping
- not a price per episode of illness as in DRG
- not based on facility's cost, resident's diagnoses or medical treatment
PPS assumes cost of longterm care is driven by:
- functional dependence
- cost of rehabilitation services
PPS does NOT account for cost impact of:
- comorbidities
- clinical complexity
- severity of illness
Part A Medicare covers about 10% of nursing home residents

Excluded services (nursing home is not responsible for cost)

ER visits & ambulance transport under HCFA Memo 711 (such visits may trigger an audit by Medicare Part A fiscal intermediaries)
CT scans
MRI scans
ambultory care involving use of an operating room
radiation therapy
angiography
cardiac catherization
certain dialysis-related services
hospice care related to a terminal condition
services provided by MD, NP, or PA, clinical psychologist, psychiatrist, podiatrist, dentist, optomotrist

Anaysis of patient care need is based on items from the MDS

Diagnosis & drug treatment are not used in calculating the RUGs category except for the following diagnoses from sections I & J of the MDS:

The care plans becomes the basis for defining both the nursing home resources provided & responsibilities.

Only what is identified, measured, documented, & care planned gets reimbursed.

Patient classification groups

Rehabilitation therapy - any combination of:

ultrahigh:
- 720 min/week minimum (12 hours/week)
- at least 2 disciplines
- 1st discipline 5 days/weeks
- 2nd discipline at least 3 days/week
very high
- 500 min/week minimum
- 1 discipline at least 5 days/week
high
- 325 min/week minimum
- 1 discipline 5 days/week
medium
- 150 min/week minimum
- therapies 5 days/week across 3 disciplines
low
- 45 min/week minimum
- therapies 3 days/week of nursing rehabilitation of 6 days/week in 2 activities

Extensive services:

Special care:

Clinically complex:

Modifying factors:

cognitive impairment
- MDS 2.0 CPS score of 3, 4, or 5
behavior (coded on MDS 4 times in last 7 days)
- hallucinations/delusions
- specific behaviors
  - resisting care
  - combativeness
  - physical or verbal abuse
  - wandering
  - socially inappropriate disruptive behavior
depression
- 16 specific indicators on MDS (section E - usually completed by social services)

As patient improves in the nursing home, the resources used will decreased & be reflected in lower RUGs category & thus lower per diem payment.

Implementation issues:

begain 07/01/98 with 3 year phase in depending upon SNF status in 1995
annual updates for inflation to per diem rates
- these will lag by 1% for 2000-2002, resulting in most of the cost savings under PPS
originally projected to save Medicare $9 billion, later projected to savce $4.3 billion 2001-2006

Concerns under SNF PPS

creation of a no care zone (patients SNFs will not accept)
- patients not receiving therapies or extensive services but still require extensive medical management & nursing care due to multiple unstable medical conditions
facility preferences for certain types of patients will create new referral patterns
facilities will precost potential admissions based on PPS reimbursement software to predict RUGs category & medication use
- nursing homes are not allow to refuse admission solely on the basis of cost considerations
- medications account for 11% of nursing home costs
SNF revenue loss due to 1% lag in inflation rate increase results in 17-19% less revenue for most SNFs; 34% for hospital-based units due to their higher fixed costs
physician orders will have a significant impact on SNF costs
- SNFs may want to manage physician practice patterns & may attempt to bring physicians in house or purchase physician practices
HCFA will increase review for medical necessity
although case-mix weights for nursing & therapies were established under the demonstration project, other case-mix weights for other ancillary services have not been tested
- this will affect those with high ancillary needs other than therapies
hospital based subactute units especially hit hard

How will SNFs succeed under PPS ?

Cost containment:

avoiding overutilization & medically unnecessary services
effective therapy strategies
prevent ER evaluations via early assessment of treatment
consistent internal case management to ensure that therapy minutes & direct costs total at or below reimbursement
PPS formulary
smart subcontracting with ancillary providers (eg labs, pharmacy) for good per diem rates & built-in safegaurds in contracts
institutional drug factors
- route & frequency of dosing; ease of administration
- avoid restriction around administration, eg. interactions with food
supplies management
documentation of some services received in the hospital
- oxygen therapy
- suctioning
- tracheostomy care
- any treatment received in the hospital within the 14 days preceding the MDS, regardless of where that treatment was received
documentation of modifying factors such as depression
optimize documentation systems
- all required documentation done
- easy to use
- no duplication
- standardization
- user friendly to other disciplines
- no risk for Medicare denials
- specific appropriate ICD9 coding