Prospective per diem rates for skilled nursing care

Area of Science:

• Healthcare economics
• Geriatric care policy
• Medicare reimbursement

Background:

• Medicare shifted from cost-related reimbursement to a prospective payment system (PPS) for skilled nursing facilities (SNFs) on July 1, 1998.
• The PPS incorporates a case-mix adjustment using Resource Utilization Groups (RUGs) to determine Medicare resident payments.
• Industry concerns regarding initially low payment rates led to subsequent modifications by Congress.

Purpose of the Study:

• To evaluate the impact of Medicare's prospective payment system on skilled nursing facility reimbursement.
• To analyze the effectiveness of the case-mix adjustment in aligning payments with facility costs.
• To assess the system's influence on Medicare spending growth for SNF care.

Main Methods:

• Analysis of Medicare reimbursement policies for skilled nursing facilities before and after July 1, 1998.
• Examination of the prospective payment system's structure, including Resource Utilization Groups (RUGs) for case-mix adjustment.
• Review of legislative modifications and their effects on payment rates and Medicare spending.

Main Results:

• The prospective payment system aimed to better match Medicare payments with the actual costs of SNF care.
• Modifications were made to the system in response to industry feedback on payment rates.
• Recent adjustments to payment rates have lessened the system's capacity to reduce overall Medicare outlays for SNF services.

Conclusions:

• The transition to a prospective payment system for skilled nursing facilities represented a significant policy shift.
• While intended to control costs, the system's effectiveness in curbing Medicare spending has been impacted by subsequent rate increases.
• Ongoing evaluation is necessary to ensure Medicare reimbursement policies for SNFs achieve their financial and care objectives.