Assessing the RUG-III resident classification system for skilled nursing facilities

Area of Science:

• Health Economics
• Healthcare Management
• Geriatric Care

Background:

• The Centers for Medicare & Medicaid Services (CMS) utilizes the Resource Utilization Groups, version III (RUG-III) system to categorize skilled nursing facility (SNF) residents for Medicare reimbursement.
• Accurate resident classification is crucial for appropriate SNF reimbursement and resource allocation.

Purpose of the Study:

• To evaluate the explanatory power of the RUG-III system regarding total per diem costs in SNFs.
• To identify specific cost components not adequately explained by RUG-III.
• To explore factors associated with residual costs.

Main Methods:

• Analysis of a sample of 1,304 SNF residents with Medicare-covered stays.
• Statistical examination of the variance in total per diem costs explained by the RUG-III classification.
• Investigation of the relationship between specific treatments and residual costs.

Main Results:

• The RUG-III system accounted for only 10.4% of the variance in total per diem costs.
• RUG-III demonstrated moderate success in explaining staff-time costs but failed to explain non-therapy ancillary costs.
• Receipt of special treatments, including intravenous medications and respiratory therapy, was significantly associated with higher residual costs (p < 0.01).

Conclusions:

• The current RUG-III system has limited ability to explain overall SNF per diem costs.
• Non-therapy ancillary costs and the impact of specialized treatments represent significant gaps in RUG-III's explanatory power.
• Modifications to the RUG-III system are recommended to improve its accuracy in reflecting actual resident care costs and enhance reimbursement fairness.