CMS dramatically changed the payment system for skilled nursing facilities by adopting the Patient-Driven Payment Model, a system based on a resident's classification among five components (including physical therapy) that are case-mix adjusted, and employing a per diem system that adjusts payment rates over the course of the stay.

See more information on physical therapy in skilled nursing facilities.

Medicare Payment in Skilled Nursing Facilities

Medicare and Medicaid are the primary payers in SNFs. Under Medicare, the Patient-Driven Payment Model classifies residents based on five components (including physical therapy) that are case-mix adjusted. Using a per diem system, the model adjusts payment rates over the course of the stay based on the individual patient rather than the volume of services provided. Implemented in 2019, the PDPM is a shift away from volume-driven SNF payment to a model that focuses on the unique characteristics, needs, and goals of each patient.

While Medicare Part A covers the first 100 days of a patient’s stay, Medicaid is the primary payer for long-term residents in SNFs. Medicaid payments are made to the facility on a per diem basis with base payments covering routine care and supplemental payments covering additional services or costs. If a patient meets the eligibility requirements within their state, 100% of the Medicaid stay is covered.

Payment for Medicare is revised annually through SNF Prospective Payment System while payment for Medicaid varies by state.

Skilled nursing facilities use the Minimum Data Set as a tool to collect data on residents’ health and functional status. It is federally mandated for all Medicare and Medicaid certified nursing homes and helps providers determine resident care needs, develop individualized plans of care, and monitor the quality of care.

Quality Reporting in SNFs for Medicare Beneficiaries

Using data from the MDS, SNFs are assessed on the care they provide to Medicare patients based on a set of quality measures under the Quality Reporting Program. The SNF QRP creates quality reporting requirements that are publicly available through Care Compare. If data isn’t reported, the SNF will be subject to a two-percentage point reduction to their payment update for the applicable performance year.

SNFs are also awarded incentive payments for providing high-quality care to Medicare Part A beneficiaries through the SNF Value-Based Purchasing Program. As required by statute, CMS withholds 2% of SNFs’ Medicare fee-for-service Part A payments to fund the SNF VBP Program. This 2% is referred to as the “withhold”. CMS is then required to redistribute between 50% and 70% of this withhold to SNFs as incentive payments. All SNFs paid under Medicare’s SNF PPS are subject to the SNF VBP Program and inclusion in the SNF VBP Program does not require any action on the part of SNFs.

Interested in connecting with members who work in SNFs? Following the Skilled Nursing Facility Special Interest Group and join the Skilled Nursing Facility Forum on the APTA Community.