Author Contributions: Dr. Prusynski is the sole author and performed the historical research and prepared the manuscript.
Corresponding Author Contact: Rachel Prusynski, DPT, PhD(c), ude.wu@1plehcaR, Twitter: rae_pru The publisher's final edited version of this article is available at J Am Geriatr SocThe current policy environment for rehabilitation in Skilled Nursing Facilities (SNFs) is complex and dynamic, and SNFs are facing the dual challenges of recent Medicare payment policy change that disproportionately impacts rehabilitation for older adults and the COVID-19 pandemic. This article introduces an adapted framework based on Donabedian’s model for evaluating quality of care and applies it to decades of Medicare payment policy to provide a historical view of how payment policy changes have impacted rehabilitation processes and patient outcomes for Medicare beneficiaries in SNFs. This review demonstrates how SNF responses to Medicare payment policy have historically varied based on organizational factors, highlighting the importance of considering such organizational factors in monitoring policy response and patient outcomes. This historical perspective underscores the mixed success of previous Medicare policies impacting rehabilitation and patient outcomes for older adults receiving care in SNFs and can help in predicting SNF industry response to current and future Medicare policy changes.
Keywords: Skilled Nursing Facilities, Medicare Policy, RehabilitationAs part of its 2006 plan to reform post-acute care, the vision of the Centers for Medicare & Medicaid Services (CMS) is that the post-acute care system will optimize patient choice, prioritize placement in the appropriate setting, reward excellence, and provide coordinated care for seamless transitions between settings. 1 However, CMS has stated that the value of post-acute care to beneficiaries is unclear, despite spending $58.5 billion on post-acute care in 2018. 2 CMS engages in an iterative policymaking process with goals of improving quality while lowering or maintaining costs, 1 however, this article will review how CMS policies have historically seen mixed results for both savings and clinical outcomes.
CMS policies frequently impact nursing homes, often known as Skilled Nursing Facilities (SNFs) as most nursing homes have beds certified by Medicare to provide skilled care. 3 The typical SNF has 100 beds and provides the majority of care to long-stay residents, whose care is primarily funded by Medicaid. 3,4 However, about ten percent of SNF days are covered by Medicare fee-for-service payments specifically for short-stay patients after hospitalization. 3 As important interim stops on the pathway from hospital to home, SNFs provided post-acute nursing and rehabilitation services for 1.5 million fee-for-service Medicare beneficiaries in 2019. 3 In addition to being disproportionately hit by the COVID-19 pandemic, rehabilitation practices in SNFs have been impacted by decades of CMS policy changes as conceptualized in the framework in Figure 1 , based on Donabedian’s model where policy may interact with three healthcare aspects that can be measured in assessing quality of care: structure, process, and outcomes. 5 In an effort to guide evaluation of current SNF policies impacting rehabilitation as well as future policy development, this article reviews the literature and CMS documents from the 1960s until the present to evaluate the outcomes of payment policies that impacted rehabilitation incentives in SNFs. This review applies the conceptual framework to examine how policy impacts on process changes varied based on SNF structural or organizational factors. For a timeline of selected payment policies, see Figure 2 .
Conceptual Framework adapted from Donabedian’s Model for evaluating quality of health care, demonstrating that health policy impacts the three healthcare aspects (structure, process, and outcomes) that can be assessed in measuring quality of care.
Timeline of select Medicare payment policy impacting rehabilitation in Skilled Nursing Facilities (SNFs), with brief summaries of the policy’s impact on healthcare processes, Medicare spending, and/or patient outcomes.
Under the Johnson administration in the 1960s, the Social Security Act established conditions of participation (CoPs) that must be met by medical facilities in order to qualify for payment under the Medicare program, established in 1965. 6 Under this process which continues today, SNFs are certified to participate in Medicare if they meet the CoPs, and state survey agencies determine whether CoPs are met through SNF surveys. 7 State survey agencies report deficiencies to CMS and may issue certifications of noncompliance, at which point the Social Security Administration can terminate a SNF’s Medicare contract. Many facilities that previously provided only long-term care became Medicare certified to provide intensive short-term rehabilitation and nursing services reimbursed by Medicare, thereby operating as SNFs in addition to standard nursing home operations for long term residents. 6 The SNF industry grew further after the passage of the Prospective Payment System for hospitals in 1983, which had the impact of reducing hospital length of stay and increasing need for post-acute care services for patients who continued to have medical and rehabilitative needs. 8
Throughout the SNF industry expansion in the 1980s, reports of abuse, poor quality care, and fraud became increasingly common, leading to calls for reform and increased oversight of the industry. 9,10 The Omnibus Budget Reconciliation Act of 1987 (OBRA 87) established new standards including resident rights to freedom from abuse and neglect, increased staffing requirements, changed the inspection process to include unannounced surveys, and merged Medicare and Medicaid survey and certification processes into a single system which reduced confusion about nursing home versus SNF standards. 9 OBRA 87’s broad provisions had far-reaching impacts on the SNF industry, impacting clinical and administrative processes including standardized assessment development, medication administration, and staffing standards. OBRA 87 was associated with clinical and quality improvements for SNF patients, such as reductions in use of physical restraints and psychoactive drugs, reductions in pressure ulcers, and increases in nurse staffing. 11–13
In 1997, the US Congress passed the Balanced Budget Act (BBA) in response to rising expenditures in post-acute care. 8,14,15 Prior to passage of the BBA, CMS reimbursed post-acute care providers including SNFs on a retrospective, reasonable-cost basis, which did not limit costs for ancillary services such as rehabilitation. 8,16 The 1983 Prospective Payment System for hospitals had increased the number of patients who were discharging “quicker and sicker” from hospitals, resulting in an increase in patients admitted to SNFs and an increase in the intensity of services required for sicker patients. 8,17,18 This increase in SNF utilization combined with minimal incentives for cost-containment caused a massive increase in Medicare spending on SNF services in the early to mid-1990s. 17,18 Between 1990 and 1998, CMS expenditures on SNFs increased from $1.7 billion to $10.2 billion. 19
The 1997 BBA aimed to curb the precipitous growth in Medicare expenditures for post-acute care and established the Prospective Payment System for SNFs (PPS). The SNF PPS shifted payment from a retrospective to prospective system under which CMS payments did not vary with the actual cost of care provided, but instead varied based on patient case-mix categories. 8 The initial SNF PPS established the Resource Utilization Group (RUG) III system, which included 44 different levels of payment based on resident severity, with higher payments for RUGs reflecting higher levels of care. 16 The RUG-III algorithm included rehabilitation treatment needs, basing the specific reimbursement for rehabilitation RUGs on total weekly minutes of physical, occupational, and speech therapy reported by the SNF. The RUG-III system created separate rehabilitation RUGs for specific therapy time ranges (45-149 minutes, 150-324 minutes, 325-499 minutes, 500-719 minutes, and 720+ minutes), with no increase in payment until the minimum minute threshold for the next RUG level is met. 16,20 The RUG-III system was updated to the RUG-IV system in 2011, which kept the same minute thresholds for rehabilitation RUGs but increased the number of RUGs and recalibrated payments to help account for the cost of caring for medically complex patients.
The SNF PPS brought somewhat conflicting incentives for SNF administrators: on one hand, the fixed prospective nature of reimbursement incentivized SNFs to reduce daily costs of care, such as nursing costs, and disincentivized SNFs from admitting patients whose costs of care could exceed the fixed reimbursements. 8,21 On the other hand, the increasing payment levels for higher severity case mix groups incentivized SNFs to move patients into higher paying rehabilitation RUGs. SNFs were also incentivized to only provide therapy close to the specific minute thresholds for higher reimbursement, as the marginal profitability of providing therapy within the minute ranges was zero. 16,22
The combination of these incentives caused initial concern that the SNF PPS would exacerbate inequities by causing SNFs to avoid admitting patients with complex medical care needs in favor of patients who could participate in therapy. 14 There were also concerns that SNFs would provide less therapy overall due to the shift from a retrospective system with no limits on costs for therapy services to a prospective per diem system, with the ultimate result that the SNF PPS would shift resources away from the patients with the highest needs who were most likely to benefit from SNF services. 21,23
The SNF PPS was initially very successful in reducing Medicare expenditures. The first two years of the SNF PPS saw a 14% reduction in CMS payments for SNF services, a total decrease in expenditures of over $3.4 billion in 1999, which was more than double the intended amount. 18,23,24 This decline in payment had significant impacts on the SNF industry that varied according to SNF structural factors. For example, hospital-based and chain facilities endured higher rates of bankruptcy, with 20% of hospital-based SNFs leaving the market between 1998 and 2000. 18
Early work analyzing the impact of the SNF PPS revealed an increase in the likelihood that Medicare patients would receive some therapy services, however there was an initial decrease in the overall amount of therapy provided. 8,16,21,23 Specifically, SNFs appeared to be reducing extremely high levels of therapy and targeting therapy services towards moderate levels of therapy as well as therapy close to more profitable minute thresholds. These process changes differed according to SNF structural factors: for-profit freestanding SNFs were most likely to reduce therapy provision. 8,23
In terms of access to services, the SNF PPS was associated with a reduction in the number of Medicare patients admitted to SNFs, with results ranging from 8.7% to 19.5% fewer Medicare patients as a share of total SNF patients. 18 A study of five common Medicare hospital diagnoses found that SNF days for patients with a stroke declined immediately after the BBA, while overall use of inpatient rehabilitation and long term hospital care increased. 15 Qualitative research has revealed that SNFs did engage in patient selection strategies to admit fewer high-risk patients under PPS. 25 However, SNF length of stay was relatively unchanged compared to the pre-PPS period, which was unsurprising as the SNF PPS reimbursed SNFs on a per diem and not an episode basis. 8,18 Additional early process changes incentivized by the SNF PPS included a move towards bringing therapy services in-house rather than employing contract therapy companies, allowing SNFs more control over the cost of therapy services as they navigated uncertainty. 26 The SNF PPS also impacted nurse staffing (including all registered nurses, licensed practical nurses, and nurse aids), with one study finding between 17-33 percent reductions in nurse staffing, and another study detecting a 9% reduction in nurse staff time per resident after PPS implementation. 17,24 Staffing reductions differed according to SNF structural factors, with non-profit facilities being less likely to reduce nurse staffing than for-profits.
In response to objections from SNF industry stakeholders regarding excessive reductions in expenditures and industry instability caused by the SNF PPS, Congress passed the Balanced Budget Refinement Act (BBRA) in 1999 which increased payment rates for all RUG-III groups. 24 Reimbursement increases under the BBRA expired in 2006. In 2000, the Benefits Improvement and Protection Act (BIPA) further changed reimbursement to increase payment for all rehabilitation RUG-III groups and temporarily increased payment for nursing components of the RUG-III system. In terms of access to care, these laws ushered in a return to prior SNF admission rates for Medicare beneficiaries. 18
The BBRA and BIPA also mitigated some of the SNF nurse staffing reductions, with a 4-7% increase in nurse staffing after the passage of BBRA. 24 The reduction in therapy services under the SNF PPS was also mitigated, and an industry shift towards increasing intensity of therapy and concentrating Medicare patients into higher paying rehabilitation RUGs began in earnest. 18 Ultimately, the BBRA and BIPA undid any reductions in SNF expenditures under the original SNF PPS, and expenditures continued to rise through the early 2000s, stabilizing after 2010. 2,18
Multiple studies explored the impact of the SNF PPS on quality outcomes. Early data in two studies showed that the SNF PPS was associated with higher counts of health deficiencies on regulatory surveys, with a 12% increase in average number of deficiencies after PPS implementation, however deficiency rates dropped after the passage of BBRA. 17,24 Two studies examined community discharge outcomes after PPS implementation. Hutt et al. found that, in PPS demonstration SNFs, therapy intensity for the highest functioning patients increased, however community discharge rates did not change. 22 This study was limited in generalizability, however, as PPS demonstration SNFs may differ from non-demonstration SNFs and may not accurately reflect discharge outcomes once the SNF PPS was implemented nationally. Using data from after national PPS implementation, Wodchis et al. found reduced probabilities of discharging home from SNFs for Medicare patients, however this reduction in quality was accompanied by a decline in risk of death, causing the authors to conclude that “PPS is associated with neither uniformly declining standards of care nor a large improvement in effectiveness.” 19
Growth in Medicare expenditures for SNF services in the later years under the SNF PPS was attributed in large part to a rise in the proportion of patients in higher intensity rehabilitation RUG groups, despite minimal changes in patient characteristics that would have appeared to warrant this increase. 27–29 Between 2002 and 2017, the share of patient days classified into intensive therapy RUG groups increased from 27 to 83 percent. 28 CMS also began monitoring thresholding behavior, defined previously as providing therapy close to the specific minute thresholds for higher reimbursement. 16,30 According to CMS, between 2005 and 2013, the percentage of patients who received 20 minutes or less of therapy over the threshold for the ultrahigh rehabilitation RUG group increased from 5 percent to 33 percent. In 2016, 62.3% of patient assessments in the ultrahigh rehabilitation RUG group received 10 or fewer minutes of therapy above the reimbursement threshold. 31 These apparently financially motivated behaviors varied by organizational characteristics. For-profit and chain affiliated SNFs were more likely to place patients into higher paying RUGs, and for-profit and government facilities and SNFs using all therapy contract staff were more likely to engage in thresholding behavior. 27,31
In addition to financially motivated billing behavior, calls for reform of the SNF PPS also centered around issues of equitable access. 29 The SNF PPS was believed to increase disparities in access to SNF care, as it incentivized facilities to selectively admit patients who were appropriate for higher intensity rehabilitation over medically complex patients. 28,32 Overall, the RUG system was increasingly seen as a system in need of reform, as it did not align reimbursement with patient care needs.
In October 2019, the Patient Driven Payment Model (PDPM) replaced the RUG system under the SNF PPS. Goals of PDPM included 1) improving payment accuracy and appropriateness by focusing on patient characteristics, rather than volume of services, to determine payment and 2) improving payments to underserved patients by redistributing payments from high intensity rehabilitation RUGs towards medical patients with high non-therapy ancillary costs. 28,29 Under PDPM, per diem payment rates are calculated by adding five case-mix adjusted components: physical therapy, occupational therapy, speech therapy, nursing, and non-therapy ancillary. Patients are classified into payment groups for each of the five components which utilize different discipline-relevant clinical criteria as the basis for classification. For example, physical and occupational therapy components use clinical categories based on the primary diagnosis and functional scores to classify patients into payment groups. By eliminating incentives to provide intensive therapy regardless of patient needs and shifting to classification based on patient characteristics, PDPM aims to improve accuracy and appropriateness of SNF reimbursement. 29
Early evidence evaluating PDPM has shown a significant impact on rehabilitation staffing in SNFs, with a decline of up to 15% in occupational and physical therapy staffing time by March 2020. 33 Therapy assistants and contract staff experienced larger staffing reductions compared to therapists and in-house staff, respectively. 33,34 Similarly, CMS reported a decline of over 30% in therapy minutes per patient immediately after PDPM implementation. 35 As overall therapy time decreased, SNFs also increased utilization of multiparticipant therapy sessions, which include two or more patients treated simultaneously by the same therapist. Multiparticipant therapy was used sparingly under the SNF PPS because multiparticipant therapy minutes were not weighed as heavily as individualized therapy in RUG group calculations. Immediately after PDPM implementation, multiparticipant therapy grew from less than 1% of total therapy time to about 30% of therapy time, exceeding the 25% limit established under PDPM. 29,35 Importantly, exceeding the 25% multiparticipant therapy limit does not incur financial penalties for SNF providers.
SNF staffing declines incurred scrutiny as reports emerged of increased payments to SNF under PDPM. While, unlike the SNF PPS, PDPM was intended to be budget neutral, the design of the PDPM case-mix system led to an unintended $1.7 billion, or 5%, increase in fee-for-service reimbursement to SNFs in 2020. 35 Plans for recalibration of the PDPM case mix system are underway to achieve the goal of budget neutrality. In terms of SNF outcomes, CMS reported no significant changes in injurious falls, pressure ulcers, or hospital readmissions under PDPM, but implications for rehabilitation-sensitive outcomes such as functional improvement and community discharge have not yet been studied. 35
Evaluation of SNF outcomes under PDPM is now confounded and somewhat overshadowed by the COVID-19 pandemic. However, if responses to historical CMS payment policies provide lessons for PDPM, the rapid decline in therapy staffing and therapy provision is no surprise given PDPM’s changing incentives for rehabilitation. Previous policy evaluation also reminds us that the response to PDPM will likely vary according to SNF structural factors, with for-profit freestanding providers and SNFs employing contract therapy staff potentially more likely to shift rehabilitation processes under PDPM. The impacts of rehabilitation process changes under PDPM on patient outcomes remains an important area of future research.
CMS has a decades-long history of implementing new SNF payment policy in the effort to improve quality while reducing costs, to varying degrees of success. The history of Medicare payment policy in SNFs provides many lessons for the future, including the significant influence stakeholder groups can have on subsequent policy iterations. Additionally, cost-containment policies must have an acceptable trade-off with quality and should incorporate stakeholder perspectives into what acceptable quality and cost trade-offs might be. 24 Examining historical process changes in response to policy can help to predict future changes that will likely vary depending on SNF structural characteristics, such as larger reductions in staffing and other profit-maximizing behaviors anticipated in for-profit SNFs. Structural provider characteristics should thus have a large role in targeted monitoring of policy impacts to ensure equitable access to necessary services. Predictions for SNF process changes should also inform future policy design to ensure maintenance or improvement in quality outcomes for patients.
Medicare payment policy has had significant historical impacts on rehabilitation processes for older adults in Skilled Nursing Facilities, with mixed success in lowering costs and improving patient outcomes.
This perspective applies a framework to previous policies, highlighting the importance of Skilled Nursing Facility organizational factors in evaluating policy and predicting industry response.
Medicare policies which disincentivize rehabilitation are likely to reduce therapy provision and alter therapy staffing processes, especially in for-profit facilities.
Lessons from a historical review of Medicare payment policy can improve quality monitoring and future policy development that impacts rehabilitation for older adults.
This work was funded by The Foundation for Physical Therapy Research Promotion of Doctoral Studies (PODS II) scholarship, the American Physical Therapy Health Policy and Administration Research Grant, and by the National Center for Advancing Translational Sciences of the National Institutes of Health under Award Number TL1 TR002318.
The study funders had no role in the preparation of this manuscript.
Disclosures: The author has no conflicts of interest.
Conflicts of interest: The author declares no conflicts of interests
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