Press Releases

NURSING HOME PAYMENTS TO INCREASE IN 2006, CMS ANNOUNCES

Medicare payments to nursing homes will increase by $20 million in 2006, an improvement over earlier forecasts that predicted no increase for long-term care providers next year, the Centers for Medicare & Medicaid Services (CMS) announced today. The final regulation implementing the new payment rates is on display today at the offices of the Federal Register.

With today’s notice, CMS is refining the payment categories Medicare uses to set daily payment rates for its beneficiaries who are in nursing facilities. These categories are known as Resource Utilization Groups (RUGs). The proposed rule predicting a flat payment rate was published in the May Register.

The new payment plan will more accurately compensate providers for the care of medically complex patients by creating new payment categories that more closely match the kind of services being provided to them. 

“Just as we proposed to do in the spring, we are following through on our promise of holding total payments steady while bringing much needed predictability to the nursing home industry,” said Mark B. McClellan, M.D., Ph.D., administrator of CMS. “These steps will enable nursing homes and the Medicare program to continue to move forward on providing quality services for patients who need post-acute care.”

In the final rule, CMS introduced nine new payment categories to the current system, increasing the number of categories from 44 to 53. While these refinements trigger the elimination of temporary add-on payments as Congress directed in the Balanced Budget Refinement Act of 1999 (BBRA), the final rule includes other changes, which will balance its impact.

CMS is also increasing the rates for all RUG groups to reflect variations in non-therapy ancillary costs not fully captured in the RUG refinements.   This adjustment increases the case mix weight that applies to both nursing and non-therapy ancillary costs, and increases aggregate payments by about three percent. This is a permanent payment increase that will be integrated into the base line spending levels and be continued in future years.

The RUG refinements will be implemented on January 1, 2006, which is the second quarter of 2006. Payments for the first quarter, therefore, will reflect the continuation of the temporary add-on payments that increase federal expenditures to facilities by $350 million. Payments for the balance of the year will reflect the new policy.   Agency officials expect the cumulative effect of these policies to allow nursing homes to provide a high quality of care while remaining financially sound.

Under Medicare’s Skilled Nursing Facility (SNF) Prospective Payment System (PPS), each facility is paid a daily rate based on the relative needs of individual Medicare patients, adjusted for local labor costs.   The daily rate covers the costs of furnishing all covered nursing facility services, including routine services such as room, board, nursing services, and some medical supplies together with related costs such as therapies, drugs and lab services, and capital costs including land, buildings and equipment.          

The new rule also updates the wage index structure used to adjust for local labor costs.   “Local” is a term defined by geographic designations set out by the federal Office of Management and Budget (OMB).  In this rule, CMS announced it will adopt new OMB Core-Based Statistical Area (CBSA) geographic designations, replacing the traditional Metropolitan Statistical Area designations (MSAs).  The new designations are based on more recent census data and increase the accuracy of payments made under the SNF PPS.  However, in response from the industry to the proposed rule, which argued that nursing homes needed time to adjust to the changes, CMS has adopted a one-year transition policy that will apply to all nursing homes. 

The final rule also retains the 128 percent adjustment for SNF residents with AIDS that was enacted in Section 511 of the Medicare Modernization Act of 2003 (MMA).

Next year’s payment rates also include a “market basket” update increase of 3.1 percent, or $530 million—a slight increase over the amount predicted in the proposed rule of 3.0 percent.   The update is based on the change in prices of a “market basket” of goods and services included in covered skilled nursing facility stays.  The price of items in the market basket is measured each year, and Medicare payments are adjusted accordingly.

With all the changes CMS announced today, the agency still expects refinements in the SNF PPS to result in positive operating margins on nursing home Medicare business. Free-standing facilities, the majority of all nursing homes in the country, are not expected to suffer a loss.   Hospital-based facilities that generally treat more complex patients are expected to benefit from the refinements.

“We are confident that the new payment system will be good for both the industry and the Medicare patients it serves,” he said.

The SNF PPS final rule is on the CMS website at www.cms.hhs.gov/providers/snfpps.