Modeling Alternative Designs for a Revised PPS for Skilled Nursing Facilities

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Abstract

In its June 2008 Report to Congress, the Medicare Payment Advisory Commission (MedPAC) recommended revision of the prospective payment system (PPS) for skilled nursing facilities (SNFs). The proposed revisions consist of a new component to pay for non-therapy ancillaries (NTA) based on predicted NTA costs, an alternative therapy component that bases therapy payments on predicted therapy needs, and addition of an outlier policy for the PPS. This technical report to MedPAC provides detail on the data, methods, and specific predictive models that underlie the analysis in the Report to Congress.

Introduction

The prospective payment system (PPS) for skilled nursing facilities (SNFs) is widely acknowledged to have two basic problems: it does not accurately pay for nontherapy ancillary services (NTA), such as drugs, IV medications, and respiratory services, and it encourages facilities to provide therapy services for financial, not clinical, reasons (CMS 2000; Fries et al 2000; GAO 1999; Kramer et al. 1999; MedPAC 2000, 2001, 2002, 2005, 2007; White 2003; White et al 2002). In prior work funded by the Centers for Medicare and Medicaid Services (CMS) as part of a congressionally mandated study, a team of researchers headed by Korbin Liu at the Urban Institute examined ways to: separately pay for NTA services; base payments for therapy services on predicted care needs, not service provision; and defray the costs of exceptionally expensive stays using an outlier policy (Liu et al. 2007). This research concluded that a revised PPS could establish payments more accurately and afford SNFs some financial protection against exceptionally high-cost stays. If payments were more accurate, SNFs would have less incentive to avoid certain types of patients with high NTA care needs.

Last year, MedPAC contracted with the Urban Institute to further develop and evaluate alternative PPS designs to address the problems with the current system using more recent data from 2003. Using patient and stay characteristics (such as the physical status of the patient and the duration of the stay) that best predicted costs, we worked with MedPAC staff to design a separate NTA payment component to add to the SNF PPS. We also developed a predictive model of therapy costs for use in a revised therapy payment component. The relative weights for the NTA and therapy payment components are based on multivariate regression models relating NTA and therapy costs with patient and stay characteristics. We also developed an outlier policy based on exceptionally high ancillary costs per stay. To evaluate these changes, we assessed their accuracy in predicting NTA and therapy costs and their impact on facilities’ payments.

In this report to MedPAC, we provide detail on the data and methods we used to estimate the NTA and therapy cost models, as a supplement to material that is presented in Chapter 7 of MedPAC’s June 2008 Report to Congress (MedPAC 2008). We provide regression coefficients for NTA and therapy cost models with the best predictive ability. We also describe the methods we used in calculating payments under the current and reformed PPS designs and in conducting the outlier policy and impact analyses. Background on the SNF PPS, the motivation for the approaches to reform we examined, and the overall findings from the analyses we describe here are presented in the June 2008 Report to Congress chapter.

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Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.