Mike Cheek, Senior Vice President, Reimbursement Policy & Legal Affairs. David Gifford, Senior Vice President, Quality and Regulatory Affairs

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1 MEMORADUM TO: FROM: AHCA/NCAL Members Mike Cheek, Senior Vice President, Reimbursement Policy & Legal Affairs David Gifford, Senior Vice President, Quality and Regulatory Affairs SUBJECT: SNF PPS FY17 Final Rule Summary DATE: July 29, 2016 On July 29, 2016, the Centers for Medicare and Medicaid Services (CMS) released the federal fiscal year 2017 (FY17) Skilled Nursing Facility Prospective Payment System (SNF PPS) final rule. Based on final changes contained within this rule, CMS projects that aggregate payments in FY17 to SNFs will increase by $920 million, up from the projected $800 in the proposed rule. The proposed rule indicated an estimated net market basket increase for SNFs of 2.4 percent beginning October 1, Thus, the final increase is 0.3 percent more than the estimated 0.1 percent in the proposed rule. More recent data used to update the market basket resulted in a higher market basket update percentage. Also contributing to the increased total aggregate payments are a series of errors in the unadjusted per diems noted in AHCA s comments to CMS. For the FY17 proposed rule, the FY 2010-based SNF market basket growth rate was estimated to be 2.6 percent, which was based on the IHS Global Insight, Inc. (IGI) first quarter 2016 forecast with historical data through fourth quarter However, in the FY16 SNF PPS proposed rule, CMS indicated that if more recent data became available (for example, a more recent estimate of the FY 2010-based SNF market basket and/or multifactor productivity (MFP) adjustment), CMS would use such data, if appropriate, to determine the final FY16 SNF market basket percentage change, labor-related share relative importance, forecast error adjustment, and MFP adjustment in the final rule. Since the proposed rule was released, more up-to-date data became available, and CMS indicates an increase in the unadjusted market basket of.1 percent for and unadjusted total of 2.7 percent rather than 2.6 percent. The proposed 2.1 percent market basket update reflects a full market basket increase of 2.6 percent which had been reduced by 0.5 percentage points, in accordance with the multifactor productivity adjustment required by Section 3401(b) of the Affordable Care Act (ACA). However, as with the base market basket projection, more up-to-date IGI data indicated a reduction of 0.3 percent, which is calculated as described based on IGI s second quarter 2016 forecast. 1

2 The resulting MFP-adjusted SNF market basket update is equal to 2.4 percent, or 2.7 percent less 0.3 percentage point. No forecast error was incurred in the updated data. CMS also acknowledged errors had been made in the unadjusted per diem rates as noted by AHCA in its comments on the proposed rule. Tables 1 and 2 below reflect the updated and corrected components of the unadjusted federal rates for FY17 adjustment for case-mix. CMS further adjusted the rates by a wage index budget neutrality factor. This adjustment also required correction in the final rule. Tables 1 and 2 below reflect the updated components of the unadjusted federal rates for FY17 adjustment for case-mix. CMS further adjusts the rates by a wage index budget neutrality factor. Table 1 FY 2017 Unadjusted Federal Rate Per Diem Urban Rate Component Nursing Case-Mix Therapy Case Mix Therapy Non- Case-Mix Non-Case Mix Per Diem Amount $ $ $17.33 $89.16 Table 2 FY 2017 Unadjusted Federal Rate Per Diem Rural Rate Component Nursing Case-Mix Therapy Case Mix Therapy Non- Case-Mix Non-Case-Mix Per Diem Amount $ $ $18.52 $90.82 *See page 30 of the rule summary, Tables 2 and 3. The final rule is available here and the fact sheet is available here. Payment Provisions The Association commented upon three areas extensively: 1. Market Basket and State Minimum Wage Laws 2. Alternate Approach to Wage Index 2

3 3. Unadjusted Per Diems Appear Off Each is briefly discussed below and a short summary of CMS response. The Association s complete comments submitted to CMS in June 2016 are available here. 1. Market Basket and State Minimum Wage Laws AHCA/NCAL reiterated its belief that due to the rapidly changing payment environment, market basket weights and proxies should be updated as frequently as the hospitals. Additionally, CMS should take steps to address state and municipal laws which increase the minimum wage. The Association stated its belief that the Chief Actuary has the authority to take such steps at the Core-Based Statistical Area (CBSA) level. CMS appreciates the suggestion for a more frequent rebasing of the SNF market basket. In the past, we have rebased the SNF market basket roughly every 5 to 7 years. In accordance with section 404 of Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, Pub. L ), we determined that the frequency for rebasing the hospital market basket would be every 4 years. The SNF market basket was last rebased and revised 3 years ago in the FY 2014 SNF PPS final rule (reflecting 2010 base year expenditures), and was effective beginning in FY CMS will continue to review the most recent SNF Medicare cost report data and resulting market basket cost weights for any notable changes, and determine if we need to rebase the SNF market basket more frequently than roughly every 5 to 7 years. Should we determine that the SNF market basket would be improved by updating the base year, such an update would be proposed in rulemaking and be subject to comment. CMS also noted that they appreciated the Association s requested that the Agency engage in an ongoing dialogue on our market basket research. The goal of such discussions would be to inform CMS and support any analogous CMS reform efforts. CMS notes they appreciate the Association s review of the market basket and encouraged continued dialogue regarding the research. In regard to state minimum wage laws, CMS indicated the agency believes such increases would be captured in hospital wages and, therefore, would be accounted for via the existing wage index methodology (see discussion below). 2. Alternate Approach to Wage Index Over the years, AHCA/NCAL has commented many times on the need for a more accurate and appropriate approach to a SNF wage index. Last year, the Association shared a detailed approach to a SNF wage index. However, CMS continues to express concerns about the quality of SNF data. In response, AHCA/NCAL has prepared an approach this year which trims the hospital data to labor categories, better aligning with SNF categories. The Association believes this approach aligns with CMS preferred approach to rely upon hospital data, but offers a more accurate SNF wage index methodology. CMS notes that while we consider whether or not such an approach may constitute an interim step in the process of developing a SNF-specific wage index, we would note that other provider types also use the hospital wage index as the basis for their associated wage index. As such, we believe that such a recommendation should be part of a broader discussion of wage index reform 3

4 across Medicare payment systems. AHCA appreciates CMS willingness to explore such an avenue. 3. Unadjusted Per Diems Appear Off In the proposed rule text, CMS indicates that the unadjusted per diem rates contained in Tables 2 and 3 on page were updated using the adjusted market basket rate of 2.1 percent. However, AHCA/NCAL analysis indicates the FY17 per diem rates must have been updated using some percentage less than 2.1 percent. We requested clarification on the update percentage and methodology applied to the FY17 rates. CMS indicates that errors were made and the Agency appreciates this comment. Specifically, when performing the calculation of the FY 2017 unadjusted federal per diem rates, CMS begin with the FY 2016 unadjusted federal per diem rates which are updated by the FY 2017 MFP adjusted market basket update factor in accordance with section 1888(e)(4)(E)(ii)(IV) and (e)(5)(b) of the Act. However, in performing the calculation, CMS made an error in transcribing the FY 2016 unadjusted federal per diem rates (though the Agency applied the correct FY 2017 proposed market basket update factor of 2.1 percent). For the FY 2017 SNF PPS proposed rule, CMS inadvertently used the following rates as the FY 2016 unadjusted urban federal per diem rates in the calculation of the proposed FY 2017 urban unadjusted federal per diem rates: $ (nursing case-mix), $ (therapy case-mix), $16.97 (therapy noncase-mix), and $87.33 (non-case-mix). CMS inadvertently used the following rates as the FY 2016 unadjusted rural federal per diem rates in the calculation of the proposed FY 2017 unadjusted rural federal per diem rates: $ (nursing case-mix), $ (therapy case-mix), $18.14 (therapy non-case-mix), and $88.95 (non-case-mix). The correct FY 2016 urban and rural unadjusted federal per diem rates which should have been used in this calculation, and which have been used in the calculation of the final FY 2017 urban and rural unadjusted federal per diem rates provided in Tables 1 and 2, below. Additionally, as further discussed in section III.B.4., CMS also discovered an error in the calculation of the proposed FY 2017 wage index budget neutrality factor, which also impacted the calculation of the proposed FY 2017 unadjusted federal per diem rates in the proposed rule (81 FR 24234) (as well as the impact analysis provided in Table 19 of the FY 2017 SNF PPS proposed rule (81 FR 24278), as further discussed in section VI.A.4. of the final rule). The corrected final FY 2017 SNF PPS unadjusted federal per diem rates are set forth below in Tables 1 and 2. CMS goes on to note that, as described previously in this section, the FY 2017 market basket update factor and MFP adjustment were both updated in advance of the final rule. As such, the FY 2017 unadjusted federal per diem rates provided in Tables 1 and 2 reflect the updated FY 2017 market basket increase factor and MFP adjustment, as well as the corrected FY 2016 unadjusted federal per diem rates and corrected wage index budget neutrality factor which serve as the foundation for calculating the FY 2017 unadjusted federal per diem rates. Accordingly, for the reasons specified in this final rule and in the FY 2017 SNF PPS proposed rule (81 FR 24230), we are applying the FY 2017 market basket factor, as adjusted by the MFP adjustment as described above, in our determination of the FY 2017 unadjusted federal per diem rates. CMS used the 4

5 SNF market basket, adjusted as described previously, to adjust each per diem component of the federal rates forward to reflect the change in the average prices for FY 2017 from average prices for FY CMS further adjusted the rates by a wage index budget neutrality factor, described later in this section. Again, Tables 1 and 2, above, reflect the updated components of the unadjusted federal rates for FY 2017, adjustment for case-mix. As discussed previously in this section, the unadjusted federal per diem rates provided below reflect the updated FY 2017 market basket update factor, as adjusted by the updated MFP adjustment, and the corrections to the FY 2016 unadjusted federal per diem rates and the FY 2017 wage index budget neutrality factor described previously. Skilled Nursing Facility (SNF) Value Based Purchasing (VBP) CMS finalized how it will operationalize SNF VBP program specified in the Protecting Access to Medicare Act of 2014 (PAMA). As you may recall, the PAMA creates a SNF VPB program that cuts 2 percent from SNF Part A payments. It then puts percent into an incentive pool that SNFs can receive in the form of a payment adjustment based on rehospitalization scores. In this year s rule, CMS finalized: A new rehospitalization measure, SNF Potentially Preventable Rehospitalization (PPR) How to calculate the rehospitalization score They opted to delay final decision on: An exchange function to determine a SNF s Part A payment adjustment Plans for reporting rehospitalization scores and payment adjustments The Agency did not finalize how large the incentive pool will be for the VBP program. AHCA/NCAL will continue to push CMS to use the maximum allowed, 70 percent of the 2 percent withhold, to create the incentive pool. CMS will make this determination in future rule making. 1. Rehospitalization Measure (RM) SNF Potentially Preventable Rehospitalization (PPR) Last year, CMS finalized the SNF RM as the all-cause rehospitalization measure to be used in the SNF VBP. The PAMA requires CMS to transition to a PPR measure. CMS finalized the specifications in this year s rule for the SNF PPR. AHCA/NCAL will be presenting a summary of this measure compared to the SNF RM and other CMS rehospitalization measures in the future. For more information, please view more information on the SNF PPR Measure and SNF RM Measures. CMS indicates it will provide SNFs with a preview of their RM values using the QIES system starting this fall. The Association supported using the QIES system as the method to disseminate the preview data. AHCA/NCAL will provide more information to members when CMS provides details on the dates and format of these preview reports. 2. Rehospitalization Score CMS finalized how it will calculate the rehospitalization score used to rank SNFs to determine their SNF Part A payment adjustment. The statute requires CMS calculate a performance score and improvement 5

6 score, and use the higher of the two as the SNF s rehospitalization score. AHCA/NCAL will review the formulas in greater detail over the coming weeks. A SNF s: Performance score will be based on a calendar year (CY) with the first year being CY 2017 (e.g. January 1, 2017 through December 31, 2017). CMS finalized a complicated formula for calculating the score, which AHCA/NCAL supported. o SNFs in the bottom 25 percent nationally will receive zero points, and those in the top 5 percent will receive 100 points. The rest of the points will be based on a SNF s ranking between the bottom 25 percent and top 5 percent. Achievement score will be based on improvement over a two-year period, initially comparing a SNF s rehospitalization rate from CY 2015 to CY CMS finalized a complicated formula for calculating the achievement score, which AHCA/NCAL supported. o With no improvement, a SNF receives zero points. The rest is based on how much improvement occurs from the baseline to performance period, relative to the top 5 percent. AHCA/NCAL developed a nomogram for SNFs to use to estimate their rehospitalization score. We provide a copy below in Figure 1. Please visit AHCANCALED in the LearnEd section under part 1 series to help improve your rehospitalization rates. View our short video on how to calculate your rehospitalization score and use the nomogram. 6

7 Figure 1. Rehospitalization score nomogram. 3. Exchange Function to Determine SNF Part A Payment Adjustment CMS proposed four different models on how to link a SNF s rehospitalization score to their SNF Part A payments. AHCA/NCAL recommended the logistic model over the three other models. CMS did not finalize which exchange function to use nor did they respond to comments on which exchange function they are considering. They opted to address in future rule making. 4. Public Reporting of Data The PAMA requires CMS to ly report the rehospitalization score and the payment adjustments made under the SNF VBP. CMS asked for input on how and what type of information should be ly reported. 7

8 The final rule specifies what they proposed, SNF performance scores, their ranking and number of SNFs receiving VBP payments (as well as the range and total amount of those payments) are on Nursing Home Compare (NHC). Skilled Nursing Facility (SNF) Quality Reporting Program (QRP) The Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 requires CMS create cross-setting quality measures in a number of domains. Last year, CMS specified three measures that apply to SNFs, IRFs, LTCHs and Home Health pressure ulcers, falls and functional assessment based on new Section GG added to the MDS, as well as the other settings assessment tools. In this year s rule, CMS proposed four new measures: 1. Drug Regime Review 2. Average Cost per Medicare beneficiary 3. Potentially Preventable Rehospitalizations post-snf discharge 4. Discharge back to the community after SNF admission The Association raised a number of concerns about the failure of CMS to follow the process of developing and testing these measures before being finalized. Nonetheless, CMS finalized all four measures (see below) as proposed with no changes except for one minor change to the Discharge to Community measure. CMS also finalized the timeframes for using MDS or Claims data to calculate these measures and ly report them. Rules related to implementing SNF QRP: SNF QRP Measures Specified 1. Drug Regimen Review Conducted with Follow-Up for Identified Issues CMS finalized a quality measure, Drug Regimen Review Conducted with Follow-Up for Identified Issues, for the SNF QRP as a resident-assessment based, cross-setting quality measure to meet IMPACT Act requirements. Data collection begins October 1, 2018 for the FY 2020 payment determinations and subsequent years. CMS states in the proposed rule: For this proposed quality measure, a drug regimen review is defined as the review of all medications or drugs the patient is taking to identify any potential clinically significant medication issues. This proposed quality measure utilizes both the processes of medication reconciliation and a drug regimen review, in the event an actual or potential medication issue occurred. The Association raised several concerns with measure specifications. CMS finalized the measure as proposed but indicated that they will continue to refine and update the measure as they continue to test the measure implementation. 2. Medicare Spend Per Beneficiary (MSPB) CMS finalized the MSPB-PAC SNF QRP measure for inclusion in the SNF QRP for FY 2018 and subsequent years. This measure calculates the average cost of SNF admissions, from admission through discharge, AND after SNF discharge. It is risk-adjusted and calculated from Medicare claims. The proposed measure was still lacking in some details, and AHCA/NCAL opposed this measure because it was not fully specified and tested. CMS finalized the measure but indicated that they will continue to refine and modify aspects 8

9 of the measure as they continue to test it. They also indicated that they will submit the measure to NQF for full review and endorsement as soon as possible. 3. Potentially Preventable 30-Day Post-Discharge Readmission Measure for SNF Quality Reporting Program CMS finalized a potentially preventable rehospitalization (PPR) measure for individuals discharged from a SNF. This is a risk-adjusted measure based on Part A claims, and thereby measures only individuals in the Medicare fee-for-service (FFS) program. It does not count readmissions classified as observation status since those are covered under Part B. The measure excludes elective readmissions and also only counts readmissions with a primary diagnoses on the readmission claim that is considered potentially preventable. CMS defines potentially preventable as a readmission for which the probability of occurrence could be minimized with adequately planned, explained and implemented post-discharge instructions, including the establishment of appropriate follow-up ambulatory care. The risk-adjustment calculates a predicted actual readmission rate compared to the expected readmission rate and multiplies the ratio by the national average readmission rate. The measure follows the same logic as the SNF PPR to be used in the SNF VBP program, as well as the same logic for similar measures applied to IRF and LTCH patients. AHCA/NCAL raised several concerns with measure specifications. CMS finalized the measure as proposed without any changes. 4. Discharge to Community Post-Acute Care Skilled Nursing Facility Quality Reporting Program CMS finalized the Discharge to Community measure for use starting in FY The measure calculates the proportion of Medicare admissions to a SNF from a hospital that are discharged back to the community (including AL) and stay out of a hospital, SNF or don t die over the next 30 days following SNF discharge. It is risk-adjusted and is defined by CMS as: SNF s risk-standardized rate of Medicare FFS residents who are discharged to the community following a SNF stay, who do not have an unplanned readmission to an acute care hospital or LTCH in the 31 days following discharge to community, and who remain alive during the 31 days following discharge to community. The measure is based on Medicare FFS administrative claims (i.e. Medicare eligibility files and inpatient claims). Community is defined as home/self-care with or without home health services. More specifically, this is noted as 01, 06, 81, or 86 on the Patient Discharge Status Codes on the Medicare FFS claims. This measure differs slightly from the discharge to community measure used in Five-Star. AHCA/NCAL raised questions as to why CMS is proposing a second measure on the same topic but defined slightly different. AHCA recommended that long stay residents of a SNF who are hospitalized, then come to the SNF, should not be included in the measure. AHCA also recommend that they exclude individuals on hospice. CMS finalized the measure as proposed with one change; they agreed to exclude individuals enrolled in hospice after discharge as requested by AHCA and other commenters. Timeline for implementation of IMPACT act measures in SNF QRP CMS finalized the timeline for implementation of the SNF QRP measures from last year s rule and this year s rule. They did not make any modifications to the timeline laid out in the proposed rule. The tables below are the final timeline for implementation of the SNF QRP measures from last year s rule and from this year s rule. 9

10 Table 1. Timeline for SNF QRP measure implementation. SNF QRP Measure Data Collection Period Data Submission Deadline Payment Determination Affected Previewed Public Display Measures Previously Finalized for Use in the SNF QRP (Adopted in the FY 2016 SNF PPS Final Rule) Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678). Application of the NQF-endorsed Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674). Application of Percent of Long- Term Care Hospital Patients with an Admission and Discharge Functional Assessment and a Care Plan That Addresses Function (NQF #2631). Medicare Spending per Beneficiary Discharge to Community Potentially Preventable 30-Day Post-Discharge Readmission Measure 10/1/16 12/31/16 5/15/17 FY days 10/1/16 12/31/16 5/15/17 FY days 10/1/16 12/31/16 5/15/17 FY days New SNF QRP Measures (Adopted in the FY 2017 SNF PPS Final Rule) 1/1/17 12/31/17 5/15/18 FY days 1/1/17 12/31/17 5/15/18 FY days 1/1/17 12/31/17 5/15/18 FY days Drug Regimen 10/1/2018 5/15/19 FY days Fall 2018 Fall 2018 Fall

11 Review Conducted with Follow-up for Identified Issues 12/31/18 Payment Models Research AHCA/NCAL stated in its comments that the Association appreciates being involved in CMS s efforts to modernize the existing SNF PPS and agrees a number of challenges exist. These challenges should be addressed using a comprehensive SNF PPS reform approach rather than rounds of incremental changes, which may or may not produce the desired results. In the past, incremental changes such as adding RUGs, changes to the MDS, and changes to therapy assessment schedules have not met CMS s goals and added administrative burden for providers. The Association s detailed comments offered a framework for PPS reform. CMS discussed a number of comments regarding data sources for PPS reform and PPS component restructuring. The Agency expressed interest in exploring new components and additional insights on possible data sources. Conclusion AHCA/NCAL meets with CMS Center for Medicare staff over the course of a year on the SNF PPS. During meetings, Association staff shares research on approaches to modernizing the existing SNF PPS and will continue to work with the Center for Medicare and the Center for Clinical Standards and Quality on the still unfolding PAMA and IMPACT Act provisions. Please contact Mike Cheek or David Gifford with any questions, suggestions or concerns. ### 11