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CMS Proposes Options for 2012 Medicare Payment Rates for Skilled Nursing Facilities

May 2011

The Centers for Medicare & Medicaid Services has issued a proposed rule that sets forth the options that the agency is considering for purposes of setting the 2012 Medicare payment rates for skilled nursing facilities (SNFs). Among options being considered are:

  • One that reflects the standard rate update methodology and would provide an increase of $530 million, or 1.5 percentage points that would be derived from applying the 2012 market basket index of 2.7 percent reduced by 1.2 percentage points to account for greater efficiencies in the operation of nursing homes.  This provision is required as part of the implementation of the Affordable Care Act.
  • Another option CMS is considering adjusts for an unexpected spike in nursing home payments during FY 2011. CMS would restore overall payments to their intended levels on a prospective basis, an action that would require reducing FY 2012 payments to Medicare SNFs by $3.94 billion, or 11.3 percent lower than payments for FY 2011.

For FY 2011, CMS implemented RUG-IV, with refinements to better account for the resources used in the care of medically complex patients and therapy patients.  In implementing RUG-IV, CMS adjusted the RUG-IV CMIs based on forecasted utilization under the refined case-mix system to ensure that the transition to RUG-IV did not trigger a change in overall payment levels.  SNFs have been paid based on these refinements since Oct. 1, 2010.

Although the CMI adjustment that accompanied the transition to the RUG-IV model was intended to ensure there would be no change in overall spending levels, it instead appears to have resulted in a significant increase in Medicare expenditures. CMS has come to this conclusion because actual utilization under the refined case-mix system has differed significantly from the projections on which the adjustment was based. For example, using initial data that reflect actual RUG-IV claims experience, CMS has now found that patients are being classified into one of the highest paying RUG-IV therapy groups more than 40 percent of the time (as compared to less than 10 percent as originally projected by CMS), thus triggering Medicare payments far in excess of the original projections.

Pending confirmation of this preliminary assessment, CMS will be reviewing data from actual claims under the RUG-IV system as it becomes available. CMS will then evaluate the necessity of recalibrating the case-mix weights in the FY 2012 final rule.

The proposed rule was published on April 28 at the Federal Register’s Public Inspection Desk. Public comments on the proposal will be accepted until June 27. The rules are available under “Special Filings,” at:  or  

For more information please see the CMS press release issued (4/28) at:

Please contact a member of the ParenteBeard Senior Living Services Practice Group for more information about this communication or to discuss the services our experts can offer.

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