Bloomberg Law
Sept. 12, 2019, 9:25 AMUpdated: Sept. 12, 2019, 6:40 PM

Millions at Stake for Nursing Homes Under Value-Based Pay Switch (1)

Tony Pugh
Tony Pugh

Nursing homes in October will see their reimbursements under traditional Medicare based more on patients’ medical characteristics in a move that puts millions of dollars in payments at stake.

The new payment system is meant to stop nursing homes from inflating their bills by providing excessive therapy treatments. The shift to a value-based payment system is a significant test for fee-for-service Medicare as it moves to payment models that reward cost efficiency and improved patient outcomes rather than just the amount of care provided.

But the new system’s financial impact on providers is uncertain, and many in the industry are anxious about how they’ll fare under the Patient Driven Payment Model, or PDPM.

Genesis HealthCare, which operates more than 400 nursing homes, assisted living and senior living communities in 26 states, estimates the new system will trim its annual operating costs by 10% to 12%—saving $30 million—as it provides more cost-efficient types of patient therapy.

In an August conference call, Genesis Chief Financial Officer Tom DiVittorio said he expects some “learning curve and implementation bumps” when the new system debuts. But he doesn’t foresee any short term financial hit from the transition.

“We are very fortunate to have tremendous depth, among our in-house clinical, operations, finance, regulatory, and systems professionals. They have positioned us to be as ready as any provider in the country,” DiVittorio said on the conference call.

Risks for Smaller Homes

But “there’s risk” for smaller nursing home operators, said Tim Ashe, chief clinical officer at WellSky, a health-care software provider that develops billing systems for nursing homes.

Smaller facilities may not have the resources to invest in new diagnostic coding capabilities and technology and workflow solutions that assist with accurate billing, coding, and documentation, Ashe said. For these smaller operations, employee training and education are essential as they prepare for the change, Ashe said.

By de-emphasizing the amount of therapy minutes provided and more directly aligning payment to a patient’s medical needs, the PDPM system is expected to cut Medicare spending for post-acute nursing home care by removing financial incentives to provide unnecessary therapy. Patients are typically released from hospitals into post-acute care for recovery when they need continued care and monitoring.

‘Enormous Change’

The Centers for Medicare & Medicaid Services say the PDPM model will improve the accuracy and appropriateness of nursing home payments while also reducing administrative burdens for the facilities.

“It’s an enormous change,” said Mark Reagan, managing partner at San Francisco-based law firm Hooper, Lundy & Bookman PC, which represents various nursing homes nationwide. “It will be a challenge for everybody because the system is going to demand more precision in the way that patients are assessed and the way that claims are coded for reimbursement purposes.”

Nursing homes that have historically provided more complex nursing care—like for stroke and heart attack patients—will likely “receive greater reimbursement under the new payment system, Reagan said. That bodes well for nonprofit, hospital-based facilities that typically treat more complex patients, he said.

The new payment system is expected to provide higher payments for patients enrolled in both Medicare and Medicaid, those who use intravenous medications or have diabetes, end-stage renal disease, or a wound infection, according to study by Acumen LLC, a health-care research firm. Higher payments are also likely for patients who receive amputation or prosthesis care and those who had longer prior hospital stays, Acumen estimates.

More Changes Coming

In 2020, Medicare moves to a similar payment system for home health agencies, which also provide post-acute care for patients who leave the hospital after a severe injury or short-term illness.

The Patient-Driven Groupings Model, or PDGM, will set 2020 Medicare rates for home health agencies based on patients’ clinical characteristics—such as the type and severity of ailment—rather than the volume of care provided.

Both new payment models signal Medicare’s full embrace of value-based care, a concept that’s replacing fee-for-service Medicare by creating greater incentives for providers to control costs while improving patient outcomes.

And both models are “steps down the road to the eventual idea of creating a unified post-acute payment system” under Medicare that encompasses all four post-acute care settings, said Aaron Tripp, vice president of reimbursement and financing policy at LeadingAge, a trade association representing nonprofit aging service providers.

The Congressional Budget Office estimates that reforming Medicare’s post-acute care payments could save the program $75 billion through 2029.

At its Sept. 6 meeting, the Medicare Payment Advisory Commission explored what such a system might look like. MedPAC’s uniform, value-based payment proposal would apply to the four settings that provide post-acute care: nursing homes, in-home care, inpatient rehabilitation facilities, and long-term acute care hospitals.

The proposal would determine payment to post-acute care providers in traditional Medicare on a small number of risk-adjusted, claims-based measures like hospitalization rates, successful discharges, and Medicare spending per beneficiary. Additional measures, such as patient experience, could be added in the future.

(Updated to include CBO estimate in paragraph 18.)

To contact the reporter on this story: Tony Pugh in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Andrew Childers at