COVID-19 Crisis Underscores Advantages of the Patient-Driven Payment Model

by Bent Philipson| Wed Sep 30 2020

The efficacy of the Patient-Driven Payment Model (PDPM) has never been clearer than now, in the middle of the coronavirus pandemic.

The PDPM, implemented on Oct. 1, 2019, enabled skilled nursing facilities to see a nine percent increase in Medicare reimbursement in the early days of the outbreak, according to analysis conducted in April by Zimmet Healthcare Services Group and Claim Outcomes and Reimbursement Essentials (CORE), a data firm.

Reform was certainly much-needed, given the state of U.S. healthcare. It has long been clear that the average American doesn’t receive the best care possible, despite the nation leading the world in spending in that sector. That has been particularly true of seniors. While the government spent $782 billion on Medicare last year, consistent, high-quality care for those 65 and over was elusive.

The Centers for Medicare and Medicaid Services (CMS), understanding the issue, created the PDPM in hopes of simplifying an overly complex payment method, trimming costs and improving senior care across the country's skilled nursing facilities. 

Pulling the RUG out from under the system

The PDPM is the first radically different reimbursement system in over 20 years, and shifted how the CMS pays skilled nursing facilities for their Medicare patients. Under RUG-IV -- i.e., Resource Utilization Groups Version Four -- Medicare rates were based on the number of therapy minutes provided to any given patient. By contrast, payments are now doled out according to a daily reimbursement rate determined by patient classification.

The new classification is driven by the ICD-10 code (i.e., the International Classification of Diseases, Tenth Revision, Clinical Modification), as well as clinical assessments of each patient’s care needs and co-morbidities. In other words, this payment method is driven by the needs of the patient, not the services rendered. Moreover it takes into account skyrocketing pharmaceutical costs and enables providers to meet the needs of more medically complex patients. It will also make possible improved data collection -- and that in turn will increase the likelihood of patients making informed decisions about the skilled nursing facility that will best meet their needs.

Under RUG-IV, there were just two classifications -- therapy and nursing. That number would have doubled under its first proposed replacement, Resident Classification System 1 (RCS-1), which was similar to the PDPM and would have included physical and occupational therapy (PT/OT), speech-language pathology (SLP), non-therapy ancillary (NTA) and nursing. But before RCS-1 was ever implemented, the CMS announced the adoption of the PDPM in April 2018, which added a fifth classification by dividing physical and occupational therapy.

The implications during the pandemic are obvious. Seldom have so many patients had greater needs than at present. Seldom have those with certain pre-existing conditions been at greater risk.

Improved efficiency

The expectation is that implementation of the PDPM will reduce the paperwork required of providers, since tracking the volume of services, as was required under RUG-IV, was far more complicated. As a result, there are now more opportunities for staff-patient interaction, which has taken on added importance during the pandemic, when the influx of patients has been far greater than usual.

Another necessity (especially now) is greater interoperability between providers. Hospitals require a clearer view of a skilled nursing facility’s ability to care for complex patients -- and those suffering from coronavirus certainly fall into that category -- which goes hand-in-hand with improved record-keeping, and specifically with electronic health records (EHRs), which are already in vogue. 

The result of such changes has come to be viewed as a net-positive for the industry. As Genesis CEO George Hager said when the PDPM was unveiled, it allowed those in the industry to better manage “significant cost elements” like that of providing rehabilitation therapy. And indeed the CMS estimated at the time that the measure would result in a system-wide savings of $2 billion over the following decade.

At the same time, there is the matter of increased revenue. Jennifer Leatherbarrow, a senior clinical consultant at Ohio-based Richter Healthcare Consultants, noted that while skilled nursing facilities will make less off patients who require extensive therapy under the PDPM, such facilities will “get paid substantially more” for working with complex patients. 

Hager was also of the opinion that the new measure would reduce existing administrative burdens and regulatory risks. In short, it appeared everybody would win -- patients because care is upgraded, hospitals because greater transparency will lead to greater assurance of releasing patients to a skilled nursing facility where they will receive top-notch care, and the facilities themselves because improved performance will lead to more referrals.

Nearly two years out, there are fears of unintended consequences. One study noted, for instance, the possibility of overreporting and overusing services early in a patient’s stay, leading to outsized reimbursements. There are also concerns about increased litigation, given the fact that skilled nursing facilities are now dealing with more complex patients. But in general, the reviews remain positive. The PDPM has done what it was supposed to do -- address what the above study called “perverse incentives” in the Medicare payment system. 

The PDPM, while not perfect, represents a major step forward for U.S. healthcare, skilled nursing facilities in particular, and the patients they serve. And it really couldn’t have come along at a better time.