The Proposed RCS-1 System’s Impact On SNF Reimbursement

How will Medicare & Medicaid Services’ (CMS) change the way Skilled Nursing Facilities (SNF) are reimbursed for Medicare Part A residents?  This is the question on the minds of many SNF providers these days.  Beginning fiscal year 2019, CMS is proposing to change from the current Resource Utilization Group (RUG) system to the Resident Classification System, Version 1 (RCS-1).  RCS-1 will be a significant change to the current reimbursement model, which has been in place for nearly two decades.

Why the change?  CMS’ goals are (1) to better account for each resident’s care needs based on the individual’s characteristics, (2) align payments to the resources used to provide the services, (3) eliminate overutilization of therapy services as a revenue driver.  In simpler terms, payments are likely too low at the beginning of stay and too high at the end; and CMS feels under the current RUG system reimbursement is too heavily influenced by the number of therapy minutes a resident receives.

Under the current RUG system, therapy and nursing services are linked to one another, and assignment of the resident’s specific RUG is determined by both therapy and nursing service needs with the ultimate placement defaulting to the higher category.  In most cases, this results in a rehab RUG taking precedence over a nursing RUG.  Some providers noted this, and developed strategies that maximized reimbursement through their residents’ care plans.

The RCS-1 system will create considerably different financial outcomes, and providers will therefore need to understand how the new payment methodology will impact their specific SNF.  RCS-1 payment will be based on the resident’s clinical characteristics rather than the amount of therapy he or she receives.  It will eliminate the RUG classifications system and separate therapy and nursing as combined determinates of reimbursement.  Under RCS-1, index maximization is replaced by index combining, which balances nursing needs with therapy needs based on classification of residents, and will lead to a more equal distribution of reimbursement between therapy and nursing.  Providers optimizing the current RUG payment system by providing very-high and ultra-high levels of therapy for many of their residents will be impacted more severely that those providing moderate levels of therapy to their Medicare A residents.

If you would like to know more about the RCS-1 system or would like to know the potential impact on your SNF, please contact Hertzbach & Company.