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CASE MIX PROSPECTIVE PAYMENT FOR SNFs BALANCED BUDGET ACT OF 1997

The Balanced Budget Act of 1997 mandates the implementation of a per diem prospective payment system (PPS) for skilled nursing facilities (SNFs) covering all costs (routine, ancillary and capital) related to the services furnished to beneficiaries under Part A of the Medicare program. Major elements of the system include:

• Rates: Federal rates are set using allowable costs from FY 1995 cost reports. The rates also include and estimate of the cost of services for which, prior to July 1, 1998, payment had been made under part B but furnished to SNF residents during a Part A covered stay. FY 1995 costs are updated to FY 1998 by a SNF market basket minus 1 percentage point for each of fiscal years 1996, 1997 and 1998. Providers which received new provider exemptions in FY 1995 are excluded from the data base. Exceptions payments are also excluded. The data is aggregated nationally by urban and rural area to determine standardized federal per diem rates to which case mix and wage adjustments apply.

• Case Mix Adjustment: Per diem payments for each admission are case-mix adjusted using a resident classification system (Resource Utilization Groups III) based on data from resident assessments (MDS 2.0) and relative weights developed from staff time data.

• Geographic Adjustment: The labor portion of the federal rates is adjusted for geographic variation in wages using the hospital wage index.

• Annual Updates: Payment rates will be increased each Federal fiscal year using a SNF market basket index (minus one percentage point in FY 2000 through FY 2002).

• Transition: A three year transition that blends a facility-specific payment rate with the federal case mix adjusted rate will be used. The facility-specific rate includes allowable costs (from FY 1995 cost reports) including exceptions payments. Payments associated with 'new provider' exemptions will be included but limited to 150 percent of the routine cost limit. It will also include an add-on for related Part B costs similar to the federal rate.

• Effective Date: The PPS system will be effective for cost reporting periods beginning on or after July 1, 1998.