Medicare's Skilled Nursing Facility Payments

Publication Date: March 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

Type:

Abstract:

Medicare covers skilled nursing facility (SNF) care following a beneficiary's discharge from a hospitalization of at least three days. If the beneficiary needs skilled care, Medicare will pay for up to 100 days of SNF care per "spell of illness."

Medicare pays for a relatively small proportion of nursing home care in the United States. In 2005, Medicare payments accounted for 16% of total national spending on this care. Medicaid, by comparison, accounted for 43%, and out-ofpocket expenditures accounted for about 26%.

Between 1999 and 2004, Medicare spending on SNF care almost tripled, increasing from almost $5.9 billion to $17.2 billion. Spending on SNF care also grew as a share of total Medicare spending, from 4.7% to 6.7% during this period.

Medicare pays SNFs using a prospective payment system (PPS). Under SNF PPS, Medicare makes a daily payment that varies depending upon the therapy, nursing, and special care needs of the beneficiary as described by one of 53 different payment groups, known as resource utilization groups (RUGs). Payments are updated annually by the SNF "market basket" increase (the measure of inflation of goods and services used by SNFs). For FY2007, the SNF payment update is the full market basket of 3.1 percentage points. Add-on payments are also made for care provided to persons who are HIV-positive or have Acquired Immune Deficiency Syndrome (AIDS).

A refined payment system was implemented through regulation on January 1, 2006. The refinements updated and recalibrated the RUGs and added nine new Rehabilitation plus Extensive Services groups into the RUG classification system. It is still too soon to know whether the refined case mix system is adequate or will warrant additional refinements.

The Medicare Payment Advisory Commission (MedPAC) recommends the elimination of a market basket increase for SNFs for FY2008. The President's budget proposal would also freeze SNF payments for FY2008, and would increase payments annually starting in FY2009 and beyond by the SNF market basket minus 0.65 percentage points. HHS projects the President's proposal would save Medicare $1.01 billion in FY2008 and $9.21 billion over the five-year budget period between FY2008 and FY2012. The Congressional Budget Office's (CBO) estimate of the President's budget proposal projects savings of $400 million in FY2008 and $4.2 billion between FY2007 through FY2012.