Evolution of Medicare SNF Payment: From FY 2016 Policy Changes to PDPM and Current Updates

Disclaimer: This article references historical policy proposals from April 2015 regarding Fiscal Year (FY) 2016 Medicare payment changes for Skilled Nursing Facilities (SNFs). While it traces the evolution of these policies, readers should refer to official CMS resources for the most current information on SNF payment, quality reporting, and value-based purchasing programs. For the latest details, visit the official CMS Skilled Nursing Facility PPS website.

Key Takeaways:

• FY 2016 Foundations: The 2015 proposed rule outlined foundational shifts towards value-based care in SNFs, including projected payment rate increases and the initial framework for quality reporting and value-based purchasing.
• SNF Quality Reporting Program (QRP): Mandated by the IMPACT Act of 2014, the QRP began with measures focused on skin integrity, falls, and functional status, evolving significantly over the years to promote standardized data and improved patient outcomes.
• SNF Value-Based Purchasing (VBP) Program: Authorized by PAMA 2014, the VBP program started in FY 2019, initially using the Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM) to incentivize higher quality care through payment adjustments.
• The Shift to PDPM: A pivotal change occurred with the implementation of the Patient-Driven Payment Model (PDPM) on October 1, 2019, replacing the Resource Utilization Group (RUG-IV) system and fundamentally changing how SNFs are reimbursed by focusing on patient characteristics rather than therapy volume.
• Current Landscape: Today’s SNF payment environment is shaped by PDPM, alongside continually updated QRP measures and VBP incentives, all aimed at fostering better care delivery and smarter healthcare spending.

Introduction: Tracing Medicare’s Shift to Value in SNFs

On April 15, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule [CMS-1622-P] outlining anticipated Fiscal Year (FY) 2016 Medicare payment rates and policy changes for skilled nursing facilities (SNFs). This rule marked a significant step in Medicare’s broader strategy to transition from volume-based payments to a value-based system, aiming to improve patient care quality and cost-efficiency across the healthcare system. The proposals laid the groundwork for many of the payment and quality initiatives that define today’s SNF landscape.

Medicare SNF Prospective Payment System (PPS) for FY 2016

For FY 2016, CMS finalized an aggregate payment increase to SNFs by an estimated $500 million, or 1.4 percent, compared to FY 2015. This increase was primarily driven by a 2.6 percent market basket increase, tempered by a 0.6 percentage point forecast error adjustment and a further 0.6 percentage point reduction due to the multifactor productivity adjustment mandated by law. These adjustments reflected CMS’s commitment to balancing payment adequacy with broader economic factors and legislative requirements.

The Dawn of Quality Reporting: SNF Quality Reporting Program (QRP) Evolution

The Improving Medicare Post-Acute Care Transformation Act of 2014 (P.L. 113-185), known as the IMPACT Act, was a landmark piece of legislation enacted on October 6, 2014. It mandated the establishment of a quality reporting program for SNFs, designed to standardize data reporting across various post-acute care settings.

Beginning with FY 2018, the IMPACT Act stipulated that SNFs failing to submit required quality data to CMS would face a two percentage point reduction in their annual payment updates.

For the FY 2018 SNF QRP, CMS finalized the adoption of three initial measures, aligning with critical quality domains identified in the IMPACT Act. These foundational measures were:

• Skin Integrity and Changes in Skin Integrity: Measured by the Outcome Measure: Percent of Residents or Patients with Pressure Ulcers that are New or Worsened (Short-Stay) (NQF #0678).
• Incidence of Major Falls: Measured by the Outcome Measure: Application of Percent of Residents Experiencing One of More Falls with Major Injury (Long Stay) (NQF #0674).
• Functional Status, Cognitive Function, and Changes in Function and Cognitive Function: Measured by the Process Measure: Application of Percent of Patients or Residents With an Admission and Discharge Functional Assessment and a Care Plan that Addresses Function (NQF#2631).

These initial measures satisfied the IMPACT Act’s requirement for standardized data reporting across post-acute care settings. CMS has continued to propose and adopt additional quality and resource use measures in subsequent rulemaking, expanding the scope and impact of the SNF QRP. For current SNF QRP measures and details, refer to the CMS SNF QRP page.

Summary Table of Domains and Adopted Measures for the SNF Quality Reporting Program (FY 2018 initial implementation):

Introducing Value-Based Purchasing: SNF VBP Program (FY 2019 Onward)

Section 215 of the Protecting Access to Medicare Act of 2014 (PAMA) added new subsections (g) and (h) to section 1888 of the Social Security Act, authorizing the establishment of a Skilled Nursing Facility Value-Based Purchasing (SNF VBP) Program. This program began with FY 2019, linking value-based incentive payments to SNFs’ performance.

For its inception, CMS adopted the Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM) (NQF #2510) as the core all-cause, all-condition readmission measure for the SNF VBP Program. This measure estimates the risk-standardized rate of all-cause, unplanned hospital readmissions for SNF Medicare beneficiaries within 30 days of their prior short-stay acute hospital discharge.

The Act also mandated that CMS would eventually replace this measure with an all-condition, risk-adjusted potentially preventable hospital readmission rate. CMS subsequently addressed this topic and further details of the SNF VBP program, including performance standards, measuring improvement, appropriate baseline and performance periods, performance scoring methodology, public reporting, and feedback reports, in subsequent FY 2017 SNF PPS proposed and final rules and beyond. For the latest on the SNF VBP program, please visit the official CMS SNF VBP page.

A New Era: The Patient-Driven Payment Model (PDPM)

A transformative shift in SNF reimbursement occurred on October 1, 2019, with the implementation of the Patient-Driven Payment Model (PDPM). This new model replaced the Resource Utilization Group (RUG-IV) system and marked a fundamental change in how Medicare pays for SNF services. PDPM shifted the focus from the volume of services provided (like therapy minutes) to resident characteristics and clinical needs.

Under PDPM, payment is based on five case-mix adjusted components: Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), Non-Therapy Ancillary (NTA), and Nursing. This model better accounts for individual patient needs and encourages facilities to focus on patient-centered care plans rather than meeting therapy minute thresholds. PDPM represents a significant advancement in aligning SNF payments with actual patient acuity and resource utilization.

The Current Landscape of SNF Payment and Quality

Today, the Medicare SNF payment landscape is defined by the Patient-Driven Payment Model, alongside the evolving SNF Quality Reporting Program and the SNF Value-Based Purchasing Program. These interconnected initiatives continually refine how SNFs are reimbursed, pushing the industry towards greater accountability, improved care quality, and smarter utilization of healthcare resources. SNFs must stay abreast of the latest updates to PDPM, QRP measures, and VBP performance standards to ensure compliance and optimize patient outcomes.