Fiscal Year (FY) 2023 Skilled Nursing Facility Prospective Payment System Final Rule

On July 29, 2022, CMS released the Skilled Nursing Facility (SNF) Final Rule for FY 2023, updating Medicare Part A payment rates and other payment policies, effective October 1, 2022. Below is a summary of the key updates included in the final rule. 

Patient-Driven Payment Model (PDPM) Parity Adjustment

The most noticeable update in the 2023 final rule was the decision by CMS to phase in a “parity adjustment” related to the implementation of PDPM. In the FY 2023 Proposed Rule released in April, CMS proposed a negative 4.6% parity adjustment to FY 2023 payment rates due to the unintended increase in Medicare Part A payments during the transition from the previous Resource Utilization Group, Version 4 (RUG-IV) system to PDPM. When combined with the other market basket figures, this proposed parity adjustment would have equated to a net 0.7% decrease in proposed Medicare payments for FY 2023. Thanks to the more than 6,900 public comments submitted to CMS on behalf of the SNF provider community, CMS made the decision to phase in the parity adjustment equally over a two-year period (2.3% in FY 2023 and 2.3% in FY 2024). The adjustment will be applied equally across all components of the PDPM rate. For FY 2023, the net market basket adjustment (after the parity adjustment phase-in) represents an estimated 2.7% increase in Medicare payments for FY 2023.

This phase-in approach from CMS represents a key win for the SNF provider community that continues to be impacted heavily by the COVID-19 pandemic. In a press release from the American Health Care Association (AHCA), which represents more than 14,000 SNFs across the country, AHCA President Mark Parkinson praised CMS for its decision:

We applaud CMS for today’s action that will increase the market basket and provide a two-year phase-in of the PDPM parity adjustment. These are essential for long-term and post-acute care providers during this unprecedented workforce shortage and economic crisis. Thousands of providers, lawmakers, and stakeholders shared how a swift cut to Medicare would be detrimental to our nursing home residents and staff, and we are grateful that CMS listened and made the necessary changes. We greatly appreciate an overall increase to the Medicare program this coming fiscal year to help stabilize the profession and ensure our vulnerable residents have access to necessary, quality care.

Updates to FY 2023 SNF Payment Rates

CMS estimates that the net impact of the payment adjustments included in the FY 2023 final rule will result in an increase in Medicare Part A payments of approximately $904 million (+2.7%). This increase is based on the following payment adjustment factors:  

FY 2023 Adjustments %
Standard Market Basket Increase 3.9%
Forecasted Error Adjustment 1.5%
Multifactor Productivity Adjustment -0.3%
Year 1 Parity Adjustment Phase-In -2.3%
Net Final Market Basket ~2.7%

The proposed unadjusted per diem amounts for the PDPM components of Nursing, Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), Non-Therapy Ancillary (NTA), and Non-Case Mix are listed below for both urban and rural providers.

FY 2023 Unadjusted Federal Rate Per Diem—URBAN
Total PT OT SLP Nursing NTA Non-Case-Mix
$457.36 $66.06 $61.49 $24.66 $115.15 $86.88 $103.12
FY 2023 Unadjusted Federal Rate Per Diem—RURAL
Total PT OT SLP Nursing NTA Non-Case-Mix
$473.58 $75.30 $69.16 $31.07 $110.02 $83.00 $105.03

Permanent Cap on Wage Index Decreases

A portion of the Medicare payment is subject to an adjustment for the wage index associated with a provider’s location or core-based statistical area (CBSA). Approximately 70.8% of the Medicare payment for FY 2023 is considered wage-related. The wage index tables are adjusted annually for estimated fluctuations in wage-related costs within a respective CBSA. To reduce instability in SNF PPS payments related to annual wage index decreases, CMS is implementing a permanent 5% cap on annual wage index decreases. There will be no cap on wage index increases.

SNF Value-Based Purchasing (VBP) Updates

CMS moved forward with all of the proposed changes to the SNF VBP program for FY 2023, including:

  • A suspension on the calculation of the VBP payment adjustment so all providers will have the same incentive payment multiplier. This adjustment includes a reduction of the applicable per diem rate for each SNF by 2% and then awards each SNF 60% of that withhold, resulting in a 1.2% payback to those SNFs. The net effect of this calculation is a -0.8% decrease for all SNF providers except SNFs with less than 25 admissions from the program in FY 2023
  • Adding COVID-19 diagnosis to the rehospitalization risk adjustment model
  • Adding three new VBP measures for future years:
    • Potentially preventable hospitalization measure in FY 2026
    • Total nurse staffing hours per resident day in FY 2026
    • Discharge to community measure in FY 2027
  • Requiring a facility to have data for two measures to participate in the program starting in FY 2026

SNF Quality Reporting Program (QRP) Updates

CMS is moving forward with several proposed changes to the SNF QRP:

  • CMS will adopt a new QRP process measure related to Influenza Vaccination Coverage Among Healthcare Personnel. CMS previously proposed to adopt this measure in FY 2025; however, the final rule changed the implementation period to FY 2024, citing the importance of patient safety. This measure will report the percentage of healthcare personnel who receive an influenza vaccine at any time from the date when the vaccine first becomes available through March 31 of the following year. Providers will submit measurement data for the period from October 1, 2022 through March 31, 2023 with a reporting deadline of May 15, 2023.
  • CMS also finalized the proposal to revise the compliance date for certain SNF QRP reporting requirements, including the transfers of health (TOH) information measures and standardized patient assessment data elements (race, ethnicity, preferred language, heath literacy, etc.) to October 1, 2023. Due to the public health emergency (PHE), these and the revised minimum data set (MDS), which would be used to collect the data, had been delayed from October 1, 2020.
  • In addition, CMS is soliciting requests for information and feedback related to potential future SNF QRP initiatives. Feedback on these initiatives will be considered for future rulemaking. These initiatives include:
    • Functional outcome measure for self-care and mobility items
    • Measures of health equity, such as measures that assess an organization’s leadership in advancing equity goals and assessing progress toward achieving health equity
    • COVID–19 vaccination coverage measure that would assess whether SNF patients were up to date on their COVID–19 vaccine
    • Overarching principles for measuring health equity and quality disparities across CMS quality programs

Proposed Changes in ICD-10 Mapping

The PDPM payment methodology utilized International Classification of Diseases, Version 10 (ICD-10) codes to assign patients to clinical categories within the various components of PDPM, which are Nursing, Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), and Non-Therapy Ancillary (NTA). To improve consistency between the ICD-10 code mappings within the MDS and current ICD-10 coding guidelines, CMS is finalizing several changes to the PDPM ICD-10 code mappings. The FY 2023 ICD-10 code mappings for PDPM are available on the Medicare SNF PDPM website.

The full FY 2023 SNF Final Rule document can be found on the Federal Register site. If you have questions or need more information, please reach out to a professional at FORVIS or submit the Contact Us form below.

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