Creating a MEDPAR analog to the RUG-III classification system - Resource Utilization Groups, Version III - Medicare Payment Systems: Moving Toward the Future

Health Care Financing Review, Winter, 1994 by Elizabeth Cornelius, Janet Feldman, Jill A. Marsteller, Korbin Liu

INTRODUCTION

Policy interest in the clinical characteristics of nursing home residents and their variation across facilities has stimulated research resulting in an extensive body of knowledge about this group. Most of this prior research has focused on Medicaid nursing home residents; some nursing homes have been found to have more severe or complex caseloads, and therefore higher costs, than others. States sought ways to measure this complexity (called case mix) in order to reimburse nursing homes accordingly. In contrast, analysis of Medicare SNF residents has been limited, principally, to specialized studies involving relatively few nursing homes.

As demand for nursing home services increases, so does interest in reforming the payment system for the Medicare SNF benefit Measures of Medicare SNF case mix are essential to relating payment to the care requirements of the residents, so that Medicare Part A payments to SNFs with different caseloads are distributed equitably. Two recent studies have offered advances in this area. The first is the development of RUG-III, a case-mix classification system designed to adequately capture the resource use of nursing home residents and provide an improved method of tracking the quality of their care (Fries et al., 1994). RUG-III was developed to serve as the basis for the Multistate Medicare/Medicaid Payment Indexes ([M.sup.3]PI) used in the Nursing Home Case Mix and Quality (NHCMQ) demonstration project. The design phase of the demonstration included nursing homes in seven States. Unlik prior nursing home payment demonstrations, however, this study included case mix in the payment calculations for Medicare as well as Medicaid residents.

In the second study, HCFA and the Urban Institute applied the RUG-III classification system to data from the Medicare provider analysis and review (MEDPAR) data base. MEDPAR is an analytical file created from Medicare hospital and SNF claims and maintained by HCFA. These claims are the basis of the interim payments made by fiscal intermediaries. This file contains information on SNF stays paid for by Part A nationwide. Although Medicare claims information does not include all data necessary to classify SNF residents exactly as they are in RUG-III, it does contain sufficient information to assign Medicare SNF residents to RUG-III categories at the most general level. The value of the MEDPAR analog is that it provides a means to use nationally available data to examine the case mix of Medicare SNF residents.

The MEDPAR analog has come into increasingly wider use since its development. In connection with the NHCMQ demonstration, it has been used to examine the characteristics of nursing home residents, methods of payment, and the quality of resident care. It is also being used as a proxy case-mix measure by the Urban Institute to analyze trends in Medicare SNF use and costs. The purpose of this article is to document the development of the MEDPAR case-mix proxy and discuss its uses and limitations. The following sections describe the relationship between RUG-III and MEDPAR, present case-mix statistics from the 1992 MEDPAR SNF file, and discuss the implications and limitations of the proxy measure.(1)

BACKGROUND

SNF services are a Part A (hospital insurance) benefit under Medicare. The benefit is available only to patients who require continued skilled nursing care and/or skilled rehabilitation services on a daily basis following a hospital stay of at least 3 days. Medicare covers a maximum of 100 days in an SNF per episode of illness, defined by 60-day periods of health (in terms of an absence of Medicare institutional charges) before and after the period of illness. A daily copayment ($81.50 in 1992)(2) takes effect after 20 days of SNF care. For some facilities, this copayment is greater than the daily cost of SNF care, and many residents switch to alternate coverage after the 20th day, ending their Medicare-covered stay and therefore exiting the MEDPAR file. Thus, many stays that last more than 20 days appear truncated in the MEDPAR file, and stays that last more than 100 days are similarly limited in the MEDPAR file.

SNFs are currently reimbursed on the basis of reasonable cost, subject to limits on the per diem routine service costs of the facility. There are no case-mix adjustments to SNF payments. Routine costs include nursing, room and board, administrative costs, and other overhead. Capital-related and ancillary costs (including therapy and drugs) are excluded from the routine limit. Separate limits also apply to rural and urban SNFs. SNFs providing less than 1,500 days of care per year may opt to receive a prospectively set payment instead of cost-based reimbursement.

Different payment conditions apply to the three types of SNFs: hospital-based, freestanding, and swing-bed hospitals. Each type varies in number and in average length of stay (LOS) across States. Hospital-based SNFs are units under hospital governance. This arrangement allows hospitals to keep inpatient acute-care LOSs short by enabling them to use the SNF benefit for extended care. Freestanding SNFs are independent from hospitals, although they may have cooperative arrangements with local hospitals. They are the most prevalent type of SNF, and tend to be larger, handle more therapy cases, and have longer LOS than the other types of SNFs. A shortage of SNF beds in rural areas and low occupancy in rural hospitals led to the establishment of swing-bed hospitals, which can use the same beds for either SNF care or regular inpatient care. Swing beds tend to be oriented toward short-term recovery. If a patient requires additional care, he or she could be transferred to the hospital or to another nursing home, depending on his or her condition. The Medicare routine limit for freestanding facilities is 112 percent of the national average per diem cost for urban and rural facilities, respectively. The hospital-based limit is the freestanding limit plus one-half the difference between the freestanding rate and 112 percent of the average hospital-based per diem cost (also by urban or rural location). Swing-bed hospitals are paid a prospective per diem rate based on the regional average of freestanding SNFs in the same area. Ancillary and capital costs are paid on a reasonable cost basis for all three types of SNFs.(3)