Medicare Advisors Ask if RUGs Are "Salvageable" - Medicare Payment Advisory Commission to advixe Congress on Resource Utilization Group system - Brief Article - Statistical Data Included

Nursing Homes, Jan, 2001 by Ronald M. Schwartz

The new Congress could be getting advice this March from the Medicare Payment Advisory Commission (MedPAC) on revamping Medicare's Resource Utilization Group (RUG) system for paying skilled nursing facilities (SNFs) under the Prospective Payment System (PPS). Commissioners suggest that the case-mix system doesn't relate to care in the real world, especially care of complex residents requiring multiple services.

"I don't think it [the system] is salvageable," Sally Kaplan, PhD, MedPAC's research director, told the September 15 session. "I think a lot of the problem is that it's not measuring the factors that one needs to basically assess SNF patients. I think it works for long-term care patients, for whom it was designed.... Reliability is definitely problematic, and...that potentially is related to the number of items in the MDS, which is over 350."

Before PPS was implemented in 1998, MedPAC had expressed concern about the weights assigned to residents' resource needs. "Early evidence showed," said Dr. Kaplan, "that the weights failed to fully account for patient resource needs. This is because they are based on staff time and do not account for other costs, particularly ancillaries such as drugs and respiratory therapy. The weights also fail to account for patients who require multiple services, such as extensive medical services and rehabilitation." As an interim solution, Congress last year increased the base for fiscal year 2001 and 2002 and also increased payments for select groups by 20%.

Dr. Kaplan also noted that last spring the Health Care Financing Administration (HCFA) proposed two models to refine the RUGs, only to find, on further study, that these models did not work. "As far as the case-mix system is concerned," Dr. Kaplan said, "we are back to where we were in July 1998."

According to Dr. Kaplan, MedPAC staff believe there are three options for improving the situation, and two of them fall short:

* "Based on the evidence, we believe that refining RUGs is not viable. We believe HCFA's efforts are better focused on developing a new case-mix system...."

"Returning to cost-based reimbursement is not desirable. The PPS was mandated by Congress to control costs that have increased, on average, 30% annually from 1986 to 1998. Most of this increase was due to increased provision of ancillaries for which SNFs were reimbursed at cost...."

"We believe that the third option is the best option: for HCFA to begin research on an alternative classification system that meets minimum policy objectives for prospective payment systems." Such a classification system should meet two criteria: "Capture the clinical processes of care and explain a high proportion of variance in resource use. Weights should capture the range of resources needed."

Although MedPAC Commissioner Autry O.V. DeBusk suggested some urgency in HCFA's developing a new model--"We've got some 1,800 nursing homes plus in Chapter 11 right now, and the capital is dried up for this industry"--other commissioners did not echo this concern. In any event, don't look for Congress to change anything soon. MedPAC simply advises Congress and the administration. Even MedPAC members themselves concede that to develop a new system and test it before implementation might take at least a couple of years.