On July 29, 2022, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates Medicare payment policies and rates for skilled nursing facilities (SNFs) and enacts changes to the SNF Quality Reporting Program and the SNF Value-Based Purchasing Program beginning in FY 2023.

SNF Payment Rates and PDPM Adjustments

Nursing homes will receive a net increase of 2.7%, or $904 million, in Medicare Part A payments in FY 2023 as compared to FY 2022. Interestingly, this increase stands in direct contrast to the recommendation of the Medicare Payment Advisory Commission to reduce the Medicare base payment rates for SNFs by 5%. Moreover, CMS itself had initially proposed a decrease of $320 million in aggregate Medicare Part A payments to SNFs during FY 2023, although the decrease was partially as a means to offset the unintended increase in payments of approximately $1.7 billion per year that resulted from the implementation of the Patient Driven Payment Model (PDPM).

The PDPM was introduced in late 2019 as a new model by which to classify SNF patients under the SNF Prospective Payment System. The purpose of the PDPM was to eliminate certain incentives associated with classifying patients under the prior case-mix classification model, Resource Utilization Group, Version 4 (RUG-IV), in order to increase reimbursements, as well as to improve the overall accuracy and appropriateness of SNF payments. PDPM classifies patients into payment groups based on specific, data-driven patient characteristics. The implementation of the PDPM was intended to be “budget neutral,” however, as mentioned, ultimately resulted in an unintended increase in payments. In order to offset these unintended payments, CMS plans to recalibrate the PDPM parity adjustment gradually over the next two years.

Permanent Cap on Wage Index Decrease

In efforts to mitigate year-to-year instability in providers’ wage indexes, CMS finalized a permanent 5% cap on annual wage index decreases in future years, the result of which will be that geographic area’s wage index would not be less than 95% of its wage index calculated in the prior FY regardless of the circumstances causing the decline. Notably, in the past, CMS has implemented only temporary policies to offset significant changes to payments due to changes to the wage index. The application of a permanent cap is an important step as year over year changes to the wage index often create instability and negatively impact providers. Moreover, such changes are often unpredictable, and as CMS explained in the proposed rule, the importance to payers of maintaining predictability in Medicare payments is obvious. CMS’ implementation of a permanent 5% cap on annual wage index decreases is intended to not only increase the predictability of SNF PPS payments for providers, but also mitigate negative side effects to providers resulting from reductions to the wage index.

Skilled Nursing Facility Quality Reporting Program 

The final rule also provides for a new process measure for the SNF Quality Reporting Program (QRP)—the Influenza Vaccination Coverage among Healthcare Personnel measure. As the name suggests, the new measure assesses the rate of influenza vaccination coverage among health care personnel in SNFs beginning with the FY 2024 SNF QRP. Notably, influenza vaccination coverage among health care personnel is typically lower in long-term care settings, such as SNFs, when compared to other care settings. As CMS explained, residents of long-term care facilities often have greater susceptibility to influenza due to general frailty and comorbidities, close contact with other residents, interactions with visitors, and exposure to staff who rotate between multiple facilities. Therefore, through this new measure, CMS emphasizes the importance of monitoring and reporting influenza vaccination rates among health care personnel in SNFs.

Suppression of Readmission Measure for Skilled Nursing Facility Value-Based Purchasing Program

The SNF value-based purchasing (VBP) program rewards nursing facilities with incentive payments based on the quality of care they provide to Medicare beneficiaries, as measured by performance on a single measure of hospital readmissions—the Skilled Nursing Facility 30-Day All-Cause Readmission Measure (SNFRM).

In a prior rule, CMS adopted a policy for the duration of the COVID-19 public health emergency that enables it to suppress the use of the SNFRM for purposes of scoring and payment adjustments in the SNF VBP Program if CMS determines that circumstances caused by COVID-19 have affected the measure and the resulting performance scores significantly. And, CMS applied this policy for FY 2023. Citing concerns of the effect of the COVID-19 pandemic on CMS’ ability to accurately assess performance on the SNFRM, the current final rule provides that facility readmission measures will not be included as part of the performance scoring for FY 2023. CMS explained that the pandemic has had “direct, significant, and continuing effects” on its ability to measure the performance of skilled nursing facilities on the SNFRM, and thus on its ability to use the SNFRM to calculate payments for the FY 2023 program year. Specifically, the validity of such data is compromised by the combination of significant variation in COVID-19 case rates across the U.S, changes in hospitalization patterns in FY 2021, and fewer admissions to SNFs. CMS advised that performance on this measure will still be reported publicly, it just will not affect payment, in FY 2023.

In addition to suppressing the SNFRM for the FY 2023 SNF VBP Program for the purpose of scoring and payment adjustments, CMS will implement special scoring procedures for FY 2023 and adopted additional performance measures.

Staffing Levels

Earlier this year, CMS sought public feedback on its proposal to require minimum staffing levels in nursing homes and to potentially tie certain payments to the level of staff turnover, which CMS notes has been linked to patient quality of care. While the final rule does not address this issue, CMS advised that it will propose rulemaking on this issue next year, after further studying “the level and type of staffing needed to ensure safe and quality care.”


If you have any questions about the impact of the above, please reach out to the below.

On July 13, 2022, the U.S. Department of Health and Human Services (“HHS”) Office for Civil Rights (“OCR”) issued guidance to the nation’s retail pharmacies about their nondiscrimination obligations to ensure access to reproductive health care services, including medications used to terminate pregnancies. As we previously discussed, the Biden Administration and OCR have been taking action as some states seek to restrict or criminalize abortion services in response to the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization.  

Continue Reading OCR Issues Anti-Discrimination Guidance for Pharmacies Related to Reproductive Health Care Services

The Biden Administration is taking action to support access to reproductive health care in response to the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization. This is occurring as some states seek to restrict or criminalize abortion services. So far, there has been action by the White House, through an Executive Order, and by the U.S. Department of Health and Human Services (HHS), through guidance on HIPAA and privacy. 

Continue Reading Biden Acts to Protect Reproductive Health Care Services: Executive Order and Privacy Guidance

Last week, the Centers for Medicare & Medicaid Services (CMS) released data—for the first time—reporting on mergers, acquisitions, consolidations, and changes of ownership of Medicare enrolled hospitals and nursing homes over the past six years. This data, expected to be updated on a quarterly basis moving forward, has been lauded as an important step in improving transparency around nursing facility ownership and enhancing nursing home safety and quality of care. In conjunction with the release of CMS’ data, HHS’s Office of the Assistant Secretary for Planning and Evaluation (ASPE) released a related report analyzing the data and examining trends in changes of ownership over the past six years. In its report, ASPE also offers preliminary insights into how the data on ownership changes can support implementing policies bolstering competition in health care as well as ensuring program integrity in Medicare and Medicaid.

Continue Reading Changing Hands, Not Washing Them: CMS’ First Report on Nursing Home M&A Data

The final rule implementing “Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs” is now available for review, and set for publication in the May 9, 2022 Federal Register.   The final rule adopts the proposed change that requires initial and service area expansion applicants to submit their proposed contracted networks during the application process.  The final rule delays this change from contract year 2023 to contract year 2024.

In making this change, CMS is basically reverting to its process prior to 2019, when it began allowing plans to attest to network adequacy for new contract or service area expansion applications, and relied on its triennial network review process to evaluate compliance with network adequacy standards for new and expanded contracts.

CMS expressed concern based on three years of experience that the attestation-only process could affect the integrity of the bidding process.  It specifically noted that a number of plans have requested to reduce the service area identified in their bid proposal once they realized that they did not have a sufficient network for one or more counties included in the service area.  The number identified as seeking such changes is small: since 2019, five organizations requested to make changes to the service area of a total of 10 plans after bid submission deadlines.  However, in CMS’ view, when a plan has to revise its bid to remove a county, it is likely that the initial bid submission was not complete, timely, or accurate.

CMS also noted that its post-application network adequacy reviews showed a pattern of organizations continuing to have inadequate networks even after their contract became operational.  CMS found a total of 19 plans that fell into this category.

The original issue that prompted the change in 2019 has not gone away, which is the potential challenge of applicants securing a full provider network almost a year in advance of the contract becoming operational.  The application is typically submitted in February – around 10 months prior to the contract year that begins on January 1.  CMS received many comments about the difficulty of obtaining final contracts in time for the application process, especially in underserved areas or those with relatively few providers.

CMS acknowledged the validity of plan comments, and did not fully explain why it decided to change the application process for all plans, rather than using its authority to take measures against the small number of plans that have demonstrated a problem with network adequacy compliance – such as disapproving a request for a new contract or service area expansion for a plan that seeks to change its service area after bid submission, or suspending enrollment until an operational plan comes into compliance with network adequacy standards.   Instead, CMS will provide two types of fairly limited flexibility for organizations to mitigate the impact of the change:

  1. CMS will allow a 10-percentage point credit towards the percentage of beneficiaries residing within published time and distance standards for the contracted network in the pending service area, at the time of application and for the duration of the application review.
  2. CMS will allow plans to use letters of intent (LOIs) in lieu of signed provider contracts, at the time of application and for the duration of the application review. The LOI must be signed by both the MA organization and the provider.  Applicants must notify CMS of their use of LOIs to meet network standards.

At the beginning of the contract year (that is, January 1), this flexibility would no longer apply, and plans would need to meet network adequacy standards for the entire service area with final, signed provider and facility contracts.

On April 6, 2022, BayCare Health System Inc. (BayCare) entered into a $20 million settlement under the False Claims Act with the U.S. Department of Justice (DOJ) to resolve allegations that it had made donations in order to improperly inflate the funding four of its hospitals received from the federal Medicaid program. According to the agreement, BayCare did not formally admit wrongdoing or liability; rather, BayCare settled in order to “avoid the delay, uncertainty, and expense of litigation.” Continue Reading Not-So-Charitable Donations: DOJ Achieves a $20 Million Settlement for a Backdoor Donation Scheme for Increased Medicaid Contributions

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On April 4, 2022, in Pharmaceutical Care Management Association (PCMA) v. Mulready, Case No. CIV-19-977-J (W.D. Okla. 2022), the U.S. District Court for the Western District of Oklahoma ruled on PCMA’s claim that Oklahoma’s Patient’s Right to Pharmacy Choice Act (Act), Okla. Stat. tit. 36, § 6958, et seq., was preempted under ERISA and Medicare Part D. Continue Reading State PBM Regulation: The Struggle Continues – Oklahoma District Court Latest to Rule on ERISA, Part D Preemption

CMS Administrator Chiquita Brooks-LaSure and CMS Innovation Center Director Elizabeth Fowler continue to forge ahead with the Biden-Harris Administration’s plans to evaluate and streamline the alternative payment models being tested at the Innovation Center. The most recent example, announced late last month, includes the redesign and renaming of the controversial Global and Professional Direct Contracting (GPDC) model that aims to introduce value-based payment arrangements in traditional Medicare. The newly announced model, renamed the Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) Model, aligns with CMS’s restated goals for the Innovation Center—as outlined in its October 2021 “strategic refresh” white paper—to drive accountable care, advance health equity, support care innovations, improve access by addressing affordability, and partner to achieve system transformation. Continue Reading CMS Innovation Center Redesigns Direct Contracting Entity Model, Launches ACO REACH

The Russia-Ukraine conflict is increasing the risk of ransomware attacks and other cyber threats for U.S. companies, and those in the health care industry may be targeted. In a recent analyst note from the Department of Health & Human Services (“HHS”), HHS describes the cyber capabilities of Russia, one of the world’s major cyberpowers, and analyzes two malware variants most likely to impact the U.S. health care and public health sector. Continue Reading Increased Cyber Risk for Health Care Organizations Due to the Russia-Ukraine Conflict