Josh Pickus, CEO of Optima Healthcare Solutions


With Resident Classification System, Version I (RCS-1), the Centers for Medicare & Medicaid Services is considering significant changes to the reimbursement model for therapy.   

This notice of proposed rule-making is not just a revision of the current Resource Utilization Group (RUG) system — it’s a complete rewrite of how CMS would pay for therapy services. RCS-1, as it’s currently written, would feature dramatic changes to everything from the determination of clinical categories and functional levels to how therapy services are incentivized.  

While RCS-1 is still in draft form, now is the time to start thinking seriously about the implications of the notice. Here are a few areas that are worth focusing on:

  • Therapy minutes provided no longer drive reimbursement

    The current RUG system ties therapy reimbursement rates to the quantity of therapy minutes. CMS believes that the RUG system has given rise to the practice of thresholding, where providers deliver excessive therapy to capture the maximum reimbursement.

    With RCS-1, reimbursement for therapy services is no longer tied to therapy minutes provided. Experts agree that the resident classifications in RCS-1, as currently written, will lead to a reduction in the amount of therapy from what residents are currently receiving under the RUG system.

  • Concurrent and group therapy will increase

    The current RUG system has effectively deterred group and concurrent therapy. CMS has noted that less than 1% of services being provided to Medicare Part A residents are being done in a group or concurrent mode.

    Under RCS-1, SNF patients would see a significant increase in group and concurrent therapy. Since minutes of therapy are not determining reimbursement rates, CMS is simply proposing limits on the amount of therapy provided in a concurrent or group mode of treatment to 25% for each.

  • Demand for therapists will decrease

    An incentive shift away from providing maximum therapy minutes, combined with the new incentives around concurrent and group therapy, means that SNFs would likely need fewer therapy resources. Staffing could become easier in SNFs across the country, particularly in geographic areas where it’s been challenging in years past.

  • Financial impact for SNFs and therapy service providers will vary

    CMS is proposing RCS-1 to be budget neutral. When taking a closer look at the rule, the budget impact on SNFs and therapy service providers is somewhat more nuanced.  

    Under the current RUG system, CMS reimburses SNFs per patient according to the grouper software that identifies all the different resource utilization groups that a patient qualifies for in that skilled nursing facility. The grouper then applies the group with the highest index, which correlates with the highest reimbursement value. This means that residents might quality for both an intensive nursing RUG score and a therapy RUG score. Since therapy RUG scores are typically higher than nursing RUG scores, daily reimbursement rates are currently being dominated by the therapy aspect of that patient’s care.

    Under the RCS-1, index maximization is replaced by index combining, which balances nursing needs with therapy needs based on the classification of patients, and would lead to a more equal distribution of reimbursement between therapy and nursing. With this in mind, SNFs would likely see the decrease in therapy payment offset by an increase in nursing payment.  

    For therapy service providers, the anticipated impact of RCS-1 is likely more complicated. From a revenue standpoint, less therapy means less revenue. However, the impact on profits would be much less pronounced, with potential gains coming from providing more concurrent and group therapy, and restructuring resident case load minutes.

There’s been a lot going on in the industry with a thrust towards paying providers based on outcomes. But RCS-1, as it’s currently proposed, doesn’t seem to reflect this outcomes-focused approach.

Having a clearer vision on the link between performance and reimbursement would be necessary to align the rule with the other outcomes-focused initiatives that CMS is advocating elsewhere. As a result, it would be very odd if the final version of RCS-1 did not add a performance component that incentivizes positive outcomes.

Even if CMS does not directly correlate outcomes to payment in the final version of RCS-1, it will still be critical for SNFs and therapy providers to track quality of care, and constantly work to improve outcomes. Doing so is right for the resident, but also makes business sense, as it can help support responses to CMS payment denials. Referral sources such as hospitals will also be more inclined to recommend operators that can demonstrate positive outcomes and minimal bounce backs to the hospital.

As RCS-1 is currently written, the transition would occur in fiscal year 2019. For CMS, FY 2019 begins on October 1, 2018, or about 14 months from now.

There are many challenges with such a short turnaround on the RCS-1 implementation. Very substantial changes would need to be made to facility EMR software in order to support RCS-1. SNFs and therapy providers would also have to start taking a number of steps in terms of reallocating resources and training staff in order to make this new system work for their businesses. On the reimbursement side, the CMS contractors responsible for managing RCS-1 payments, such as MACs, would need ample time to update their systems to handle the new model. Making such significant changes in a little over one year would be an incredible undertaking.

CMS could be sympathetic to requests to delay RCS-1 implementation, particularly if these requests came from CMS contractors. But while there are compelling reasons for CMS to delay the implementation of RCS-1, the only prudent way for SNFs and therapy providers to approach this rule is to assume that it will be implemented in FY 2019, and start getting ready now.

Next month, we will outline what both groups can do to prepare.  

Josh Pickus is the CEO of Optima Healthcare Solutions.