A possible Medicare payment rate reduction to skilled nursing facilities relates to higher-than-expected therapy classifications, federal officials explained Thursday.

The Centers for Medicare & Medicaid Services is considering two options for fiscal 2012: an 11.3% reduction or a 1.5% increase. Normally, the rate setting process is more straightforward, said Sheila Lambowitz, CMS Director in the Division of Institutional Post Acute Care, during a Skilled Nursing Facility Open Door Forum conference call.

“This wasn’t a typical year,” she said, due largely to the introduction of new RUG-IV payment classifications and the new MDS 3.0 resident assessment tool. “When we introduce a new classification system, we have had a policy to introduce it in a budget-neutral manner, so what we paid in RUG-III is what we should be paying in RUG-IV.”

However, an initial analysis showed that “payments exceeded budget neutrality in significant amounts,” she says. After RUG-IV payment classifications went into effect Oct. 1, providers filed for reimbursement in the highest rehab classifications at more than four times the expected rate.

“We thought the number of patients in ultra-high rehab would go down; we assumed there would be a change in distribution in payment across therapy groups,” Lambowitz explained. Instead, “We saw 43 percent across payment stays being calculated in RUG-IV,” she added.

CMS found that providers are shifting the method of therapy, she says. One proposal by CMS is to change the definition of group therapy and the way group therapy minutes in RUG-IV payment groups are allocated.

“We are seeing no concurrent therapy and the majority is being individualized,” she says. “We should have treated group therapy the same way as concurrent therapy. We are proposing to allocate as a four-to-one methodology.”

CMS has to “recalibrate the system,” she says, but is specifically focused on therapy.

“People classified into medical groups, like ventilator patients, aren’t going to change. Those will continue at the high levels. We didn’t find a problem with the clinical groups,” she said.

CMS also wants to see better vigilance in therapy assessments.

“We are proposing that every time you do an assessment, within seven days of the reference date, you look at your records and see if they are getting therapy at the level you had calculated,” Lambowitz said. “If the person is no longer getting therapy at that level, you need to do a change in assessment to see what the new therapy level is. Now, as most of you are cringing at the thought of that, there are going to be times that the change in therapy OMRA (other Medicare required assessment) could result in someone going from a lower to higher level of therapy. It can work to your advantage, and the patient’s.”

Public comments on the proposal are being accepted until June 27.