How are you faring with RUGs refinement?

Prior to 2006, the skilled nursing provider community felt they were managing the Resource Utilization Group (RUG) reimbursement system well. They were rolling along with about 75% of their days in the Rehab RUG levels. Rehab companies were also very happy with these results. The push was to increase the rehab minutes to get the highest RUG level possible. Many facilities depended on their rehab staff to determine the best Assessment Reference Date (ARD) for this purpose. Many rehab companies also saw the advantage of providing higher minutes of therapy to capture higher reimbursement. In addition, rehab companies provided a lot of oversight of their staff and additional “value added” services, including education and participation in meetings and quality assurance activities, all to best meet the federal Center for Medicare & Medicaid Services (CMS) reimbursement criteria.

A shift in emphasis

But then, in 2006, the long-term care world changed. Suddenly the emphasis was on capturing the nine new combined RUGs categories resulting from CMS’s RUGs refinement process. Providers did a pretty good job of it and, by 2008, have realized over 30% of their RUG days in the combined RUG categories, with some companies realizing over 38%. CMS had projected that only 18.63% of the RUG days would shift to the upper nine RUG categories. The results were double what CMS had projected and providers have been very happy with the resulting increased reimbursement.

Not surprisingly, CMS decided in 2008 that providers had done too good a job of reflecting the actual care they were providing. So, once again, CMS is making changes. There are several things anticipated to happen in the next year, and some of those changes are being seen already.

First, let’s look at how providers implemented the four key strategies to capture reimbursement after January 1, 2006. These strategies continue to work well for many facilities today.

1. Preadmission screening. Facilities have always encouraged their staffs to capture all clinical indicators that would apply to the resident from the acute hospital stay. But, prior to 2008, the reality was that many facilities only looked for those clinical indicators when the resident was not having rehab services. Retraining efforts looked at assisting facilities in capturing this critical information for all residents and identifying the last date that the Extensive Services qualifiers of IV fluids, IV medications, tracheostomy care, suctioning, and ventilators were received. This crucial information then gave the facility the ability to determine the best ARD for each resident, with the best date, meaning the best reimbursement.

Of course, there was some initial fallout, especially for those facilities with outside therapy contracts, where the push was to get the highest minutes possible. Facility staff had to amend contracts to make sure that they met the needs of the facility as well as the needs of the rehab provider; the contract needed to be fair to both. Many facilities found that per-minute contracts fit that need. Per-minute meant that the facility paid the therapy provider only for the actual minutes of therapy provided. It is, however, surprising that now, in 2008, some facilities still do not understand the need for nursing and therapy to collaborate on this process.

2. Strategic management of the ARD. Once a facility learned how to capture the correct data from the acute care stay, the next lesson was how to strategically manage that information. This meant that sometimes it was better to have fewer therapy minutes and capture an Extensive Services RUG than to capture the highest Rehab RUG level. In 99% of cases, this strategy meant more reimbursement for the facility. Managing RUGs is, in effect, “getting paid what you deserve to get paid for the care you are providing.” To do this, the facility needed to have a good preadmission screening process and good communication between the Rehab Director and the MDS nurse.

3. Care management/case management. The third important component of RUGs management is good case management or care management. This means that an interdisciplinary approach to resident care is essential to map out the appropriate course of care. It is the realization that more therapy is not always the best for all residents. Sometimes, clinical comorbidities need to be managed first, and the resident needs to stabilize before an aggressive course of therapy is appropriate. It may be the approach of utilizing Rehab Low with restorative nursing at the onset of therapy and then increasing up to Very High when the resident is able to handle that level of service. It also means weaning residents off therapy prior to their going home so that they recover more successfully in the home environment. Too often, facilities expect that a resident can go from over 500 minutes of therapy over five days to home health therapy of maybe three times a week. The staff needs to make sure that the resident can carry over learned tasks to the home environment before discharge.

4. ADL coding. The last important strategy is accurate coding of Activities of Daily Living (ADLs). In the Refined RUGs system, in order for a resident to qualify into a combined RUG category, the resident needs to meet the requirements of rehab RU to RL, have at least one Extensive Services qualifier, and have an ADL sum score of at least 7. That means that a resident who is very independent or only minimally dependent (under 7 in ADL score), will not qualify for a combined RUG category, even if meeting the other qualifiers.

Several issues continue to arise with coding of ADLs. The staff that actually cares for the resident should be doing the coding—i.e., the certified nursing assistants. They can be taught to code accurately. You also should capture the coding over the entire seven-day “look back” period and over all three shifts. If you have a system that captures those times, you will have at least 21 opportunities to capture when the resident is the most dependent. In coding the MDS for self-performance (G1A), you want to capture the highest level that occurred at least three times during the “look back” period. Self–performance is defined in the RAI Manual as what the resident actually did for him or herself within each ADL category. For support provided (G1B), if the resident needs more assistance even one time, it should be coded as that higher assistance. Another factor that many facilities miss is that if you appropriately capture IV fluids on the MDS, the eating score is automatically a 3. That score can make a difference between a sum score of 6 or 7—and that one number can make up to a $90/day difference in your reimbursement if you capture a combined RUG level.

CMS adjustment processes

So now, in 2008, we are starting to see CMS’s adjustment processes increase with emphasis on re-collecting Medicare dollars.

Medical review. Over the past few years we saw very little medical review activity. That is drastically changing this year. It started with a particular event: In 2007, the Office of Inspector General did a review of claims for a facility in Leesburg, Florida, and found that 19 claims were not justified. They focused on the medical necessity of the level of care provided. One inference for providers is that they need to look at the diagnosis that supports the claim for each resident. Medical diagnosis alone may not support very high levels of therapy. As a result of the Leesburg review and more that have followed, the trend is targeting of facilities that have higher than the norm in RUGs levels, especially Rehab Ultra High.

Providers are also now seeing increased frequency of random prepayment reviews. The results of these reviews will set the stage for ongoing prepayment reviews and can drastically affect cash flow. A few words of caution: Watch the level of therapy being implemented for long-term care residents who are returning to baseline in the facility. Documentation for short-term rehab residents has to be pristine. Providers must ensure that each claim meets all the technical requirements and show why the level of service was necessary to get the resident to a discharge status.

Recovery Audit Contractor. A newer procedure being put into place is the Recovery Audit Contractor, or RAC, process. This process rolled out as a demonstration program in six states and will be rolling out countrywide through 2010. Its goal is to collect overpayments to providers for Medicare Part A and Part B claims. Again, a real-life event is behind this: California had a very poor experience in their inpatient rehab facilities and skilled nursing facilities (SNFs) during the demonstration process. Complaints from the demonstration program included that the reviewers lacked Medicare coding and billing experience, lacked appropriate medical staff for medical necessity determinations, and had inadequate oversight from CMS. CMS is now contracting with four new RACs for the National RAC program. These RACs are paid a contingency fee even if the provider wins on appeal and are using a four-year window. The first phase of this program rolling out this year will include Arizona, Colorado, Florida, Indiana, Massachusetts, Maine, Michigan, Minnesota, Montana, North Dakota, New Hampshire, New Mexico, New York, Rhode Island, South Carolina, South Dakota, Utah, Vermont, and Wyoming. The second wave of states will begin in October and is expected to include California, Nevada, Texas, Oklahoma, and Hawaii.

Additional changes anticipated

CMS has stated that it needs to make a $770 million cut in funding as a necessary correction of its own forecasting error due to the 2006 RUGs refinement system. CMS now plans to recoup those “extra” dollars it spent. Even though facilities are appropriately reflecting the type of resident care they are providing, CMS doesn’t seem to want to pay for that anymore.

We look for additional changes to occur as the year progresses. For example, we anxiously wait for the results of the STRIVE (Staff Time and Resource Intensity Verification) staffing studies and next year’s scheduled implementation of MDS 3.0 and their impact on the RUGs reimbursement system. One thing we can say for sure: More changes are coming.

Where will this leave SNF providers across the country? The fear is that the industry will see a repeat of the late 1990s experience of small providers having difficulty surviving in a new reimbursement environment. And we can expect more and more scrutiny.

Meeting the challenge

How can you prepare for all this? Establish your own internal teams for medical review and RAC audits. These should include an interdisciplinary team of legal, financial, clinical and compliance staff. You need to develop internal processes, as well as point-of-contact and tracking systems for when Additional Development Requests (ADRs) or RAC requests come your way. Conduct audits (internal and external) to determine your compliance status. Train your staff in all these new processes. Stay in touch with resources, such as national or state provider associations, to keep up to date on what is happening in the industry.

In other words, learn from others about the trends and review your own systems to see how you rate your preparedness for them. Most definitely, make sure your Corporate Compliance program includes billing reviews. In today’s world, having Medicare compliance reviews by an objective outside entity is no longer an option, it is a necessity.

Patricia J. Boyer, MSM, RN, NHA, is President of Boyer & Associates, Brookfield, Wisconsin.

For further information, phone (262) 754-0525, please e-mail or visit To send your comments to the author and ediors, e-mail

Long-Term Living 2008 August;57(8):30-33

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