Location:
NURSING HOMES; WELFARE - MEDICAL ASSISTANCE (MEDICAID);

OLR Research Report


January 28, 2009

 

2009-R-0041

MASSACHUSETTS' MEDICAID NURSING HOME PAYMENT SYSTEM

 

By Nicole Dube, Associate Legislative Analyst

You asked for information on Massachusetts' Medicaid rate setting system for nursing homes. Specifically, you were interested in how the system accounts for resident acuity levels.

SUMMARY

Medicaid payment rates for nursing homes are set by the Massachusetts Department of Health and Human Services. The department's Division of Healthcare Finance and Policy (HFP) calculates these rates using a prospective case-mix system (PCM) consisting of three components: nursing costs, other operating costs, and capital costs.

Rates are primarily based on cost reports, which nursing homes must submit annually to HFP by April 1st. State law prohibits rebasing rates more frequently than once every four years. (HFP relies on cost reports from four years prior and uses them to set the rates for multiple years.) For the current rate year, HFP is using the 2005 cost report. The nursing and other operating cost components of the rate setting formula are adjusted each year for inflation. Rates are also adjusted to reflect

statutorily required add-on payments. Nursing homes receive additional payments for the Medicaid portion of its nursing home user fee, and if they operate a kosher kitchen or if more than 75% of their residents have multiple sclerosis.

The nursing cost component of the rate setting formula accounts for resident acuity levels by categorizing residents based on their care needs and assigning different payment levels to each category. Nursing homes with “higher need” residents receive higher payments. Resident acuity is assessed using the Management Minute System (MMS). Residents are assigned to one of 10 categories based on the level of care required in skilled nursing and activities of daily living. Based on this classification, nursing homes are paid one of six rates. Homes must submit quarterly MMS surveys on each patient. If a resident's acuity level changes during the quarter, HFP adjusts the home's nursing cost component to reflect that change.

HISTORY

In the 1980's, Massachusetts set Medicaid nursing home rates using a retrospective cost based system. Nursing homes were reimbursed for their allowable Medicaid costs at the end of each year after submitting a cost report to HFP.

In 1991, the state transitioned to a facility-specific PCM model. Rates were set in advance based on each nursing home's cost reports from a prior year. Each nursing home was paid one of 10 case-mix adjusted rates based on patient acuity. According to HFP, the system created a disincentive for nursing homes to reduce costs and improve productivity: homes that reduced costs received lower reimbursement rates while homes with increased costs received higher rates.

Consequently, in 1998, the state changed its PCM from a facility-specific model that accounted for nursing home's individual costs to an industry-based pricing model that pays each nursing home the same amount for certain costs. This model, currently in use, includes case-mix adjustments to reflect individual resident acuity.

MEDICAID NURSING HOME RATES

The Massachusetts Division of Healthcare Finance and Policy sets Medicaid payment rates for nursing homes. Nursing homes receive a per diem rate for each Medicaid-eligible resident based on three components: nursing costs, other operating costs, and capital costs. Rates are also adjusted to reflect statutorily required add-on payments. Nursing homes receive additional payments for the Medicaid portion of their nursing home user fee, and if they operate a kosher kitchen or if more than 75% of their residents have multiple sclerosis. Table 1 summarizes the three components of the rate setting formula:

Table 1: Massachusetts Medicaid Nursing Home Rate Components

Component

Included Costs

Standard Payment Method

Nursing Costs (approximately 50% of the base rate)

Salaries and benefits for nursing personnel

Standard is based on the statewide median cost of nursing care; 6 different payment categories, based on 10 patient acuity categories

Other Operating Costs

(approximately 40% of the base rate)

Salaries and benefits for laundry, dietary, and maintenance personnel; also includes supplies, consultant fees, and administrative and general expenses

Standard is the statewide median cost for other operating expenses; a sub component, administrative and general costs is capped at 85% of the median cost; the standard rate is currently $71.73.

Capital Costs (approximately 10% of the base rate)

Annual depreciation expenses (a non-cash expense), interest and equity allowances, real estate taxes, and building insurance.

New construction is paid at a standard allowance of up to $28.06 per day; Payments for existing capital are based on a tiered-rate system— facilities receive one of 11 standard rate amounts based on the amount of their 2005 capital payment. Standards range from $4.45 to $22.56.

*Source: Massachusetts Division of Healthcare, Finance, and Policy

This rate covers routine room and board and nursing care. Other ancillary expenses, including pharmacy and physical therapy, are paid separately by MassHealth (the state's Medicaid program). A copy of HFP's rate setting regulations is enclosed.

Rebasing

Rates are set based primarily on nursing home cost reports submitted annually to HFP by April 1st. But, according to HFP's Michael Grenier, state law does not allow costs to be re-based more frequently than once every four years. This means that HFP may not base a nursing home's future rate on its most recent year's cost report. Instead, it uses cost reports from four years prior to set the rates for multiple years. For the current rate year, HFP is using the 2005 cost report. Grenier indicates that the nursing and other operating cost components of the rate setting formula are adjusted each year for inflation.

Resident Acuity

The nursing cost component of Massachusetts' rate setting formula takes into account the specific care needs of each nursing home resident. Nursing homes whose residents need more intensive care receive higher payments.

Most states with PCM Medicaid nursing home reimbursement systems use CMS' Resource Utilization Groups (RUGs) case-mix measurement system to measure patient acuity. (The RUGs system places residents into one of 44 resource utilization categories based on three staff-time measurement studies CMS published in the 1990's.) But, when Massachusetts implemented its PCM system in 1991, the RUGs system was unavailable. It chose to instead use the Management Minute System (MMS). MMS constructs an index for each resident based on a range of resident characteristics, each with a specified weight. The index values are presented as actual nursing times, so total management minutes for a resident theoretically correspond directly to staffing needs. Nursing homes must submit quarterly MMS surveys on each patient. If a resident's acuity level changes during the quarter, HFP adjusts the home's nursing cost component to reflect that change.

Residents are placed into one of 10 categories based on their care needs; each category is assigned one of six payment levels. Table 2 lists the six payment levels.

Table 2: Nursing Cost Payment Categories

Payment Group

Management Minute Range

Standard Payment

H

0-30 minutes

$14.08

JK

30.1-110 minutes

$37.55

LM

110.1-170 minutes

$65.72

NP

170.1-225 minutes

$95.76

RS

225.1-270 minutes

$116.69

T

270.1 minutes and above

$137.60

HYPERLINKS

Massachusetts Division of Health Care Finance and Policy, “Standard Payments to Nursing Facilities”, http://www.mass.gov/Eeohhs2/ docs/dhcfp/g/regs/114_2_6.pdf, last visited on January 26, 2009.

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