The big news of late in skilled nursing facility (SNF)-world is the release of the Centers for Medicare and Medicaid Services’s (CMS) 2027 Medicare SNF PPS and the top-line proposal to upgrade SNF PPS rates by 2.4 percent based on the proposed SNF market basket of 3.2 percent, and a negative 0.8 percent productivity adjustment.

While these numbers draw attention, what is missing from any review of what CMS has issued is the “October surprise,” which comes in the form of the Area Wage Index (AWI).

Called a wild card that should stoke much anger among SNFs, Marc Zimmet, CEO of Zimmet Healthcare Services Group, said AWI and its formulations/allowances act as a great distortion to what nursing facilities actually receive in the form of payment increases.

“Broad strokes: AWI is a federal market-specific adjustment that reflects relative labor cost differences across the nation,” Zimmet said. “Some markets become relatively more expensive, some less. In other words, inflation is not evenly distributed. SNF stakeholders expecting a 2.4 percent rate increase may be caught off guard when the first check comes higher/lower than budgeted. This happens every year; I call it the ‘October Surprise’ because new rates are effective for service dates on/after October 1.”

Zero-Sum Game

He explains that AWI is a “zero-sum game” – there are winners and losers. Most designated Core-Based Statistical Areas (CBSAs) remain relatively stable, but many change by more than 5 percent every year, and swings can be severe.

This year’s big winners add $132/day to Medicare revenue literally overnight, while unlucky operators see $111/day disappear (even after the 2.4 percent increase is applied). “After years of ‘Rate Shock,’ CMS finally instituted a 5 percent stop-loss on annual decreases so large reductions don’t hit all at once. Still, they sting,” Zimmet said.

Link to the z-Intel PDPM Rate Simulator and make your own calculations here.

SNFs Disadvantaged

In addition, he added: “Incidentally, the entire SNF rate construction model is a farce. Medicare uses hospital cost report data as a proxy for SNF-economics because CMS never got around to calculating a SNF-specific index, despite a congressional mandate to do so 20 years ago.”

“Adding insult to injury, hospitals can ‘reclassify’ their AWI designation if their labor pool is drawn from higher-paying counties. Lastly, don’t expect SNF Medicare Advantage rates to change pro rata to Medicare’s 2027 updates, unless of course your facility is on the ‘loser’ side of the ledger. But those are stories for another time…,” he said.

SNF-Specific Wage Index and Geographic Reclassification from Congress authorized CMS to establish a specific wage index and geographic reclassification procedure for SNFs decades ago, but this was never accomplished.

“The delay is unreasonable and inequitable to SNF providers, even more so through the PHE. Hospitals are eligible for CBSA reclassification and higher Medicare reimbursement, while SNFs in the same markets have no such opportunity,” Zimmet said.

CMS has disadvantaged SNFs by denying them the same reimbursement rights as hospitals, he added.

“In other words, Medicare’s SNF and hospital payment approach lack ‘parity.’ Concurrent to the Medicare Cost Report update, CMS should establish a SNF wage index allowing providers to apply for geographic reclassification. We also ask CMS to explain how inaccurate Medicare Cost Report data potentially impacted PDPM base rates and the proposed parity adjustment,” Zimmet said.

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.