The Patient-Driven Payment Model (PDPM) fundamentally changed how Medicare compensates skilled nursing facilities (SNFs) for beneficiary care. Implemented by the Centers for Medicare and Medicaid Services (CMS), PDPM shifts the financial incentive away from the volume of services delivered toward the complexity and characteristics of the patient’s clinical needs. By using patient-specific data to determine a daily payment rate, PDPM ensures that reimbursement more accurately reflects the resources required to care for each individual. This system replaced the prior volume-based payment structure, creating a value-driven approach to SNF payment.
The Purpose and Scope of PDPM
The Patient-Driven Payment Model applies specifically to Medicare Part A stays in skilled nursing facilities. Implemented on October 1, 2019, it replaced the Resource Utilization Groups, Version IV (RUG-IV) system. The transition aimed to move away from a system that tied payment directly to the amount of therapy minutes provided, which often incentivized excessive therapy regardless of patient necessity. The older system categorized patients based primarily on therapy volume, failing to capture the true complexity of a patient’s condition.
PDPM now bases the daily payment on patient acuity and anticipated resource use, promoting a patient-centered approach to care. This model focuses on the resident’s individual needs, clinical characteristics, and goals. The regulatory framework is defined under Medicare’s Skilled Nursing Facility Prospective Payment System (SNF PPS). By emphasizing the patient’s condition, PDPM encourages facilities to accurately document the required level of care, improving payment accuracy and ensuring appropriate treatment.
The Five Case-Mix Payment Components
The overall daily payment rate under PDPM is determined by combining five distinct case-mix adjusted payment components. Each component is classified independently based on specific patient data collected through the Minimum Data Set (MDS) assessment. The five components are Physical Therapy (PT), Occupational Therapy (OT), Speech-Language Pathology (SLP), Non-Therapy Ancillary (NTA), and Nursing. The final per diem rate is the sum of these five components plus a non-case-mix component covering fixed costs like room and board.
The Physical Therapy and Occupational Therapy components are classified using the patient’s primary diagnosis (clinical category) and functional status (scored using Section GG of the MDS). They use the same classification criteria but have separate payment rates to reflect the different resource costs of each discipline.
The Speech-Language Pathology component uses four criteria: the patient’s clinical category, cognitive function, the presence of an SLP-related comorbidity, and whether the patient is on a mechanically altered diet or has a swallowing disorder. Cognitive function is determined using the Brief Interview for Mental Status (BIMS) from the MDS.
The Non-Therapy Ancillary (NTA) component covers costs for non-therapy services and supplies, such as certain medications, extensive procedures, and high-cost comorbidities. This component assigns points to specific conditions; a higher total point score results in a higher NTA payment rate.
The Nursing component, typically the largest portion of the daily rate, uses a classification structure similar to the prior RUG system, but collapses the number of groups down to 25. Classification is based on factors like extensive services, clinical conditions, depression, restorative nursing services, and the patient’s functional score.
Understanding Variable Per Diem Adjustments
Variable Per Diem (VPD) adjustments modify the daily payment rate over the course of a patient’s stay. This mechanism recognizes that resource utilization often changes as a patient progresses through recovery. The VPD adjustment applies only to three case-mix components: Physical Therapy, Occupational Therapy, and Non-Therapy Ancillary. The daily rates for the Speech-Language Pathology and Nursing components remain constant throughout the stay.
The adjustment for both the PT and OT components follows the same schedule, reflecting that resource use for these therapies is highest at the beginning of a stay and gradually declines. The payment rate remains at 100% of the initial calculated rate for the first 20 days. Starting on Day 21, the payment rate decreases by 2% for every seven days the patient remains in the facility, reflecting the expected reduction in resource intensity.
The NTA component adjustment is front-loaded to account for the high initial costs associated with complex non-therapy needs upon admission. The daily rate for the NTA component is multiplied by a factor of 3.0 for the first three days of the patient’s stay. This tripled rate ensures facilities are adequately compensated for the high upfront costs of necessary supplies, medications, and services. Starting on Day 4, the NTA rate reverts to the base rate.