Prospective Payment Systems (PPS) for skilled nursing facilities, based on Resource Utilization Group classifications (RUGs-III) have been around since 1998. Or have they? In reality, the development of a resource-driven versus cost-based reimbursement model for nursing home patients in a Medicare and Medicaid stay began in certain states as early as 1991.

 

RUG-III was initially a 44-group classification that was developed using historical resident clinical data and nursing staff time. Information was gathered from seven participating states in the spring of 1990, and included staff time measurements for both resident specific times and resident non-specific times. Both resident specific time and non-resident specific time was tracked for registered nurses, licensed practical nurses and nursing assistants and used to create groupings with the greatest amount of nursing time categorizing residents into higher case-mix (RUG) groups. Staff time measurement studies were continued in 1995 and 1997. Through analysis of the patient characteristics recorded on the MDS and staff time associated with caring for patients in the nursing home, clinical criteria were identified that were predictive of resource use and categories were created that would group patients according to their resource use.1 In turn, the “resource use” concept became the underlying basis for developing payment rates for each specific RUG category.

 

For individuals in the rehabilitation categories, therapy time was measured and then attributed to any one of 14 RUG categories. Analysis of staff time, in conjunction with patients’ MDS information, determined three main predictors of a patient’s resource utilization: clinical characteristics, limitations in ADLs and skilled services.

 

The following examples show how the staff time Measurements breakdown into Nursing Resident Specific and Nursing Non-Resident Specific Time.

 

Mean Resident and Non-Resident Specific Minutes for Nursing and Therapy Disciplines by RUG-111+ Group
		LPN Resident Specific	LPN Non - Resident		RN Resident Specific	RN Non - Resident	Total Nurse Aide	Nurse Aide Resident Specific	Nurse Aide Non - Resident
RUG-III Group Name	Total LPN Minutes / Day	Minutes / Day	Specific Minutes / Day	Total RN Minutes / Day	Minutes / Day	Specific Minutes / Day	Minutes / Day	Minutes / Day	Specific Minutes / Day
RUB	34.94	21.33	13.61	84.12	46.07	38.05	123.13	73.75	49.35
SE2	86.06	56.97	29.09	108.52	67.31	41.21	163.54	105.15	58.40

 

The minutes are weighted by the amount of staff time needed to provide care for patients in specific RUG categories.

 

Each year CMS provides two wage indices, one for urban areas and one for rural areas, which are then utilized to calculate the new RUG rates using the established number of minutes by discipline. Each RUG level is assigned a number of minutes for staff time, which are converted to dollars using the wage index. Dollars are added for supplies, pharmacy, etc. Staff times (e.g. registered nurse, licensed practical nurse, nursing assistant and specific therapies) are “weighted” to create an index that defines the acuity level. The labor component is totaled and then adjusted by the wage index for the specific geographic area where the facility is located. An example of determining a RUG level per diem rate is shown below:

 

2009 Federal Rural Rate
RUG-111 Category	Labor Portion	Non-Labor Portion	Total RUG Rate
RHL	$280.09	$121.28	$401.37

 

However, due to the wage index, the following adjustment applies to any federally published labor portion. The labor portion is adjusted, either by zip code or rural area, due to difference in the cost of labor in any specific market.

 

"Per Diem RUG Rate = Labor Portion x Wage Index + Non-Labor Portion"

 

For example, a nursing facility located in a Texas community whose zip code is not amongst those classified under the urban wage index would have a lower rural wage index of 0.7894. In such a case, the facility-specific RUG level is calculated as follows:

 

Facility Specific RUG Level
RUG-111 Category	Labor Portion	Wage Index	Non-Labor Portion	RUG Per Diem
RHL	$280.09	0.7894	$121.28	$342.38

 

Any RUG level per diem rate can be calculated using this methodology. Rates, case mix, and wage indices are updated annually and are published in the Federal Register.

 

It is important for key personnel to understand the basis of RUG level development since the same methodology is being incorporated into monitoring tools at the federal and state level. In fact, one of the Office of Inspector General’s (OIG) 2009 work plan item is to audit staffing levels in individual nursing facilities to assure that staffing meets the acuity of its residents. If they determine that staffing falls below the levels used by a recognized working tool, such as RUG levels, a facility could face inquiries involving its reimbursement. Care center owners, administrators and directors of nursing need to increase their awareness of RUG levels to help assure that shift-staffing levels are not only appropriate by census, but also appropriate by the actual acuity of the residents.

 

"Medicare Program: Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities, Final Rule,"

Federal Register, May 12, 1998. 42 CFR Part 409, et al.