From 1965 until 1998, nursing home facilities were paid on a cost-based
reimbursement system by combining cost reports with the number of patient
days. In 1998 payment was switched to Prospective Payment system, which
is more of an acuity based system. Facilities perform a full assessment
on each resident and compile the data using the Minimum Data Set (MDS).
The needs of the residents, as determined by the MDS, is then converted
to a Resource Utilization Group (RUG) score. Facilities are then paid
Medicare funds based on this RUG score for the Medicare eligible residents.
Medicaid funding is more of a cost-based payment system with partial adjustments
made on acuity, but the states determine the bulk of the per diem rates.
The higher reimbursement for residents with a higher RUG score is supposed
to be used for the increased staffing needs for more nursing and therapy
services. This actually is what "Resource Utilization" means:
that the facility will have to utilize more resources for the more acute
residents. This isn't supposed to be an "acuity lottery"
where a facility gets an increase in pay without a corresponding increase
in staffing. For example, a facility can get paid $15,000 or more a month
for a new Medicare patient. The facility can't just smile at their
luck of getting a new partially paralyzed resident with multiple health
conditions and pocket the extra money. In fact, if the nursing homes don't
increase staffing for such patients they will begin to
neglect their existing patients as they just can't take care of them all.
The federal government didn't just pull the RUG reimbursement rates
amounts out of a hat. In 2006, the number of RUG categories was increased
from forty-four to fifty-three to provide greater variety of scores and
especially provide scores that were higher to accommodate the increased
acuity level of residents. The trend is for patients to be discharged
from hospitals earlier and moved into skilled facilities. Skilled facilities
then get paid these higher RUG scores for traditional hospital provided
care such as respiratory care, IV therapies, etc. The expense of such
services exceeded what was expected by Medicare. So, the government decided
to revamp the RUG system with a new version, RUG-IV and MDS 3.0. In order
to develop RUG-IV, a large study was designed to re-evaluate staffing
needs based on the scores.