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Paul Baldwin
Principal,
Baldwin Health Policy Group

Long-term care pharmacies (LTCPs) play a critical role in helping skilled nursing facilities (SNFs) care for their residents and remain compliant with the complex rules surrounding coverage and payment under the Medicare Part A program. Although Medicare provides only a limited benefit for post-acute and LTC services in SNFs, many facilities rely on the relatively generous Medicare payments to offset the much lower payments available through Medicaid.

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As you already know, pharmacies don’t get paid directly by Medicare for the services they provide, but get paid by the SNFs with which they contract to provide pharmacy services. So knowing how Medicare calculates payments to SNFs to ensure they are adequately compensated for pharmacy services is an important concept for pharmacy owners and managers to understand.

Knowing the importance of nontherapy ancillary services calculation can help the pharmacy know how to help skilled nursing facilities accurately capture all the listed co-morbidities, quickly rationalize the resident’s medication therapy, and ensure that the facility can efficiently serve each resident.


Medicare Part A operates under a prospective payment system (PPS), under which reimbursement is a pre-determined, fixed amount intended to cover the cost of care for a resident. The tricky part of PPS has always been finding a way to accurately assess residents’ need for care so that Medicare neither underpays nor overpays for the services needed by each resident. The challenge for Medicare has been to find a resident classification formula that predicts the volume and cost of services a resident will consume during the Part A episode of care.

Medicare has been paying SNFs under the PPS since 1998 and has accumulated massive amounts of data and experience that allows it to periodically adjust resident classification to more closely align resident needs and SNF payment. The last iteration of this effort was the resource utilization group (RUG) methodology, implemented in 2010, which relied primarily on an assessment of how much therapy a resident would require, and based payment on that expectation.

CMS (Centers for Medicare & Medicaid Services) and other federal agencies began to raise concerns about the RUGs methodology, citing the system’s vulnerability to manipulation by SNFs to artificially increase reimbursement based on subjective assumptions. There were also concerns that residents requiring more medication might not be adequately accounted for, thus discouraging SNF acceptance of medically complex residents.

The New Payment Model

CMS switched to a new PPS approach, the patient-driven payment model (PDPM), effective Oct. 1, 2019. The PDPM classifies SNF residents with five different case-mix indices, three of which involve therapy, one evaluates nursing service requirements, and one looks at nontherapy ancillary (NTA) services. The NTA category includes the resident’s anticipated need for medication and pharmacy services. The pharmacy needs to become very familiar with NTA case mix construction to better help its client SNFs better manage under the PDPM.

In its explanation of the NTA case mix adjustment, CMS reveals the close association of expected costs and resident co-morbidities. For example, a resident who is HIV-positive or requires intravenous medication is likely to have higher medication costs than someone with simple hypertension. While drug costs are not the only component of NTA, drugs are the most significant component.

CMS has identified 50 co-morbidities significant enough as cost-of-care predictors to warrant their inclusion in the determination of the need for NTA services. It is the job of the SNF to determine whether each resident has any of these listed co-morbidities, which should be included on the resident’s minimum data set. Each listed co-morbidity carries a relative weight, based on a point system ranging from 1 to 8. The case mix index is determined by adding the scores for each to arrive at the final score. The final score translates to a final co-morbidity score for the NTA component. Think of this as a multiplier that is applied to a daily rate of payment for NTA services.


A final twist on NTA payment is a daily per diem multiplier. CMS has determined a pattern in SNF cost reports showing that payments for drugs are approximately three times higher than average during the first three days following admission. As a result, under the PDPM the NTA payment is three times higher than the average rate until day four, at which time it reverts to the calculated rate.

Knowing the importance of NTA calculation can help the pharmacy know how to help the SNF accurately capture all the listed co-morbidities, quickly rationalize the resident’s medication therapy, and ensure that the SNF can efficiently serve each resident. CT

Paul Baldwin is a veteran healthcare policy and government relations executive. With 30 years of experience in pharmaceuticals and pharmacy, he is still an avid learner about what makes healthcare policy work for industry and for the public. Read more about him at his website www.baldwinhpg.com. He can be reached at paul@ltcpharmacy.net.