Direct Answer
Medicare Part A skilled nursing facility (SNF) payment shifted to the Patient Driven Payment Model (PDPM) in October 2019. PDPM pays SNFs based on patient clinical characteristics — diagnosis, functional status, cognitive status, and special care needs — rather than the previous RUG-IV model that tied payment to therapy minutes delivered. Accurate Minimum Data Set (MDS) completion and ICD-10 diagnosis coding directly drive PDPM payment, making clinical assessment accuracy the central revenue cycle competency for SNF operators.
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Medicare Part A SNF Coverage Requirements
Medicare Part A SNF coverage has strict qualifying criteria: the patient must have a qualifying hospital stay (3-day medically necessary inpatient acute care stay, not counting the discharge day); the SNF admission must occur within 30 days of the qualifying hospital stay; and the patient must require skilled nursing or skilled therapy services on a daily basis. The benefit covers up to 100 days per benefit period — days 1–20 at 100% (no copay), days 21–100 with a daily coinsurance amount (updated annually). Days 101 and beyond are not covered by Medicare Part A.
The three-midnight rule requires three medically necessary inpatient days — observation stays do not count. Patients admitted under observation status who subsequently transfer to SNF cannot use that observation time to qualify for Medicare Part A SNF coverage. This is an increasingly common issue as hospitals shift borderline cases to observation, inadvertently disqualifying patients from SNF coverage and generating patient liability disputes.
PDPM Payment Components
PDPM calculates a per diem payment based on five case-mix components, each determined by specific MDS items and ICD-10 codes:
- Physical Therapy (PT) component: Based on the primary diagnosis clinical category (one of 10 PT groups) and functional score from MDS gross motor items
- Occupational Therapy (OT) component: Similar to PT, based on clinical category and functional score from MDS fine motor items
- Speech-Language Pathology (SLP) component: Based on the primary diagnosis, presence of dysphagia, cognitive impairment, and presence of swallowing disorder or mechanically altered diet
- Nursing component: Based on the primary diagnosis group (one of 25 nursing categories), presence of extensive services, and presence of conditions requiring specialized nursing care
- Non-Therapy Ancillary (NTA) component: Based on comorbidities and conditions listed in the MDS that predict high ancillary service use (HIV/AIDS, dialysis, IV medications, wound care, etc.)
Each component has its own case-mix adjusted per diem that is summed for the total PDPM per diem. Unlike the prior RUG-IV model, PDPM is not based on therapy minutes — therapy can be delivered based on patient need rather than financial thresholds.
MDS and ICD-10 Coding
The MDS 3.0 (Minimum Data Set) is the standardized resident assessment completed at admission, quarterly, annually, and when significant changes in condition occur. The primary diagnosis driving PDPM assignment is entered in Section I of the MDS as the ICD-10 code for the primary reason the resident is receiving SNF care. This must be the active diagnosis causing the patient to need skilled care — not chronic conditions unrelated to the current skilled care need.
The NTA component uses a comorbidity scoring system based on secondary conditions coded throughout the MDS. Common high-value NTA conditions include dialysis, HIV/AIDS, opportunistic infections, IV medication use, parenteral/IV feeding, wound/skin conditions, and respiratory conditions requiring specialized equipment. Incomplete MDS coding of secondary conditions that drive NTA payment is a major source of SNF revenue leakage — MDS nurses should be trained on all NTA-qualifying conditions and how to identify them from clinical documentation.
SNF Claim Submission
SNF Part A claims are submitted on UB-04 with Medicare claim type 21 (inpatient SNF). The claim includes revenue codes for each category of service (nursing facility services, therapy, ancillaries). PDPM claims are typically filed as the claim spans the benefit period — SNFs submit interim bills for each billing period or at the end of the benefit period. The HIPPS code (Health Insurance Prospective Payment System) derived from MDS assessment groups is reported on the claim and drives payment grouping — errors in the HIPPS code assignment directly affect payment. Assessment Reference Date (ARD) timing and the corresponding MDS completion schedule must be properly managed to ensure the correct PDPM period is applied.
Common SNF Billing Errors
Frequent SNF billing compliance risks: billing Medicare Part A without a valid qualifying hospital stay — facilities should verify the qualifying stay before admission and keep documentation; billing for services beyond the 100-day benefit without documentation of coverage; inadequate MDS coding of comorbidities reducing NTA payment below appropriate levels; inaccurate functional scoring on MDS that understates or overstates actual functional limitations; billing skilled services after the patient no longer meets the daily skilled care requirement — coverage ends when daily skilled care is no longer medically necessary even if the stay continues at private pay or Medicaid; and missing or late MDS assessments that result in incorrect HIPPS code assignment.
FAQ
How does Medicaid SNF billing differ from Medicare Part A?
Medicaid SNF billing covers long-term custodial care — the level of care that Medicare Part A does not cover. Medicaid uses state-specific payment methodologies that vary considerably: some states use resource utilization group (RUG) systems, others use PDPM-like approaches, and others use per diem rate methodologies with cost report settlements. Medicaid also uses different claim forms, HIPPS codes, and billing cycles than Medicare Part A. A significant portion of SNF residents are dual-eligible (eligible for both Medicare Part A and Medicaid) — for these residents, Medicare Part A is primary when skilled care is being provided, and Medicaid covers the coinsurance; once skilled care ends, Medicaid becomes the primary payer for custodial care.
What triggers a Medicare SNF coverage denial?
The most common Medicare SNF coverage denial triggers are: no qualifying 3-day inpatient hospital stay; SNF admission more than 30 days after the qualifying hospital stay; the resident no longer requires skilled care on a daily basis but SNF billing continues; and documentation that does not support the skilled level of care. The last category is the most nuanced — Medicare coverage requires documentation showing that the services provided require skilled nursing or therapy because of their complexity, the patient's condition, or the need for clinical judgment. Documentation that the patient received nursing services (medication administration, vital signs, wound care) without supporting language that these services required nursing skill is insufficient. Documentation must connect the service to a skilled need.
SNF Revenue Cycle Optimization
Valiant Lifecare's SNF billing specialists understand PDPM, MDS coding accuracy, qualifying stay verification, and the documentation standards that protect Medicare Part A SNF revenue from audit and denial.
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