Medicaid FeeforService Nursing Facility Payment Policies

Medicaid remains the largest payer for longterm services and supports (LTSS) in the United States. For nursing facilities that operate under a feeforservice (FFS) model, understanding the payment policies is essential to maintaining compliance, managing cash flow, and ensuring that residents receive the care they need.

1. Overview of FeeforService (FFS) in Nursing Facilities

In an FFS arrangement, a facility bills Medicaid for each service it provides to a resident. Payments are made on a perday or perservice basis rather than through a capitated or prospective payment system. The key characteristics include:

• Itemized billing: Each service (e.g., skilled nursing, therapy, personal care) is recorded and priced separately.
• Daily rate determination: Rates are set by the state Medicaid agency and can vary by level of care, location, and resident acuity.
• Reimbursement after service delivery: The facility must submit claim data after the service is rendered, and Medicaid reimburses based on the approved rate schedule.

2. Determining the Daily Rate

2.1 StateSpecific Rate Schedules

Every state develops its own Medicaid rate schedule for nursing facilities. The schedule typically includes:

• Base rate for a standard resident.
• Adjustment factors for higher acuity or specialized care (e.g., ventilator dependence, dementia care).
• Geographic differentials reflecting cost of living variations.

2.2 LevelofCare (LOC) Classifications

Most states use a tiered LOC system. Common levels are:

• Level 1 (Basic Care): Assistance with activities of daily living (ADLs) and minimal skilled nursing.
• Level 2 (Intermediate Care): More frequent skilled nursing and therapy services.
• Level 3 (Intensive Care): Continuous skilled nursing, complex wound care, or ventilator support.

The facility must conduct a resident assessment (usually the MDS 3.0) to assign the correct LOC, because the rate paid depends directly on that classification.

3. Billing Process

3.1 Resident Assessment

Accurate, timely assessments are mandatory. The Minimum Data Set (MDS) is submitted to the states Medicaid Management Information System (MMIS). The assessment determines:

• Level of care.
• Any supplemental service needs (e.g., dialysis, respiratory therapy).
• Eligibility for additional state or federal supplemental payments.

3.2 Claim Submission

After the assessment, facilities generate a claim for each resident each day (or for a defined claim period). Essential elements include:

• Resident identifier (SSN, Medicaid ID).
• Dates of service.
• Levelofcare code.
• Itemized service codes and quantities.
• Medicare/Medicaid coordination information, if applicable.

Claims are transmitted electronically via the states MMIS portal. Some states also permit paper claims, but electronic submission is increasingly mandatory.

3.3 Reimbursement Timeline

Reimbursement periods vary, but most states process claims within 3045 days of receipt. Prompt submission helps avoid delayed cash flow and potential penalties.

4. Supplemental Payments and Adjustments

4.1 CaseMix Adjustments

Many states apply a casemix or acuity adjustment to the base rate. Facilities with a higher proportion of highacuity residents receive a multiplier that increases overall reimbursement.

4.2 Rural and CostofLiving Adjustments

Facilities located in designated rural areas or highcost counties may receive additional percentage increases to offset higher operating expenses.

4.3 Quality Incentive Payments

Some states have quality incentive programs that reward facilities meeting specific outcome benchmarks (e.g., reduced hospital readmissions, low infection rates). These incentives are paid on top of the standard FFS rate.

5. Coordination with Medicare

When a resident is dually eligible for Medicare and Medicaid, the two programs must coordinate benefits. The Primary Payer rules dictate which program pays first. For skilled nursing services covered under Medicare Part A, Medicaid typically acts as secondary payer and may provide gap coverage for services not fully paid by Medicare.

6. Compliance and Audit Considerations

• Documentation: Every billed service must be documented in the residents chart and reflected in the MDS.
• Timely Assessments: Failure to complete or update assessments within required windows can trigger rate reductions or claim denials.
• Anti fraud safeguards: States conduct random audits; facilities should maintain clean, auditable records and train staff on proper billing practices.
• Rate Change Notifications: States publish annual rate updates. Facilities must adopt new rates by the effective date and recalibrate billing systems accordingly.

7. Practical Tips for Facility Administrators

1. Invest in a robust electronic health record (EHR) that integrates with the state MMIS for seamless MDS and claim submission.
2. Maintain a schedule for assessment updatesat admission, quarterly, and whenever there is a significant change in condition.
3. Designate a compliance officer to monitor state bulletins on rate changes, policy amendments, and audit results.
4. Run regular internal mock audits to verify that billing aligns with documented care.
5. Leverage quality improvement initiatives; higher quality scores often translate into bonus payments.

8. Frequently Asked Questions

What happens if a residents level of care changes midmonth?

The facility must submit an updated MDS promptly. The daily rate is adjusted retroactively for the days the new LOC applies, and the claim will reflect the change.

Can a facility charge for services not covered by Medicaid?

No. Only services that are Medicaideligible and documented can be billed. Charging for noncovered items can result in penalties and possible exclusion from the Medicaid program.

How are room and board costs handled?

Room and board are included in the daily Medicaid rate. Facilities cannot bill separately for meals or basic lodging; these are covered under the perday reimbursement.

Are there caps on the number of therapy minutes per resident?

States set therapy caps (e.g., 3 hours per day of PT/OT). Exceeding these caps without documented medical necessity can lead to claim denials.

9. Resources

• Medicaid.gov Official Federal Site
• CMS Dual Eligibility Guidance
• National Council of State Boards of Nursing MDS Overview
• State Medicaid Agency websites for local rate schedules and policy updates.

Staying current with Medicaid feeforservice policies helps nursing facilities deliver highquality care while maintaining financial stability. By following the assessment, billing, and compliance steps outlined above, facilities can maximize reimbursement and avoid costly penalties.