Published December 4, 2023

Medicare Payment Primers: The Skilled Nursing Facility Prospective Payment System

This Insight is part of our Medicare Payment Primers series.

Medicare covers eligible services for skilled nursing care and therapy services provided daily in a skilled nursing facility (SNF). An example of SNF care includes physical therapy or intravenous injections that can be given only by a physical therapist or a registered nurse.

For traditional Medicare coverage of a SNF stay (referred to as a Part A stay), the patient must have a qualifying hospital stay defined as a prior medically necessary inpatient hospital stay of three consecutive days or more starting with the day of hospital inpatient admission but not including the day of discharge. The patient must be admitted to the SNF within a short time (generally 30 days) of leaving the hospital. The three-day qualifying stay requirement was waived during the three-year COVID-19 public health emergency (PHE), but the waiver terminated with the end of the PHE on May 11, 2023.

Even after the end of the PHE, however, Medicare Advantage plans are still allowed to cover SNF services without the prior three-day qualifying stay. This requirement is also waived for beneficiaries attributed to certain Medicare Shared Savings Program accountable care organizations. Similar waivers are incorporated into other Medicare alternative payment models.

SNF Consolidated Billing

SNFs are required to submit consolidated bills to MACs (Medicare Administrative Contractors) for most services that their residents receive during a Part A stay, regardless of the provider of those services. Section 1888(e)(2)(A) of the Social Security Act excludes certain services from the consolidated billing requirement–primarily those furnished by physicians and certain other practitioners. These services are separately billable under Part B when furnished to a SNF’s Part A resident.

The Centers for Medicare & Medicaid Services (CMS) has identified outpatient hospital services that are considered so extremely intensive, costly, or emergent that they fall outside the typical scope of SNF care plans. These services are also excluded from SNF consolidated billing:

  • Cardiac catheterization
  • Computerized axial tomography (CT) scans
  • Magnetic resonance imaging (MRI)
  • Ambulatory surgery involving the use of an operating room
  • Emergency services
  • Radiation therapy services
  • Angiography
  • Certain lymphatic and venous procedures

The Balanced Budget Refinement Act of 1999 included additional exclusions limited to specified, individual services within a number of broader service categories that otherwise remain subject to consolidated billing:

  • Chemotherapy drugs and their administration
  • Radioisotope services
  • Customized prosthetic devices
  • Ambulance services that are necessary to transport a SNF resident offsite to receive Part B dialysis services

Finally, the Consolidated Appropriations Act of 2021 requires certain specified blood-clotting factors used for the treatment of people with hemophilia and other bleeding disorders and items and services related to the furnishing of such factors be excluded from the SNF prospective payment system (SNF PPS) consolidated billing requirements.

Base Rate 

A SNF is reimbursed for all services listed on a consolidated bill for a Part A stay under the SNF PPS using a per diem methodology. The SNF PPS per diem payment covers all Medicare Part A SNF services (routine, ancillary, and capital-related costs), except those services associated with operating approved educational activities.

The standardized per diem rates are based on national data from rural and urban areas, updated annually based on changes in the cost of SNF goods and services as measured by the SNF market basket index.

Per diem rates are established for six SNF components of care:

  1. Physical therapy (PT)
  2. Occupational therapy (OT)
  3. Speech-language pathology (SLP)
  4. Nursing
  5. Non-therapy ancillary (NTA) services and supplies
  6. Non-case mix component (room and board services)

For physical and occupational therapy and non-therapy ancillaries, the per diem rates are adjusted based on the number of Medicare payment days provided, with higher payments for care furnished earlier in a stay.

As illustrated below, the final per diem payment rate for a specific SNF stay is determined by summing the rates for the six components of care listed above, subject to facility-specific and patient/case-specific adjustments to the standardized per diem rates.

Patient/Case-Specific Adjustments

Patient-Driven Payment Model (PDPM): The PDPM classifies patients into five separate case mix index (CMI) adjusted components, consistent with the categories for the SNF PPS per diem rate categories, and each component is evaluated using different measures:

  • PT: primary reason for SNF care (clinical category), functional status
  • OT: primary reason for SNF care (clinical category), functional status
  • SLP: neurology/non-neurology case mix groups, SLP-specific comorbidities, cognitive status, difficulty swallowing or requiring mechanically altered diet
  • Nursing: broad clinical condition or special care, extensive services, functional status, depression, number of restorative nursing services
  • NTA: comorbidities, special treatments

Details of each payment component are available at

Case Mix Group (CMG): To calculate each payment component, the CMI associated with the patient’s CMG is multiplied by the wage-adjusted component base rate, then by the specific day in the variable per diem (VPD) schedule, if applicable. Each payment component is then added to the non-case mix component rate to create the patient’s PDPM per diem rate.

The VPD schedule is available at

Interrupted Stay Policy: This policy sets out criteria for determining when CMS will treat multiple SNF stays occurring in a single Part A benefit period as a single “interrupted stay,” rather than as separate stays, for the purposes of the assessment schedule and the variable per diem payment schedule. An interrupted SNF stay happens when a patient leaves a Part A-covered SNF level of care and is then readmitted to Part A-covered SNF care in the same SNF within the interruption window. The interruption window is a three-day period beginning on the first non-covered day after a Part A-covered SNF stay and ending at 11:59 p.m. on the third consecutive non-covered day.

The first non-covered day may be different if the patient leaves the facility or Part A coverage:

  • If the patient physically leaves the SNF, the first interruption window is the departure day.
  • If the patient stops Part A coverage but stays in the SNF, the first interruption window is the day after the final Part A coverage day.

If the patient is readmitted to the same SNF outside the interruption window or in any case in which a patient is readmitted to a different SNF (regardless of the length of time between stays), the Interrupted Stay Policy does not apply, and Medicare considers the subsequent stay a new stay.

If a resident is changed to a non-skilled level of care or leaves Part A SNF care, Medicare considers the patient discharged because of the Interrupted Stay Policy, even if the patient remains in the facility.

Facility-Specific Adjustments

Differences in Area Wages: The SNF PPS uses the same area wage index established for a specific market under the inpatient prospective payment system (IPPS), excluding any adjustments due to geographic reclassification or the rural floor. (See our article Medicare Payment Primers: The Fundamentals of Prospective Payment Systems for additional information.) The base rate is divided into a labor-related amount and a non-labor-related amount.

SNF Quality Reporting Program (SNF QRP): The SNF QRP was mandated by the Improving Medicare Post-Acute Care Transformation Act of 2014. The IMPACT Act added Section 1899B to the Social Security Act, which requires the reporting of standardized patient assessment data regarding quality measures and standardized patient assessment data elements. Section 1899B requires the submission of data pertaining to quality measures, resource use, and other domains. In addition, the IMPACT Act requires assessment data to be standardized and interoperable to allow for the exchange of data among post-acute and other providers. If a SNF fails to submit the required quality data in the specified manner, the SNF will be subject to a two-percentage-point reduction in the annual market basket update for the applicable performance year.

Current SNF QRP measures can be found at

SNF Value-based Purchasing Program (SNF VBP): Under SNF VBP, a SNF’s payment is adjusted based on its performance on established quality measures as compared to its peers. Under the program, CMS withholds 2% of SNFs’ Medicare fee-for-service Part A payments to fund the program. Per statutory requirements, CMS then redistributes between 50-70% of the 2% withhold to SNFs as incentive payments. Currently, CMS redistributes 60% of the withhold to SNFs with the remaining 40% retained in the Medicare Trust Fund. (By comparison, 100% of the withhold is redistributed to hospitals under the hospital VBP.)

Details regarding the SNF VBP program can be found at

Swing Beds

Section 1883 of the Social Security Act permits critical access hospitals (CAHs) and rural hospitals with fewer than 100 beds to enter into a Medicare swing-bed agreement, under which the hospital can use its licensed beds to provide either acute- or SNF-level care, as needed. Coverage for SNF-level care requires a prior three-day hospital or CAH stay; although, the qualifying stay does not have to be in the same hospital or CAH as the swing bed.

For CAHs, Part A pays on a reasonable cost basis for SNF-level services furnished under a swing bed agreement. SNF-level services furnished by rural PPS hospitals are paid under SNF PPS. 

If you would like additional information about prospective payment systems or any matter related to strategy and transactions, compliance, or valuation, our executive contacts are happy to help. Contact them via email or by calling (800) 270-9629.


CMS Skilled Nursing PPS

Patient-Driven Payment Model

Swing Beds Fact Sheet

Executive Contacts

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