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MDS 3.0, RUGs IV, RUGs III, Hybrid: A 45 Day Review

Forty- five days past the October 1 conversion to MDS 3.0 and the interim RUGS IV payment groups and I still am getting a great deal of requests for analysis tools, questions on payments, liabilities, dates and rates for the Hybrid (RUGs III) groups, maps between RUGs III and RUGs IV, etc.  While I lost track of how many spreadsheets I have e-mailed and how many questions I’ve tried to answer, I have managed to keep track thematically of the issues and ongoing needs of the folks that contact me.  To that end, it seems appropriate to consolidate the information I have, the questions I’ve gotten (and continue to get) and the issues as I hear them and provide my readers, colleagues and clients with a forty-five day recap.  Many thanks to Brett Seekins at Baker Newman Noyes who has passed along his insights based on ongoing conversations with principals at CMS.

RUGs III Hybrid

As of today, the Hybrid grouper is still not functional and CMS states that it is still undergoing development and testing.  I have confirmed this from numerous sources and CMS still is providing no hard date or date range when the Hybrid grouper may be functional.  Per a contact that Brett Seekins from Baker Newman has at CMS,  a crosswalk between RUGs III and RUGs III Hybrid was supposed to be posted on the CMS SNF web page by today.  As of now, it is still not posted but when it does become available, I will get it, analyze it and make it available to anyone who requests it.  NOTE: There is no crosswalk document between RUGs IV and RUGs Hybrid although there is a crosswalk between RUGs III and RUGs IV which I have and continue to make available to anyone who requests it.  Based on what I see when I gain access to the RUGs III to Hybrid crosswalk, I may be able to make some sense of a crosswalk strategy between RUGs IV and Hybrid.

Retroactive Adjustments/Overpayment Collections

This is a hot topic and one that remains very much in limbo.  First, CMS has made no definitive statements on how and if, repayments or retroactive adjustments will be handled when the switch is ultimately made between RUGs IV and Hybrid.  Recall that when MDS 3.0 went into effect on October 1, RUGs IV was the only grouper system that worked with 3.0 and thus, is being used to pay providers.  The issue that remains is for CMS to construct the Hybrid grouper and then, to determine how and if, overpayments occurred in the interim while RUGs IV was used.  The “how” and “if” determination will drive what CMS does with respect to retroactive adjustments or recoupment of overpayments.  My take on this subject is that CMS is a bit politically stuck at the moment as it, like the provider side of the business, is waiting to see if Congress steps forward and retroactively implements RUGs IV as law effective October 1, 2010.  This step would be huge and eliminate a ton of complications.  As to how likely this is, my guess is a shade better than 50/50.  Despite the present “lame-duck” session where historically, little of great significance is accomplished legislatively, a Medicare ticking time bomb exists.  This time bomb has to do with the pending cuts to the physician fee schedule, an issue I wrote extensively about in late spring and early summer.  Recall, that Congress created a temporary series of patches, the last creating a modest increase in the fee schedule (and related Part B services such as rehabilitation therapies) while pushing the scheduled cuts back to November 30.  The cuts are a result of a law passed by Congress years ago tying the increase or decrease in physician fees (and related Part B services) to a sustainable growth formula or more simple, a formula that is based on economic growth and overall program spending in Medicare.  Due to a languishing economy, the formula in-place calls for cuts in physician fees by 21% in 2010 with another forecast for additional cuts in 2011 (the current fiscal year).

Considering the physician fee schedule issue, Congress now must address this problem or face an enormous potential crisis with physicians and other providers reducing their services to Medicare beneficiaries.  The good news here for RUGs IV is that legislation regarding Medicare will be drafted if for no other significant purpose than to address the fee schedule problems, leaving room for other program changes to slip in such as those involving the implementation of RUGs IV.  In any other lame-duck session scenario, I would say that the chances of the RUGs IV issue being addressed would be “slim and none”.

On a final note, CMS has their hands full with getting the hybrid system in-place and therefore, retroactive adjustments are a far distant priority.  Remember, RUGs III and RUGs IV are pegged at budget neutral or in other words, RUGs IV is not supposed to cost Medicare any more dollars than the cumulative outlays under RUGs III.  In reality, because of the complexities of the new MDS assessment and the resultant changes to the case-mix weights that drive payments under RUGs IV, I believe CMS will spend less money initially under a RUGs IV system.  It will take providers a year or two to learn the intricacies of the new system and to adjust their operations, coding and billing practices accordingly.  This means that CMS will be under minimal pressure to recoup overpayments as few will likely exist.  I believe a greater probability is that CMS will make a technical adjustment in their annual rate setting for SNFs in July/August next year, reducing potential increases by a small factor for overpayments during the transition period.  Again, this only occurs if Congress fails to address the implementation date of RUGs IV back to October 1, 2010.

Establishing a Liability for Overpayments

Given the above discussion on retroactive adjustments, I have advised providers to prudently establish a liability for overpayment based on their Medicare utilization since October 1.  Here is what I am advising people to do regarding this transition and hybrid period. First, obtain a calculator with RUGs III hybrid rates and use it to establish a liability on the balance sheet for overpayments.  The calculator allows you to enter your utilization by RUGs III and/or RUGs IV claims and produces results for each payment system.  I have a calculator tool that I make available. Second, run a month end manual test on your claims by using the published hybrid rates. CMS released these in August. The manual test is as easy as a quick sample of claims for the month, mapped against the hybrid categories. Where a hybrid category does not exist, use the RUGs IV category – CMS has said it will use RUGs IV categories where no RUGs III hybrid exists. Third, compare your results and adjust your liability up or down by the error percentage (how much your sample said you were over or under) for the next month and error on the side of being conservative.  If in fact, Congress acts or CMS chooses not to recoup payments from individual providers, the liability simply evaporates to income once the issue is resolved.  The sole side-effect temporarily, is that income is slightly understated by the effect of the liability.

Monitor Performance and Progress

Regardless of where an SNF feels it is on the journey post October 1, the number of questions I am still getting plus the number of tools that I still send out suggest that providers are still transitioning.  This is to be expected given the enormity of change and the ordinary bumps in the road caused by CMS and its intermediaries.  My advice is that SNFs check their progress on the transition by doing the following.

  • For any SNF that is using a therapy contractor or rehab company, audit your contractor/rehab company. The largest change that occurred under the switch to MDS 3.0 and ultimately RUGs IV is in the provision of and payment for therapy.  Recall that the therapy company is not the Medicare Part A provider; the SNF is.  Any liabilities that arise from billing problems, overpayments, etc. are ultimately the responsibility of the provider with the agreement with CMS or in other words, the SNF.  I have seen tons of therapy company contracts with very limited indemnity clauses, typically not worth much in the event of a major billing probe, upcoding issues, fraud investigations or recoupment of overpayments.  In virtually all of these clauses, the indemnification back to the SNF from the therapy company is for the cost of the therapy charged by the therapy company to the SNF; not for the lost revenue and/or fines and penalties that can occur.  It is the SNF’s responsibility to assure that Medicare is appropriately billed and care is correctly provided and documented as assessed on the MDS.  The simplest way for an SNF to assure that such is the case is to audit the therapy company’s performance.  I have an outstanding partnership relationship with a therapy management firm (not a therapy company) that can provide such a service, cost-effectively and efficiently.  The principals are all MDS 3.0 certified and have decades of experience as therapists in the long-term care industry.  I advise any SNF that hasn’t audited their therapy provider to do so ASAP.  Even for SNFs that provide their therapies via employees, it makes sense to have an expert come-in, review current practices and to provide guidance where improvements can be made.  Feel free to contact me for a referral.
  • Periodically, check your utilization patterns as occurred under RUGs III and now, under RUGs IV.  Use a crosswalk tool to see exactly how your claims under RUGs IV are trending compared to what they were under RUGs III.  In 45 days, a significant change should not occur as for most providers, case-mix evolves rather slowly.  If you are seeing big jumps or changes, something is amiss (for example, Ultra High rehab patients should still conform accordingly under the RUGs III method and then group accordingly under RUGs IV).
  • Monitor your MDS completions and the time it is taking to complete the assessment.  MDS 3.0 is heavily driven by interviews and accordingly,  a provider should see a shift in time taken with direct patient interviews.  Likewise, the ultimate shift under RUGs IV significantly changes therapy minute counting, especially concerning concurrent therapy.  Provider should see movements toward more individualized therapy time and elimination of look-back assessments.
  • Sample some new admissions looking for a match between clinical charting and MDS coding.  What is being coded on the MDS should correlate tightly with what is reflected in the resident clinical record.  If there is a gap, time for re-training.


I have a number of tools that I can forward to make the analysis, budgeting, forecasting, checking, etc. easier.  For example, I have current Hybrid rates, RUGs IV rates by region/location, a RUGs III, Hybrid and RUGs IV calculator by region/location, a RUGs III to RUGs IV crosswalk and hopefully soon, a RUGs III to Hybrid crosswalk.  Feel free to e-mail me and request any or all of these tools or comment to this post with a valid e-mail address and I will get them to you ASAP.  My e-mail is  Likewise, feel free to drop me a question and I will do the best I can to answer it or point you in the right direction.


November 15, 2010 - Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , ,


  1. Ms. Williams;

    Thank-you. I hear the struggles daily from too many sources and places to track and hopefully, I can add a bit of clarity and provide a touch of guidance as my schedule permits. Thanks again for reading and your comments.

    Comment by Reg Hislop III | November 17, 2010

  2. Excellent job of breaking down an extremely complex topic.
    Providers are still spinning from the MDS 3.0 transition and any guidance for minimizing the pain is greatly appreciated!

    Comment by Rhonda | November 16, 2010

  3. […] MDS 3.0, RUGs IV, RUGs III, Hybrid: A 45 Day Review « Reg's Blog […]

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