Navigating CMS’ pay-for-performance healthcare evolution

The Centers for Medicare & Medicaid Services (CMS) has steadily advanced its agenda of shifting U.S. healthcare away from volume-based reimbursement toward value-driven outcomes through pay-for-performance healthcare programs. Pay-for-performance programs, once narrowly focused on hospital readmissions, now touch nearly every aspect of post-acute care. For skilled nursing facilities (SNFs), the more recent payment rules represent a pivotal shift: increased focus on quality measures, reporting requirements and heightened financial stakes.

At Baker Tilly, we view these developments not simply as compliance hurdles but as opportunities for organizations to differentiate themselves in quality, strengthen financial performance and protect reputation. This article explores the impact of quality on payment, the challenges providers are experiencing and how Baker Tilly can help turn regulatory pressure into sustainable improvement.

The evolution of pay-for-performance healthcare in skilled nursing

Pay-for-performance in SNFs was largely shaped by the 2014 IMPACT Act, which introduced standardized quality reporting and laid the foundation for the SNF Value-Based Purchasing (VBP) and Quality Reporting Program (QRP).

• Value-Based Purchasing (VBP): Until recently, VBP evaluated SNFs almost exclusively on 30-day all-cause hospital readmissions. CMS withheld 2% of Medicare payments, returning a portion based on either how facilities improved against themselves (performance year versus baseline year) or outperformed peers in the performance year. Depending on the better of these two, facilities are given an “incentive multiplier” to the Medicare rate. Because CMS typically budgets to pay back only 60% of the monies withheld from facilities, more often than not the “incentive” multiplier reduces the payment and only top performing providers receive a neutral or greater multiplier.
• Skilled Nursing Facility (SNF) Quality Reporting Program (QRP): SNF QRP requires data submission from facilities that CMS to calculate quality measures (QMs) for the program. When data is not submitted or not submitted timely, CMS penalizes facilities 2% of Medicare rates. Historically, 80% of assessments submitted needed to be completed to be considered compliant, but CMS raised the threshold to 90% in prior rulemaking. Facilities missing this benchmark often discovered too late that they were out of compliance, jeopardizing significant revenue.

This expanded framework reflects CMS’ priority: aligning reimbursement with not only patient/resident safety and outcomes but also organizational stability, staffing culture and transparency.

Challenges facilities are facing

While these regulatory changes have been publicized, many facilities remain unaware of their direct financial impact. For organizations, the transition to pay-for-performance healthcare means that operational missteps can quickly turn into financial losses. Our team has observed several recurring challenges:

1. Lack of awareness: Many SNFs focus primarily on their public-facing Five-Star Quality Rating System scores, overlooking that the same measures are used to calculate reimbursement. The disconnect between reputation and revenue puts providers at risk of leaving dollars on the table.
2. Siloed operations: Access to CMS’ iQIES system, where compliance and quality data are stored, typically rests with clinical staff. Nurses, who already balance demanding care and assessment coordination responsibilities, may not be focused on the financial ramifications of compliance reports, correction deadlines or the consequence of failing to correct data errors. Without collaboration between finance and clinical teams, key deadlines are missed.
3. Compliance blind spots: Facilities often fail to run the SNF QRP compliance threshold and error detail reports in iQIES, leaving them unaware of future penalties until CMS letters arrive. Each cycle, SNFs are granted up to 4.5 months to correct errors, but many did not take advantage simply because they did not know the reports existed.
4. Resource constraints: Smaller or independent facilities, particularly those outside large networks, may lack the internal compliance infrastructure that larger operators enjoy. This leads to inconsistent monitoring and reduced awareness to respond when CMS raises the bar.

Financial and strategic implications

The cumulative effect of pay-for-performance healthcare measures is significant:

• 2% VBP Withhold: Returned based on performance, often only partially.
• 2% QRP Penalty: Triggered by insufficient or inaccurate reporting.