The nation’s 17,000 nursing homes play an essential role in our health care system, providing services to 1.6 million elderly and disabled persons who are temporarily or permanently unable to care for themselves but who do not require the level of care furnished in an acute care hospital. Depending on the identified needs of each resident, as determined through MDS assessments, nursing homes provide a variety of services, including nursing and custodial care, physical, occupational, and speech therapy, and medical social services. The majority of nursing home residents have their care paid for by Medicaid, a joint federal-state program for certain low-income individuals. Almost all nursing homes serve Medicaid residents, while more than 14,000 nursing homes are also Medicare- certified. Medicare, the federal health care program for elderly and disabled Americans, pays for posthospital nursing home stays if a beneficiary needs skilled nursing or rehabilitative services. Medicare- covered skilled nursing home days account for approximately 9 percent of total nursing home days. Medicare beneficiaries tend to have shorter nursing home stays and receive more rehabilitation services than individuals covered by Medicaid. Since 1991, nursing homes have been required to develop a plan of care for each resident based on the periodic collection of MDS data. The MDS contains individual assessment items covering 17 areas, such as mood and behavior, physical functioning, and skin conditions. MDS assessments of each resident are conducted in the first 14 days after admission and are used to develop a care plan. A range of professionals, including nurses, attending physicians, social workers, activities professionals, and occupational, speech, and physical therapists, complete designated parts of the MDS. Assessing a resident’s condition in certain areas requires observation, often over a period of days. For example, nursing staff must assess the degree of resident assistance needed during the previous 7 days—none, supervised, limited, extensive, or total dependence—to carry out the activities of daily living (ADL), such as using a toilet, eating, or dressing. To obtain this information, staff completing the MDS assessments are required to communicate with direct care staff, such as nursing assistants or activities aides, who have worked with the resident over different time periods. These staff have first-hand knowledge of the resident and will often be the primary and most reliable source of information regarding resident performance of different activities. While a registered nurse is required to verify that the MDS assessment is complete, each professional staff member who contributed to the assessment must sign and attest to the accuracy of his or her portion of the assessment. MDS data are also submitted by nursing homes to states and CMS for use in the nursing home survey process and to serve as the basis for adjusting payments. CMS contracts with states to periodically survey nursing homes to review the quality of care and assure that the services delivered meet the residents’ assessed needs. In fiscal year 2001, the federal government spent about $278 million on the nursing home survey process. Effective July 1999, the agency instructed states to begin using quality indicators derived from MDS data to review the care provided to a nursing home’s residents before state surveyors actually visit the home to conduct a survey. Quality indicators are essentially numeric warning signs of potential care problems, such as greater-than-expected instances of weight loss, dehydration, or pressure sores among a nursing home’s residents. They are used to rank a facility in 24 areas compared with other nursing homes in a state. In addition, by using the quality indicators before the on- site visit to select a preliminary sample of residents to review, surveyors should be better prepared to identify potential care problems. In addition to quality oversight, some state Medicaid programs and Medicare use MDS data to adjust nursing home payments to reflect the expected resource needs of their residents. Such payment systems are commonly known as “case-mix” reimbursement systems. Because not all residents require the same amount of care, the rate paid for each resident is adjusted using a classification system that groups residents based on their expected costs of care. Facilities use MDS data to assign residents to case-mix categories or groups that are defined according to clinical condition, functional status, and expected use of services. In Medicare, these case-mix groups are known as resource utilization groups. Each case-mix group represents beneficiaries who have similar nursing and therapy needs. As of January 2001, 18 states had introduced such payment systems for their Medicaid programs. As directed by the Congress, HCFA in 1998 implemented a prospective payment system (PPS) for skilled nursing facilities (SNF)—nursing homes that are certified to serve Medicare beneficiaries. The SNF PPS also uses MDS data to adjust nursing home payments. States and CMS use the term “accuracy reviews” to describe efforts that help ensure MDS assessments accurately reflect residents’ conditions. Review activities can be performed on-site—that is, at the nursing home— or off-site. On-site reviews generally consist of documentation reviews to determine whether the resident’s medical record supports the MDS assessment completed by the facility. If the MDS assessment is recent, the review may also include direct observation of the resident and interviews with nursing home staff who have recently evaluated or treated the resident. While documentation reviews may also be conducted outside of the nursing home, other off-site reviews of MDS data include examining trends across facilities. For example, off-site review activities could involve the examination of monthly reports showing the distribution of residents’ case-mix categories across different facilities in a state. Similarly, off-site reviews could also involve an examination of particular MDS elements, such as the distribution of ADLs within and across nursing homes to identify aberrant or inconsistent patterns that may indicate the need for further investigation. Off-site and on-site reviews may also be combined as a way of leveraging limited resources to conduct MDS accuracy activities. Eleven states conduct separate MDS accuracy reviews apart from their standard nursing home survey process. Ten of these states’ reviews were in operation as of January 2001. An additional 7 states reported that they intend to initiate similar accuracy reviews. All 18 of these states either currently use an MDS-based Medicaid payment system or plan to implement such a system. The remaining 33 states have no plans to implement separate MDS review programs and currently rely on their periodic nursing home surveys for MDS oversight. In all but one of the states with separate MDS review programs operating as of January 2001, accuracy reviews entail periodic on-site visits to nursing homes. The reviews focus on whether a sample of MDS assessments completed by the facility is supported by residents’ medical records. If the MDS assessments reviewed are recent enough that residents are still in the facility and their health status has not changed, the on-site review may also be supplemented with interviews of nursing home staff familiar with the residents, as well as observations of the residents themselves, to validate the record review. About half of these states also conduct off-site data analyses in which reviewers look for significant changes or outliers, such as facilities with unexplained large shifts in the distribution of residents across case-mix categories over a short period. Officials primarily attributed the errors found during their on-site reviews to differences in clinical interpretation and mistakes, such as a misunderstanding of MDS definitions. A few of these states have been able to show some recoupments of Medicaid payments since the implementation of their on- site review programs. Of the 50 states and the District of Columbia, only 11 conduct accuracy reviews of MDS data that are separate from the state’s nursing home survey process. (See table 1.) These 11 states provide care to approximately 22 percent of the nation’s nursing home residents and all but one have an MDS-based payment system (Virginia began conducting MDS accuracy reviews in April 2001 in anticipation of adopting such a payment system in 2002). Seven additional states plan to initiate separate MDS reviews—three currently have an MDS-based payment system and four are planning to implement such a payment system. Officials in the 10 states with separate, longer standing MDS review programs said that the primary reason for implementing reviews was to ensure the accuracy of the MDS data used in their payment systems. Several of these states also indicated that the use of MDS data in generating quality indicators was another important consideration. Vermont officials, in particular, emphasized the link to quality of care, noting that the state had created its own MDS-based quality indicators prior to HCFA’s requirement to use quality indicators in nursing home surveys. A state official told us it was critical that the MDS data be accurate because Vermont was making this information available to the public as well as using it internally as a normal part of the nursing home survey process. To varying degrees, three major factors influenced the decision of 33 states not to establish separate MDS review programs. First, the majority—28 states—do not have MDS-based Medicaid payment systems. Second, some states cited the cost of conducting separate reviews. Kansas, for example, reported a lack of funding and staff resources as the reason for halting a brief period of on-site visits in 1996 as a follow-up to nursing home surveys. Arkansas as well reported insufficient staff for conducting a separate review of MDS data. Finally, officials in about one- third of the states without separate MDS reviews volunteered that they had some assurance of the accuracy of MDS data either because of training programs for persons responsible for completing MDS assessments or because of the nursing home survey process. For example, Missouri operates a state funded quality improvement project in which nurses with MDS training visit facilities to assist staff with the MDS process and use of quality indicator reports. North Carolina also reported that its quarterly training sessions provide MDS training to approximately 800 providers a year. Regarding standard surveys, Connecticut and Maryland reported that their nursing home survey teams reviewed MDS assessments to determine if they were completed correctly and if the assessment data matched surveyor observations of the resident.