CMS Just Handed Nursing Homes a Win Over State Auditors — and a Warning on Respiratory Billing

Washington, D.C. — Nursing homes just caught a break from CMS — with a catch buried in the same pages.

The agency’s updated MDS 3.0 Resident Assessment Instrument manual, effective October 1, settles a fight that has been simmering for years: states and other payers cannot override federal guidance on how facilities code resident assessments. The clarification, tucked into the roughly 900-page manual CMS released September 17, landed like a victory for providers who have watched state case-mix auditors demand documentation far beyond what federal rules actually require.

“CMS listened to our member feedback,” said Jessie McGill, senior curriculum development specialist at the American Association of Post-Acute Care Nursing. She called the confirmation that states cannot supersede the RAI guidance “a huge celebration for the entire industry.”

Why the state audit fight matters

The stakes here are real money. State case-mix programs have increasingly told operators their MDS coding wasn’t accurate enough — compared to what the state wanted, not what the federal manual says. Failing those audits can dent a facility’s reimbursement, and coding directives from states or managed care organizations have sometimes contradicted the RAI manual outright.

Providers now have language to lean on in appeals. When an auditor demands extra documentation, “the provider now has a statement in the manual that says no, I have to follow this guidance and nothing else,” McGill said.

States can still set their own requirements, but those have to happen on the back end through billing edits — not by asking clinicians to change what they certify as accurate on the MDS.

The respiratory therapy warning

The same update carries a warning for billing. New language clarifies that maintenance-level or prophylactic incentive spirometry sits under tighter scrutiny in the therapy minutes sections. If a facility provides at least 15 minutes of therapy per day for seven days in a row, it needs to be skilled therapy — care that genuinely requires the knowledge of a nurse or respiratory therapist.

McGill said the change reflects a trend of facilities building out respiratory programs, and it could shrink the number of residents captured in respiratory therapy, trimming reimbursement in Medicaid case-mix states and Medicare.

There’s relief on one more front: CMS added signs and symptoms of depression to chapter 6, so medical reviewers stop questioning PHQ-9 coding just because a resident lacks a formal depression diagnosis.

Not everything got resolved. The manual stays silent on the discharge-definition confusion created by CMS’s May proposal to require assessments for every resident, not just traditional Medicare stays — a gap industry experts say still needs fixing. The update also lands weeks after CMS shortened the MDS reporting window, keeping assessment paperwork squarely in regulators’ crosshairs.