The question of how best to reimburse nursing home providers for delivering cost-efficient, quality long term care services to Medicare beneficiaries and Medicaid recipients is one that faces every state and one that has been the subject of policymaking by the federal government. Abt Associates evaluated the viability of the Resource Utilization Group (RUG-III) prospective casemix-adjusted payment system for nursing homes.  We analyzed the Nursing Home Casemix and Quality demonstration's impact on access to services for Medicare beneficiaries, changes in case mix, costs, utilization of therapy services, outcomes of care, and quality of care in skilled nursing facilities that participated in the demonstration. In addition, we also examined components of another classification system, the Nursing Severity Index (NSI), to assess whether any items contained in the NSI could improve the performance of the RUG-III system.  Using HCFA administrative data, we determined the actual payment rates associated with different parts of the classification system.  These data were also used to test the reliability and validity of the revised resident classification system on a national sample of Medicare-covered nursing home stays.