November 18, 2012

Earlier this month, the Office of Inspector General of the U.S. Department of Health and Human Services issued a report entitled “Inappropriate Payments to Skilled Nursing Facilities Cost Medicare More Than a Billion Dollars in 2009.” Skilled nursing facilities (“SNFs”) received $32.2 billion from Medicare in fiscal year 2012. The Office of Inspector General has identified a number of problems with billing by SNFs in recent years, including the submission of inaccurate, medically unnecessary, and fraudulent claims. And the Medicare Payment Advisory Commission has concerns about SNFs improperly billing for therapy to obtain additional Medicare payments (the payment system “encourages SNFs to furnish therapy, even when it is of little or no benefit”).

The Office of Inspector General’s study reviewed a random sample of SNF claims from 2009 that looked at whether the information contained in the Minimum Data Set (“MDS”) was supported by and consistent with the medical records from the SNFs. The MDS is a standardized tool that SNFs use to assess each beneficiary that SNFs use to classify beneficiaries into resource utilization groups (“RUG”). The RUGs determine how much Medicare pays the SNFs.

The study found that SNFs billed one-quarter (24.9%) of all claims in error in 2009, resulting in $1.5 billion in inappropriate Medicare payments. This represents 5.6% of the $26.9 billion paid to SNFs in 2009. The majority of the claims in error were upcoded (20% of claims billed by SNFs had higher paying RUGs than were appropriate; for approximately half of these claims, SNFs billed for ultrahigh therapy RUGs when they should have billed for lower levels of therapy or nontherapy RUGs; for 57% of the upcoded claims, SNFs reported providing more therapy on the MDS than was indicated in the medical record). The remaining claims in error were downcoded or did not meet Medicare coverage requirements. In addition, for 47% of claims, SNFs reported inaccurate information that was not supported or consistent with the medical record on at least one MDS item. SNFs commonly misreported therapy, which largely determines the RUG and the amount that Medicare pays the SNF.

The problem has become more costly to Medicare over the past ten years: in 2002, the Office of Inspector General found that 26% of claims submitted by SNFs were not supported by the medical record, representing $542 million in potential overpayments. From 2006 to 2008, SNFs increasingly billed for higher paying categories, even though beneficiary characteristics remained largely unchanged (for-profit SNFs were far more likely to bill for higher paying RUGs).

How Are Medicare Payments To SNFs Determined?

Medicare Part A SNF benefit covers skilled nursing care, rehabilitation services, and other services that include physical, occupational, and speech therapy; skin treatments; and assistance with eating, bathing, and toileting. Medicare covers these services for up to 100 days during any spell of illness. To qualify for the SNF benefit, the beneficiary must have been in the hospital for at least 3 consecutive days and the hospital stay must have occurred within 30 days of admission to the SNF. The beneficiary must need skilled services daily in an inpatient setting and must require the skills of technical or professional personnel to provide these services. In addition, these services must be ordered by a physician and be for the same condition that the beneficiary was treated for in the hospital.

Medicare pays SNFs under a prospective payment system. SNFs use the MDS to assess each beneficiary’s clinical condition, functional status, and expected and actual use of services. SNFs use certain items on the MDS to classify beneficiaries into the RUGs that determine how much Medicare pays the SNF.

For many of the MDS items, SNFs assess the beneficiary during “the look-back period.” SNFs report this information on the MDS, which in addition to determining the RUG, is used to develop a care plan for the beneficiary. Several of the MDS items are also reported on CMS’s Nursing Home Compare Web site, which provides information about each nursing home to the public. SNFs must conduct assessments on or about the 5th, 14th, 30th, 60th, and 90th days of a Part A stay, as well as on certain other occasions, to account for changes in the beneficiary’s care needs. Accordingly, if a beneficiary has a 100-day Part A stay, he or she will have at least five assessments. For each assessment, the beneficiary may be categorized into a different RUG.

Medicare payment rates for therapy RUGs are typically higher than the rates for nontherapy RUGs. In addition, Medicare typically pays more for higher levels of therapy. The therapy RUGs are divided into five levels: ultrahigh, very high, high, medium, or low. The SNF categorizes each beneficiary into one of the five therapy levels based primarily on the number of minutes of therapy provided during the look-back period.

Despite changes to the SNF payment system in fiscal year 2011 that were meant to be budget neutral, Medicare payments increased by $2.1 billion, or 16%, from the last half of fiscal year 2010 to the first half of fiscal year 2011. In the first half of fiscal year 2011, SNFs billed for higher levels of therapy, which contributed to the overall increase in payments. In fiscal year 2012, Medicare reduced payments to SNFs by approximately $3.9 billion.


Wasting $1.5 billion in “inappropriate” payments made by Medicare during a one-year period is an outrage. The wasted money could have (and should) have been used to pay for legitimate, necessary medical care for Medicare beneficiaries who may have suffered as a result of the SNFs and their owners lining their pockets with vast  amounts of ill-gotten payments wrongfully received from Medicare. SNFs must be forced to play by the rules with the threat of being heavily fined and/or removed from the Medicare program if they are caught cheating U.S. taxpayers.

If you are aware of possible Medicare fraud presently being committed or having been committed in the past, you may agee to become a “whistleblower” under the federal False Claims Act that may entitle you to share in a portion of the recovery that the government receives from the wrongdoer.

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