OIG Finds More Problems With Skilled Nursing Facilities

The HHS OIG, Medicare Payment Advisory Commission, and other entities have raised longstanding concerns regarding Medicare’s Skilled Nursing Facility (SNF) payment system. The payment system costs more than $32 billion annually. Concerns focus on the method of paying for therapy and the extent to which Medicare payments exceed SNF costs. The OIG has reported on this problem for several years. In its most recent report, it found that Medicare payments for therapy greatly exceeded SNF costs. Further, SNFs increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. As a result, Medicare has made $1.1 billion in overpayments to SNFs within the last two years.

The OIG has previously identified numerous issues regarding SNFs. It found that from 2005 to 2007, nearly three-quarters of facilities surveyed had at least one quality-of-care deficiency. In a 2010 report, the OIG found that one quarter of all claims were in error, resulting in $1.5 billion worth of inappropriate payments. Additionally, about half of SNF Minimum Data Set (MDS) reports contained misreported information. The OIG also found that from 2006 to 2008, SNFs increasingly billed for the highest level of therapy even though key characteristics of SNF beneficiaries remained largely unchanged. The OIG’s new study further supports and quantifies these concerns.

A SNF provides skilled nursing care; rehabilitation services including physical, occupational, or speech therapy; and other services such as assistance with eating, bathing, and toileting. SNFs can be a vital part of a patient’s recovery when they are managed properly and administer quality care, as is most often the case. Medicare pays SNFs a daily rate for nursing, therapy, and other services. The daily rate for therapy is primarily based on the amount of therapy provided, regardless of the specific beneficiary’s characteristics or care needs. However, the OIG continues to raise concerns that not all money paid to SNFs is well-spent. For years, the OIG has been reporting weaknesses in the system that permit overpayments for services as result of abuse and fraud.

The new OIG study relied on several data sources, including Medicare Part A SNF claims, Medicare cost reports, and beneficiary assessments. The OIG used Medicare cost reports to compare Medicare payments to SNF costs for therapy over a 10-year period. It also used claims data to determine the extent to which SNF billing and beneficiary characteristics changed from fiscal years 2011 to 2013. Finally, the OIG determined the extent to which changes in SNF billing affected Medicare payments. The findings of this and prior OIG reports call for CMS to reevaluate the Medicare SNF payment system. Payment reform could save Medicare billions of dollars and encourage SNFs to provide services that are better aligned with beneficiaries’ care needs. The OIG recommendations included that CMS:

1. Evaluate the extent to which CMS should reduce Medicare payment rates for therapy;
2. Change the method of paying for therapy;
3. Adjust payments to eliminate any increases that are unrelated to beneficiary characteristics; and
4. Strengthen oversight of SNF billing.

CMS concurred with all four of the OIG’s recommendations.