The HHS Office of Inspector General (OIG) continues to question the appropriateness of payments to skilled nursing facilities (SNFs) under the Medicare SNF prospective payment system (PPS). Based on Medicare Part A SNF claims data and cost reports over the last decade and beneficiary assessments for fiscal years (FYs) 2011 to 2013, the OIG concluded that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy. According to the OIG, there was a 29% difference between Medicare payments for therapy and SNFs’ costs for therapy in FY 2012 (compared to an overall 14% Medicare “margin” for SNF payments). Moreover, SNFs increasingly billed for higher levels of therapy, or resource utilization groups (RUGs), and increasingly provided the minimum number of therapy minutes for the higher levels of therapy, or RUGs, which the OIG characterized as a “strategy to optimize revenues.” According to the OIG, during the same period that SNFs increased their therapy billing, key beneficiary characteristics remained largely the same. The OIG estimates that the increase in SNF therapy billing not related to key beneficiary characteristics (“case mix creep”) resulted in $1.1 billion in Medicare payments in FY 2012 and 2013.

In response to its findings, the OIG recommends that CMS: (1) evaluate the extent to which Medicare payment rates for therapy should be reduced, (2) change the method for paying for therapy, (3) adjust Medicare payments to eliminate any increases that are unrelated to beneficiary characteristics, and (4) strengthen oversight of SNF billing. CMS concurred with these recommendations. CMS Acting Administrator Andrew Slavitt conceded that by basing Medicare Part A therapy payment under the SNF PPS primarily on the amount of therapy provided to the beneficiary regardless of patient condition, the current policy “implicitly provides a financial payment incentive for facilities to provide as much therapy to a resident as that resident can tolerate, regardless of the impact of providing this level of therapy on producing positive patient outcomes.” Acting Administrator Slavitt noted that CMS is working to identify potential alternative methodologies for paying for SNF PPS services.

For details, see the full report, “Medicare Payment System for Skilled Nursing Facilities Needs To Be Reevaluated.”