Calling for a reevaluation of the Medicare payment system for skilled nursing facilities (SNFs), the Department of Health and Human Services’ (HHS) Office of Inspector General (OIG) recently issued a report expressing concerns about Medicare payment for therapy services. The OIG found that Medicare payments for therapy “greatly exceed” SNFs’ therapy costs. The difference between Medicare therapy payments and facility costs for therapy averaged 29 percent—twice as high as the 14 percent overall Medicare margin for SNF payments in 2012. The OIG stated that Medicare payments for therapy rose faster than therapy costs between 2002 and 2010. According to the OIG, one factor leading to the increased payments was that SNFs increasingly billed for the highest level of therapy even though beneficiary characteristics remained largely unchanged. The OIG report also notes that SNFs used strategies to optimize revenues, such as providing the minimum number of therapy minutes for the higher levels of therapy. Finally, the OIG found that increases in SNF billing resulted in $1.1 billion in Medicare payments in 2012 and 2013.

As a result of this and prior OIG reports, the OIG called for the Centers for Medicare and Medicaid Services (CMS) to reevaluate the Medicare SNF payment system. The OIG recommended that CMS take the following actions: (1) evaluate the extent that Medicare therapy payment rates should be reduced; (2) change the method used to pay for therapy; (3) adjust Medicare payments to eliminate any increases that are not related to beneficiary characteristics; and (4) strengthen oversight of SNF billing. CMS agreed with all of the OIG’s recommendations. Accordingly, it is possible.