Over recent years, the Federal government has trained its sights on potential billing abuses in the Medicare Part A program for Skilled Nursing Facilities (“SNFs”) in the provision of rehabilitation therapy services. The U.S. Health and Human Services Office of the Inspector General (“OIG”) issued a report in September 2015, finding that the current methodology “creates a strong financial incentive for SNFs to bill for higher levels of therapy even when beneficiaries do not need such levels.”1 The OIG recommended that the Centers for Medicare & Medicaid Services (“CMS”) restructure the payment system to address “longstanding concerns” over “the method of paying for therapy.”2 Just last month, OIG underscored the priority of replacing the current SNF payment system by identifying the reevaluation and replacement as one of its top 25 unimplemented recommendations for CMS.3 The OIG reiterated another of its core findings, that “Medicare payments for therapy greatly exceeded SNFs’ costs for therapy.”

Earlier last month, the Medicare Payment Advisory Commission (“MedPAC”) voted to recommend that CMS establish a “site neutral” prospective payment system for reimbursing nursing homes, home health agencies, and rehabilitation hospitals for post-acute care services that is based on medical acuity, rather than the setting where care is delivered.4

Meanwhile, CMS has initiated several demonstrations and initiatives to tie nursing home payment to quality performance, to broaden bundled payments, and generally to incentivize facilities and other providers to better coordinate post-acute care and contain costs. As CMS explores alternative models for reimbursing SNFs, CMS along with OIG and the U.S. Department of Justice continues to focus enforcement attention on the billions of dollars allegedly over-billed under the existing model.

CMS Releases Data to Highlight Suspicious Therapy Billing

CMS has now made it easier for RACs and other government auditors -- as well as whistleblowers -- to target SNFs that bill Medicare for residents receiving therapy at higher rates than its peers. On March 9, 2016, CMS released a Public Use File (“PUF”) of data on Medicare claims and payments to SNFs during 2013,5 allowing the public to get a granular view of each SNF’s billing practices, including RUG scores and associated therapy minutes for their rehabilitation residents. With this data, CMS has given auditors and False Claims Act (“FCA”)6 lawyers alike the ability to target potentially vulnerable SNFs and, in the case of FCA counsel, to recruit current or former employees to serve as qui tam relators against potential SNF defendants.

The PUF includes the names and addresses of SNFs; lists the number of resident-days, number of residents, and reimbursement level; and specifies the amounts that the SNF charged, and that CMS allowed and ultimately paid. The PUF breaks down the billing data by Resource Utilization Group (RUG). The current RUG system classifies nursing home residents into 66 different RUG categories based on the level of care provided to the resident, including assistance with activities of daily living and prescribed rehabilitation therapy. The higher the RUG score, the higher the per diem rate.

The PUF focuses on the RUG scores for SNF residents receiving either “Very High” or “Ultra High” levels of rehabilitation therapy.7 These categories are distinguished by clearly delineated thresholds, or cutoffs, of therapy minutes that a resident receives. For instance, an Ultra High therapy score requires that a resident receive a minimum of 720 minutes of therapy over a 7-day assessment period, while residents receiving between 500 and 719 minutes of therapy are classified in the Very High RUG. A resident receiving 499 or fewer minutes of therapy would be reimbursed at the still lower rate for the “High” RUG category. Regulators and other authorities have observed that, although only a single minute of therapy might distinguish the services being provided to two otherwise clinically identical nursing home residents, the resident receiving the extra minute of therapy accrues a higher rate for the SNF, by as much as $160 per day.8 The rate differential can translate into potentially thousands of additional Medicare dollars over the course of a SNF stay. Hence, over-treatment (or over-reporting) for therapy, beyond a resident’s medical needs, would inflate a SNF’s RUG scores and yield higher payments by CMS.

Where one might expect SNF residents to be prescribed and actually receive a wide range of therapy levels, CMS has in fact found a pattern of SNFs reporting that residents received therapy in amounts that barely exceed the thresholds for the given therapy level. Nationwide, 65% of residents classified in the Ultra High RUG categories received 720 to 730 minutes of therapy, and 51% of residents in the Very High RUG received 500 to 510 minutes.9

CMS views the pattern of consistently providing therapy within 10 minutes of the minimum levels as particularly concerning. In the PUF release fact sheet, CMS counted 88 out of 15,055 SNFs that had classified all of their Very High RUG residents based on providing 510 or fewer minutes of therapy.10 215 SNFs had classified all Ultra High residents based on 730 or fewer therapy minutes.11 For over 1,000 SNFs, 95% or more of their Ultra High or Very High RUG residents were classified into those categories based on a near-threshold amounts of therapy.12 The names and addresses of each of these SNFs is readily found in the PUF data.

Risk of Government Scrutiny and FCA Liability

SNFs with the highest frequency of near-threshold RUGs are at heightened risk of scrutiny for improper “upcoding.” Upon the release of the PUF, CMS announced that near-threshold billing patterns “have prompted us to refer this issue to the Recovery Auditor Contractors (RAC) for further investigation.”13 SNF operators also should expect the OIG and U.S. Department of Justice to examine the PUF data closely.

In addition to RAC inquiries, SNFs may face claims by private parties seeking to recover monetary relief as whistleblowers under the FCA. As noted, the PUF identifies both the frequency of near-threshold RUGs and the number and total value of claims at each RUG score. Armed with that information, relator counsel can determine which facilities might be most vulnerable to allegations of excessive therapy billing and thereby exposed to potential FCA liability.

A “suspect” billing pattern identified in the PUF data does not alone support a claim of FCA liability. To be viable, an FCA claim requires, among other things, a showing that the defendant made or submitted a false claim either knowing it was false, or with reckless disregard or deliberate ignorance of the validity of the claim.14 The PUF does not offer any theories or insights into the “how or why” for such frequent near-threshold RUGs scoring. However, the community of qui tam attorneys could mine the PUF data to target vulnerable SNFs for possible litigation, and try to identify and recruit potential relators to allege the requisite detail about a facility’s billing practices to make out an FCA claim.


With the PUF data now in the public domain, it would be prudent for SNFs to examine the data for themselves, before a RAC auditor or government investigator begins a formal inquiry. Some of the steps to consider include:

  • Reviewing the PUF data in conjunction with other resources, such as PEPPER reports, to see if the data suggest any concerning billing practices.
  • Assessing whether those practices point to any systemic lapse in billing protocols or compliance, and undertaking appropriate remedial action, which might include in-service training, revisions to procedures or protocols for therapy evaluations, or employment actions against non-compliant staff.
  • Evaluating whether practices warrant a retrospective review of claims, refund, or self-disclosure.
  • Consulting compliance counsel if any of the foregoing points to a risk of FCA liability.