Skilled Nursing Facilities’ Questionable Billing Practices Hurt Both Providers and Patients

MAR 8

Last Thursday, the Office of Inspector General of the U.S. Department of Health & Human Services published a report outlining the chronic misalignment between levels of care given and reimbursements that exists in Skilled Nursing Facilities (SNFs). This follows a report published by the same office in November 2012 that released the results of a comprehensive audit of Medicare reimbursements to SNFs, reporting that the incorrect coding of one in every four claims had led to an overpayment of $1.5 billion to SNFs in 2009.

The reimbursement environment in SNFs is underscored by the establishment of resource utilization groups (RUG’s).  RUG’s are an attempt to classify the level, intensity, and amount of care provided to a patient during a stay in a SNF, and are accompanied by different per diem reimbursement rates that correspond to their level of care. For example, a therapy RUG for patients who require active therapy during their stay comes with a higher reimbursement rate than a non-therapy RUG. Additionally, therapy RUGs are stratified to take into account the amount of therapy given, calculated by total time of therapy, with the highest level having the highest reimbursement rates.

The audit performed by the OIG discovered that a vast majority of the incorrect coding was attributed to “upcoding”, where a claim was submitted for a higher-paying-than-accurate RUG. The November 2012 report states that 20.3% of all claims, or 89% of all inaccurate claims were a result of upcoding, resulting from a number of scenarios including coding for higher levels of therapy than was indicated the patients’ medical records and providing more therapy than was needed or necessary. One notable example was found of SNFs providing care in accordance with the highest-paying RUG even though the patient’s physician did not sign an order for the therapy.

These dubious coding practices, however, are having an adverse effect on the entire SNF market. Entering FY2011, CMS made alterations to the reimbursement process for SNFs. They called for changes to concurrent therapy, disallowing facilities’ ability to bill for the entire period of time for each patient. To counteract the change, CMS also marginally increased the per diem rates for the highest-level RUGs.

Instead of seeing concurrent billing rates stay constant, the data instead showed concurrent billing drop to nearly zero as the rate of billing for “High”, “Very High”, and “Ultra High” levels of therapy increased from 79.2% of claims to 88.7% of claims between the second half of FY2010 and the first half of FY2011. To react to the huge boom in reimbursements that accompanied this, CMS reduced reimbursement rates by 11.1% in FY2012. The rate cuts have put the facilities into a tougher spot financially, and the Alliance for Quality Nursing Home Care reports that over 1/3 of nursing facilities expect to have to lay off some of their direct labor workforce as a response to the payment cuts.

Patients are also experiencing drawbacks related to the reimbursement environment. In the OIG’s report from last week, it is noted that 37% of all SNF stays fail to produce adequate care and service plans to meet requirements. These care plans fail in the following ways:

  • They do not address problem areas identified in patient assessments
  • They do not contain measurable objectives or timeframes
  • They are not completed at all
  • More services are provided than determined in care plan
  • Fewer services are provided than determined in care plan


Overall, services provided by SNFs have not aligned perfectly with what the patient needs. Often this is a result of the adverse incentives around providing higher levels of care or excess care, but also cases exist in which patients do not receive as much care as they require. And with a market correction happening to lower reimbursement rates and levels, SNFs find themselves stretched financially, putting them again in a tough spot to deliver effective and comprehensive care.

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Judd Stevens