New OIG Report Cites $1.5 Billion in Inappropriate Medicare Payments to Skilled Nursing Facilities


Skilled nursing facilities (SNFs) billed one-quarter of all claims in error in 2009 – resulting in $1.5 billion in inappropriate Medicare payments – according to a report released by the Department of Health and Human Services’ Office of Inspector General (OIG) on November 9, 2012. The OIG noted that the majority of the inappropriate claims were upcoded, and many involved claims for so-called “ultrahigh therapy.” The OIG’s findings were the result of yet another study undertaken by the agency into the appropriateness of claims billed by SNFs, and an OIG Podcast on the report that was broadcast on November 13, 2012 can be viewed here. SNFs have been a longstanding target of the OIG and CMS. See, e.g., OIG, Questionable Billing in Skilled Nursing Facilities, OEI-02-09-00202, December 2010. 

In this most recent study, the OIG selected a stratified simple random sample of claims with a service date of 2009 and then conducted a medical record review of the selected claims. The reviewers initially looked at whether each claim met the Medicare coverage requirements. For those claims which did meet the coverage requirements (approximately 98% of the claims), the reviewers then looked at whether the items reported on the Minimum Data Set (MDS) were supported by the medical record.   

MDS items are used to classify beneficiaries into resource utilization groups (RUGS), which in turn dictate the level of reimbursement paid to the SNF. Because payment rates for therapy RUGs are typically higher than for non-therapy RUGs, the OIG medical reviewers focused on MDS items related to therapy in their review. More specifically, the reviewers looked in the medical record for the number of days and minutes of therapy provided to the beneficiary during the so-called “look-back period” and compared them to the information contained in the MDS. The reviewers also looked at whether the therapy provided was reasonable and necessary. Based on the results of their medical necessity review, the reviewers then “recoded” the MDS items and generated a “revised” RUG. If the original RUG was a higher paying RUG than the revised RUG, the OIG deemed that to be an “upcoded” claim.

Based upon this review, the OIG determined that the RUGS in approximately 23% of claims were billed incorrectly – and, most significantly, that the vast majority of those claims had been improperly “upcoded,” resulting in higher payments to the SNF than were justified by the medical record. The OIG also found that in the case of 57% of the upcoded claims, the SNFs claimed to have provided more therapy to the beneficiary than was indicated by the medical record. 

More broadly, the OIG reviewers found that SNFs reported inaccurate information on at least one MDS item for 47% of the claims, leading to inaccurate RUGS, improper payments, and even inappropriate care for beneficiaries.

In all, the OIG found that the errors resulted in $1.5 billion in inappropriate Medicare payments to SNFs in 2009. Based on its findings, the OIG recommended that CMS undertake the following steps to deter SNFs from submitting inappropriate claims:

  1.  Increase and expand reviews of SNF claims, including expanded use of medical reviews;
  2. Use its Fraud Prevention System to target SNFs that have a high percentage of claims for ultrahigh therapy and high levels of assistance with daily living activities;
  3. Closely monitor SNFs’ compliance with new “change of therapy” assessment requirement;
  4. Change the current method for determining how much therapy is needed, so as to reduce the incentives for SNFs to provide more therapy than is needed;
  5. Improve the accuracy of MDS items by instructing nursing home surveyors to more closely monitor the accuracy of the MDS; and
  6. Take action against the SNFs identified in the OIG’s review which had inaccurate RUGS or did not meet coverage requirements.

In sum, the OIG’s most recent study of SNF billing issues will only serve to strengthen the government’s commitment to enforcement relating to SNFs. In its study, the government concludes that the results demonstrate overbilling by SNFs. It is, of course, also possible that the lack of support for ultrahigh therapy is the result of incomplete MDS data or data that are not fairly reflective of the patient’s actual physical condition. Whether the problem is overbilling or insufficient documentation for needed medical care, it is clear that SNFs will continue to be a target of future enforcement actions. As a result, providers have a heightened obligation to be more proactive in their own compliance efforts in an effort to avoid potential liability down the road. More specifically, SNFs should be sure to carefully evaluate the accuracy of the MDS data they collect and, in appropriate cases, to include medical necessity reviews in their audit plans going forward. Finally, given the OIG’s focus on ultrahigh therapy RUGS, it will also be essential for providers to target that risk area in their medical necessity reviews.  

For more information, please contact Sheila Sawyer, Richard Westling or any member of the Waller Healthcare Department at 800.487.6380.

The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.