2015 Study Findings on Medicare Skilled Nursing Facility (SNF) Payment System

October 7, 2015
2015 Study Findings

In September 2015 the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a report on Medicare’s skilled nursing facility (SNF) payment system in response to longstanding concerns by the Medicare Payment Advisory Commission (MedPAC) regarding SNF billing, the method used of paying for therapy, and the extent to which Medicare payments exceeded SNF’s costs. The overall findings were summarized by the title of the report, “The Medicare payment system for Skilled Nursing Facilities needs to be reevaluated.” The study was based, in part, on Medicare Part A SNF claims, Medicare cost reports, and beneficiary assessments over a 10 year period.

In 2012, skilled nursing care, therapy, and other services were provided to nearly 2 million beneficiaries under the Part A benefit. Over time, MedPAC found that Medicare payments were substantially higher than SNF’s costs. The method that Medicare uses is a system which breaks down each patient population into a resource utilization group (RUG) which determines how much Medicare pays for the SNF each day. There are 66 RUG’s in 8 categories which classify each RUG as “therapy” or “non-therapy,” and span patient care from the highest level of care where a patient needs occupational, physical, and speech therapy as well as dependence on nursing staff for all activities of daily living (ADL’s), down to a beneficiary who requires no therapy and needs little help with ADL’s. The payment rates include nursing therapy, room, and board.

The OIG found that the differences between Medicare payments for therapy and SNF’s costs for therapy resulted in, on average, the SNF receiving $29 more than therapy costs for every $100 in Medicare payment. This was twice the amount MedPAC reported in FY 2012 when they recommended that Congress decrease Medicare payments. The two factors which accounted for the increasing payments for therapy were: 1) the SNF’s increasingly billed for higher levels of therapy, and 2) as required by statute, CMS increased the base payment rate each year. The four recommendations by the OIG for the CMS SNF payment system were:

  • Evaluate the extent to which Medicare payment rates for therapy should be reduced.
  • Change the method for paying for therapy (including consideration for emerging models such as accountable care organizations and bundled payments based on fee-for-service payments).
  • Adjust Medicare payments to eliminate any increases that are unrelated to beneficiary characteristics.
  • Strengthen oversight of SNF billing.

CMS responded with agency comments which concurred with all four recommendations and plans to comply.