Print Friendly, PDF & Email

Between 2006 and 2008, skilled nursing facilities (SNFs) increasingly billed for residents' care at higher-paying reimbursement categories (upcoding) under Medicare's prospective payment system.  Medicare uses Resource Utilization Groups (RUGs) to determine payments, and facilities upcoded even though beneficiary characteristics, on which RUGs are based, went largely unchanged over the two-year period. For-profit facilities were more likely to bill at higher RUGs rates than other facilities, and for-profit facilities owned by large chains (defined as those with 100 or more facilities) were the most likely to bill at the highest rates.[1]

Two points are important for advocates.  First, legitimate federal efforts to reduce fraudulent billing by SNFs should not interfere with Medicare beneficiaries' need for therapy services to maintain function and prevent decline.  Advocates need to ensure that therapy is not inappropriately denied to residents who legitimately need it.  Second, the Inspector General's recommendation that CMS examine upcoding behavior by nursing home chains will be aided by the Health Care Reform Law's recognition of the need for greater transparency in nursing home ownership information.  When chain information becomes more available and is publicly disclosed, as required by the Affordable Care Act, the Centers for Medicare & Medicaid Services (CMS) will be able to become more effective in addressing chain behavior.

The Inspector General's Report

Between 2006 and 2008, Medicare's prospective payment system had 53 RUGs, each with a different per diem payment rate. (In October 2010, the number of RUG categories increased to 66.) The 53 RUGs were distributed in eight categories. Two categories were Rehabilitation and Rehabilitation Plus Extensive Services; the remaining six categories reflected minimal therapy needs. Medicare reimbursement rates for the two rehabilitation categories were almost twice as high as the rates for non-therapy RUGs.[2]

The Office of Inspector General (OIG) looked at data from 12,286 SNFs that had at least 50 Part A stays in 2006. For each SNF, it determined "(1) the percentage of RUGs for ultra high therapy, (2) the percentage of RUGs with high ADL [activities of daily living] scores, and (3) the average length of stay."[3] OIG considered a SNF's billing to be questionable "if it was in the top 1 percent for any of the three measures."[4]

OIG found that although resident characteristics did not change between 2006 and 2008,[5]

  • Billing for ultra high therapy increased from 17% of all RUGs in 2006 to 28% of all RUGs in 2008.[6]

  • Medicare payments for SNF care increased by $4.3 billion (18%) between 2006 and 2008.

  • Payments to SNFs for ultra high therapy increased from $5.7 billion in 2006 to $10.7 billion in 2008, a nearly 90% increase.[7]

For-profit SNFs billed for higher paying RUGs; large chains billed the largest percentage of higher paying RUGs.

Table 3: Billing by For-Profit SNFs, 2008[8]


Independently owned SNFs (n=3,678)

SNFs owned by small chains


SNFs owned by large chains


Percentage of RUGs for ultra high therapy




Percentage of RUGs with high ADL scores




Average length of stay

28 days

29 days

31 days


Nonprofit SNFs were less likely to bill at the higher paying RUGs categories or to have high scores in activities of daily living and they had lower lengths of Medicare-covered stays.

Billing by Nonprofit Skilled Nursing Facilities, 2008[9]


Independently owned SNFs (n=2,235)

SNFs Owned by Small Chains (n=1,552)

SNFs Owned by Large Chains (n=179)

Percentage of RUGs for ultra high therapy




Percentage of RUGs with activities of daily living scores




Average length of stay

23 days

23 days

24 days


The Inspector General reports that for-profit SNFs changed their billing practices after they were acquired by large chains:

Between 2006 and 2008, nine large for-profit chains acquired a total of 159 SNFs. In all nine chains, the percentage of RUGs for ultra high therapy increased in the newly acquired SNFs. Notably, for three chains the increase was at least 9 percentage points. In eight chains, the percentage of RUGs with high ADL scores also increased, with three chains having an increase of more than 5 percentage points. Finally, in six chains, the average lengths of stay in the newly acquired SNFs increased, with the average increases ranging from 1 to 15 days. [10]

At least 348 SNFs were in the top 1% on at least one measure, but "None of these SNFs had beneficiary characteristics that indicated a need for such extensive use of ultra high therapy or RUGs with high ADL scores or longer lengths of stay."[11]

OIG recommends that CMS:

  • "Monitor overall payments to SNFs and adjust rates, if necessary."[12]
  • "Change the current method for determining how much therapy is needed to ensure appropriate payments."[13] To do so, OIG recommends that CMS:
    • Get more information from the hospital to predict therapy needs;
    • "consider requiring SNFs to independently verify beneficiaries' therapy needs" by, for example, having therapy needs determined by therapists "with no financial relationship to the SNF;" and
    • "consider developing guidance that specifies the types of patients for whom each level of therapy, including ultra high therapy, is appropriate."[14]
  • "Strengthen monitoring of SNFs that are billing for higher paying RUGs."[15] OIG recommends that CMS develop thresholds for each measure and conduct additional reviews of SNFs that exceed the thresholds. "If SNFs from a particular chain frequently exceed these thresholds, then additional reviews should be conducted of the other SNFs in that chain."[16]
  • "Follow up on the SNFs identified as having questionable billing."[17]

CMS agreed with the first, third, and fourth recommendations, but not the second.[18]

Medicare-Covered Therapy For SNF Residents – Includes Maintenance Therapy

The Medicare program provides coverage in a SNF for beneficiaries who need skilled care to maintain their function or to prevent deterioration[19] as well as for those who are expected to improve.  The standard for skilled care is whether the service is "so inherently complex that it can be safely and effectively performed only by, or under the supervision of, professional or technical personnel."[20]

The Inspector General suggests that CMS "consider developing guidance that specifies the types of patients for whom each level of therapy, including ultra high therapy, is appropriate."[21]  The Inspector General suggests that the guidance "could include various clinical scenarios as well as a list of hospital diagnoses that are appropriate for each level of therapy."[22]  In its response to this recommendation, CMS refers to its Post Acute Care Payment Reform Demonstration, which is attempting to determine whether beneficiaries achieve the same outcomes in different post-acute settings.  However, in response to a separate recommendation, CMS suggests that it will determine whether Medicare Administrative Contractors should put "thresholds" in place in order "to target their efforts to identify and prevent inappropriate billing."[23]

Beneficiaries' concern with the Inspector General's recommendation and CMS's response is that such "clinical scenarios" and "thresholds" may prevent an individualized determination for each beneficiary, as required by the Medicare statute, and, instead, could lead to use of rules of thumb that incorporate an illegal improvement standard.[24]

Chain Ownership

Section 6101 of the Affordable Care Act requires that SNFs and nursing facilities immediately disclose detailed ownership information to the Secretary of the Department of Health and Human Services and that the Secretary make this information available to the public beginning in March 2013.  The availability of actual ownership information will enable the Secretary to track chain ownership more effectively and to implement the Inspector General's recommendation to conduct reviews of additional facilities in a chain when one facility in the chain exceeds thresholds for the measures of upcoding.[25]


The Inspector General's report highlights, once again,[26] the SNF practice of upcoding of billing.  CMS needs to address SNFs' behavior while assuring that beneficiaries continue to have access to the care they need.

For more information, contact attorney Toby Edelman in the Center for Medicare Advocacy's Washington, DC office.

[1]Office of Inspector General, Questionable Billing by Skilled Nursing Facilities, OEI-02-09-00202 (Dec. 2010).
[2]Report 4.
[3]Id. 8.
[5]Id. 11
[6]Id. 9.
[7]Id. 10.
[8]Id. 13, Table 3.
[9]Id. 26, Appendix F.
[10]Id. 13-14.
[12]Id. 15.
[14]Id. 16.
[18]Id. 17, 28-30 (Appendix H, CMS Comment Letter).
[19]42 C.F.R. §483.20(c) (“The restoration potential of a patient is not the deciding factor in determining whether skilled services are needed. Even if full recovery or medical improvement is not possible, a patient may need skilled services to prevent further deterioration or preserve current capabilities. For example, a terminal cancer patient may need some of the skilled services described in §409.33.”).
[20]42 C.F.R. §483.20(a).  The Medicare Manual, CMS Pub. No. 100-02, Ch. 8, 30.2.2, expands on this point.  (“When rehabilitation services are the primary services, the key issue is whether the skills of a therapist are needed.  The deciding factor is not the patient’s potential for recovery, but whether the services needed require the skills of a therapist or whether they can be provided by nonskilled personnel.”)
[21]Office of Inspector General, Questionable Billing by Skilled Nursing Facilities, page 16, OEI-02-09-00202 (Dec. 2010 [hereafter OIG, Questionable Billing].
[23]Id. page 30 (Appendix H, letter to Inspector General Daniel R. Levinson from CMS Administrator Donald W. Berwick, M.D.).
[24]See Center for Medicare Advocacy, “Removing a Major Barrier to Necessary Care: The Medicare "Improvement Standard" Advocacy & Education Initiative,”
[25]OIG, Questionable Billing,  page 16.
[26]For example, the Government Accountability Office reported in 2002 that SNFs placed residents into RUGs categories that were “most favorable” and that residents did not actually get all of the therapy services that Medicare paid for.   See GAO, Skilled Nursing Facilities: Providers Have Responded to Medicare Payment System by Changing Practices, GAO-02-841 (Aug. 2002),  See also Scott Higham and Dan Keating, “Review heightens concern over Medicare billing at nursing homes,” Washington Post (March 29, 2010).

Comments are closed.