The HHS Office of Inspector General (OIG) released a report on September 30, 2015 finding that Medicare payments for therapy services provided at skilled nursing facilities (SNFs) greatly exceeded the cost of such services.  By analyzing claims to determine changes in SNF billing and beneficiary characteristics from fiscal years 2011 to 2013, the OIG determined that Medicare paid $1.1 billion more than it otherwise would have due to SNFs increasingly billing for the highest level of therapy services. 

Medicare pays SNFs daily rates for specific services, including therapy services.  The daily rate for therapy is based on the amount of therapy provided, regardless of beneficiary characteristics or specific care needs.  OIG’s report found that even though beneficiary characteristics did not change during the period studied – beneficiaries on average required the same amount of care – SNFs increasingly billed for the highest level of therapy services because of the financial incentives created by the payment system.  As a result, Medicare payments for therapy exceeded the costs of services provided by an average of twenty-nine percent.  By billing for the highest level of services, SNFs received $66 more per day than their therapy services cost to provide.  According to OIG, SNFs would only receive $11 more per day than the cost of their therapy services by billing for the lowest level of therapy services.

OIG’s report concluded with four recommendations: (1) reduce the base rate for SNF therapy services, (2) change the method of paying for therapy services to relate to beneficiary characteristics or care needs, (3) adjust Medicare payments to eliminate any increases that are unrelated to beneficiary characteristics, and (4) strengthen oversight of SNF billing.  OIG’s report is available here.

Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.