Department of Health and Human Services
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
QUES TIONABLE BILLING BY 
 
S N F  
KILLED  URSING  ACILITIES
 
.  
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
December 2010 
OEI-02-09-00202   
   
 E X E C U T I V E   S U M M A R Y  
OBJECTIVES
 
1.  To determine the extent to which billing by skilled nursing facilities 
(SNF) changed from 2006 to 2008. 
2.  To determine the extent to which billing varied by type of SNF 
ownership in 2008. 
3.  To identify SNFs that had questionable billing in 2008. 
BACKGROUND 
The Part A SNF benefit covers skilled nursing care, therapy services, 
and other services for Medicare beneficiaries.  In recent years, the Office 
of Inspector General (OIG) has identified a number of problems with 
SNF billing for Medicare Part A payments.  Notably, an OIG report 
found that 26 percent of claims submitted by SNFs were not supported 
by the medical record, representing over $500 million in potential 
overpayments.  Further, the Medicare Payment Advisory Commission 
has raised concerns about SNFs improperly billing for therapy to obtain 
additional Medicare payments.   
Medicare pays SNFs under a prospective payment system.  Under this 
system, SNFs classify each beneficiary into a group based on his or her 
care and resource needs.  These groups are called resource utilization 
groups (RUGs), and each RUG has a different Medicare per diem 
payment rate.  Medicare classifies RUGs into eight distinct categories.  
Two of the categories are for beneficiaries who need therapy.  The 
remaining six categories are for beneficiaries who require very little or 
no therapy.  Medicare payment rates are generally higher for therapy 
RUGs than for nontherapy RUGs.   
In addition, Medicare generally pays more for higher levels of therapy.  
The SNF categorizes the beneficiary into one of five therapy levels, 
based primarily on the number of minutes of therapy provided.  The 
beneficiaries who require the highest level of therapy are categorized 
into ultra high therapy RUGs, which generally have the highest per 
diem rates.   
RUGs are further divided by the amount of assistance a beneficiary 
needs with certain activities of daily living (ADL), such as eating.  If a 
beneficiary needs high levels of assistance, he or she is categorized into 
a RUG with high ADL scores, whereas a beneficiary who needs less 
assistance is categorized into a RUG with low or medium ADL scores.  
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Medicare pays higher rates for RUGs with high ADL scores than for 
RUGs with lower ADL scores.   
We based this study on an analysis of Medicare Part A claims from  
2006 and 2008 and on data from the Online Survey, Certification and 
Reporting system.   
FINDINGS 
From 2006 to 2008, SNFs increasingly billed for higher paying RUGs, 
even though beneficiary characteristics remained largely 
unchanged.  From 2006 to 2008, the percentage of RUGs for ultra high 
therapy increased from 17 to 28 percent.  The percentage of RUGs with 
high ADL scores increased from 30 percent in 2006 to  
34 percent in 2008.  Even though SNFs significantly increased their 
billing for these higher paying RUGs, beneficiaries ages and diagnoses 
at admission were largely unchanged from 2006 to 2008. 
For-profit SNFs were far more likely than nonprofit or government 
SNFs to bill for higher paying RUGs.  In total, 32 percent of RUGs 
from for-profit SNFs were for ultra high therapy, compared to  
18 percent from nonprofit SNFs and 13 percent from government SNFs.  
In addition, for-profit SNFs had a higher use of RUGs with high ADL 
scores than both for-profit and government SNFs.  For-profit SNFs also 
had longer lengths of stay, on average, compared to those of the other 
types of SNFs.  The differences among types of SNF ownership did not 
appear to be the result of differences in SNFs beneficiary populations.  
Further, for-profit SNFs that were owned by large chains were the most 
likely to bill for higher paying RUGs.   
A number of SNFs had questionable billing in 2008.  Some SNFs 
billed much more frequently for higher paying RUGs than other SNFs.  
Some SNFs also had unusually long average lengths of stay compared to 
those of other SNFs.  These billing patterns indicate that certain SNFs 
may be routinely placing beneficiaries into higher paying RUGs 
regardless of the beneficiaries care and resource needs or keeping 
beneficiaries in Part A stays longer than necessary.  We identified 348 
SNFs that were in the top 1 percent for the use of ultra high therapy, 
RUGs with high ADL scores, or long average lengths of stay. 
 
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E X E C U T I V E   S U M M A R Y  
 
RECOMMENDATIONS 
Taken together, these findings raise concerns about the potentially 
inappropriate use of higher paying RUGs, particularly ultra high 
therapy.  The findings also indicate that the current payment system 
provides incentives to SNFs to bill for ultra high therapy and for high 
levels of assistance when these levels of care may not be needed.  We 
recognize that the Centers for Medicare & Medicaid Services (CMS) is 
making several changes to the RUGs in fiscal year 2011.  However, more 
needs to be done to reduce the potentially inappropriate and significant 
increases in payments for ultra high therapy and other higher paying 
RUGs.  Based on these findings, we recommend that CMS: 
Monitor overall payments to SNFs and adjust rates, if necessary. 
As CMS makes changes to the number of RUGs, it should vigilantly 
monitor overall payments to SNFs and adjust RUG rates annually, if 
necessary, to ensure that the changes do not significantly increase overall 
payments. 
Change the current method for determining how much therapy is 
needed to ensure appropriate payments.  The amount of therapy that 
the SNF provides to the beneficiary during the look-back period largely 
determines the amount that Medicare pays the SNF.  CMS should 
consider several options to ensure that the amount of therapy paid for 
by Medicare accurately reflects beneficiaries needs.  CMS should 
consider requiring each SNF to use the beneficiarys hospital diagnosis 
and other information from the hospital stay to better predict the 
beneficiarys therapy needs.  In addition, CMS should consider requiring 
that therapists with no financial relationship to the SNF determine the 
amount of therapy needed throughout a beneficiarys stay.  CMS should 
also consider developing guidance that specifies the types of patients for 
whom each level of therapy, including ultra high therapy, is 
appropriate.   
Strengthen monitoring of SNFs that are billing for higher paying 
RUGs.  CMS should instruct its contractors to monitor SNFs use of 
higher paying RUGs using the indicators discussed in this report.  CMS 
should develop thresholds for the indicators and instruct its contractors 
to conduct additional reviews of SNFs that exceed them.  If SNFs from a 
particular chain frequently exceed the thresholds, then additional 
reviews should be conducted of the other SNFs in that chain.    
 
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Follow up on the SNFs identified as having questionable billing.  
In a separate memorandum, we will refer the SNFs that we identified 
as having questionable billing to CMS for appropriate action.   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with three of the four recommendations.  In response to 
our first recommendation, to monitor overall payments to SNFs, CMS 
concurred and stated that it would assess the impact of the recent 
changes on overall SNF payments as data became available and would 
expect to recalibrate RUG rates in future years, as appropriate.   
In response to our second recommendation, to change the current 
method for determining how much therapy is needed, CMS did not 
concur but stated that it is committed to pursuing additional 
improvements to the SNF payment system.  CMS noted several 
concerns with relying on information from the beneficiarys hospital 
stay to determine the beneficiarys therapy needs during a SNF stay.   
In response to our third recommendation, to strengthen monitoring of 
SNFs, CMS concurred and stated that it would determine whether 
additional safeguards shall be put in place by the Medicare contractors 
to target their efforts.   
Finally, in response to our fourth recommendation, to follow up on the 
SNFs identified as having questionable billing, CMS concurred and 
stated that it would forward the list of SNFs with questionable billing to 
the appropriate contractors.   
While we recognize CMSs intent to monitor overall payments to SNFs, 
we remain concerned about adjusting rates in a timely manner.  We also 
recognize that CMS made a number of changes to the SNF payment 
system in FY 2010 and that these changes should improve the accuracy 
of payments.  However, we remain concerned that the payment system 
continues to provide incentives to SNFs to bill for more therapy than is 
needed, and we strongly encourage CMS to pursue the options we 
recommended to reduce this vulnerability.  
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 T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
I N T RO DUC T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
F I N D IN G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 
From 2006 to 2008, SNFs increasingly billed for higher paying           
RUGs, even though beneficiary characteristics remained largely 
unchanged  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 
For-profit SNFs were far more likely than nonprofit or  
government SNFs to bill for higher paying RUGs. . . . . . . . . . . . . 11 
  A number of SNFs had questionable billing in 2008. . . . . . . . . . . 14 
   
R E C O MMEN D A T ION S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 
Agency Comments and Office of Inspector General Response . . . 17 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
  A:  Centers for Medicare & Medicaid Services Timeframes for    
Conducting Beneficiary Assessments . . . . . . . . . . . . . . . . . . . 19 
  B:  Description of the 53 Resource Utilization Groups . . . . . . . . . 20 
  C:  The Distribution of Beneficiaries Ages and Diagnoses . . . . . . 22 
D:  Use of Ultra High Therapy by Age and Diagnosis. . . . . . . . . . 24 
E:  Use of Ultra High Therapy by Age and Diagnosis, for  
Each Type of SNF Ownership . . . . . . . . . . . . . . . . . . . . . . . . . 25 
  F:  Billing by Nonprofit Skilled Nursing Facilities . . . . . . . . . . . . 26 
G:  Distribution of Three Billing Measures Among Skilled             
Nursing Facilities, by Quartile. . . . . . . . . . . . . . . . . . . . . . . . . 27 
H:  Centers for Medicare & Medicaid Services Comments . . . . . . 28 
 
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 
     
   
 I N T R O D U C T I O N  
OBJECTIVES 
1.  To determine the extent to which billing by skilled nursing facilities 
(SNF) changed from 2006 to 2008. 
2.  To determine the extent to which billing varied by type of SNF 
ownership in 2008. 
3.  To identify SNFs with questionable billing in 2008. 
BACKGROUND 
In recent years, the Office of Inspector General (OIG) has identified a 
number of problems with SNF billing for Medicare Part A payments.  
Notably, an OIG report found that 26 percent of claims submitted by SNFs 
in fiscal year (FY) 2002 were not supported by the medical record, 
representing $542 million in potential overpayments.1  Additionally, OIG 
audits of five SNFs found that 20 to 94 percent of sampled claims from 
2002 through 2004 were medically unnecessary, were submitted at an 
inappropriate payment rate, or were insufficiently documented.2  OIG 
estimated that overpayments to these SNFs totaled nearly $2.5 million.    
Further, the Medicare Payment Advisory Commission (MedPAC) has 
raised concerns about SNFs improperly billing for therapy to obtain 
additional Medicare payments.  Specifically, MedPAC noted that the  
current system encourages SNFs to furnish therapy, even when it is of 
little or no benefit.3  In addition, staff at the Centers for Medicare & 
Medicaid Services (CMS) noted that some facilities, to increase payments, 
may be inappropriately overstating a beneficiarys need for assistance with 
certain activities of daily living (ADL).  Staff also noted that certain SNFs 
might be keeping beneficiaries in Part A stays longer than necessary.    
 
1 OIG, A Review of Nursing Facility Resource Utilization Groups, OEI-02-02-00830,  
February 2006.   
2 OIG, Review of Rehabilitation Services at Gulf Health Care, Texas City, Texas, 
A-06-03-00078, July 2007; Review of Rehabilitation Services at Skilled Nursing Facilities  
Avante at Leesburg, A-06-06-00107, May 2007; Review of Skilled Services at Heartland Health 
Care Center of Bedford, Texas, A-06-07-00045, April 2008; Review of Skilled Services at Four 
Seasons Nursing Center of Durant, Oklahoma, A-06-07-00046, May 2008; and Review of 
Skilled Services at Regent Care Center of Laredo, Texas, A-06-06-00047, August 2006.   
3 MedPAC, Report to Congress:  Promoting Greater Efficiency in Medicare, June 2007,  
ch. 8, p. 192.  Accessed at http://www.medpac.gov/chapters/Jun07_Ch08.pdf on  
May 29, 2009. 
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This study is the first of a three-part series that focuses on Medicare  
Part A payments to SNFs.  The other two studies will be based on medical 
record reviews. One study will determine the extent to which SNF claims 
meet Medicare requirements.  The other will assess the extent to which 
SNFs meet  certain Federal requirements governing the quality of care 
provided to beneficiaries.4    
Medicare Payments to SNFs  
The Part A SNF benefit covers skilled nursing care, rehabilitation services 
(i.e., physical, occupational, and speech therapy), and other services for up  
to 100 days during any spell of illness.5 To qualify, the beneficiary must 
need skilled services daily in an inpatient setting and must require the 
skills of technical or professional personnel to provide these services.6   
SNFs can be for-profit, nonprofit, or government owned.  For-profit and 
nonprofit SNFs can be part of a chain or can be independently owned.   
Medicare pays SNFs under a prospective payment system.  Throughout 
beneficiaries stays, SNFs classify them into groups based on their care  
and resource needs.  These groups are called resource utilization groups 
(RUGs). SNFs use an assessment known as the  Minimum Data Set 
(MDS) to classify beneficiaries into RUGs.7  The MDS is a standardized 
tool that assesses the beneficiarys clinical condition, functional status, 
and expected use of services.   
SNFs must  conduct assessments for payment purposes on or about the 5th, 
14th, 30th, 60th, and 90th  days of a Part A stay, as well on certain other 
occasions to account for changes in patient care needs.8 Accordingly, if a 
beneficiary has a 100-day Part A stay, he or she will have at least five 
assessments.  For each assessment, the beneficiary may be categorized 
into a different RUG. 
 
4 OIG, Medicare Part A Payments to Skilled Nursing Facilities, OEI-02-09-00200, and 
Medicare Requirements for Quality of Care in Skilled Nursing Facilities, OEI-02-09-00201, 
forthcoming. 

5 Social Security Act,  1812(a)(2)(A), 42 U.S.C.  1395d(a)(2)(A). 

6 42 CFR  409.31(b)(1) and (3) and 409.31(a)(2). 
   
7 The MDS is part of CMSs Resident Assessment Instrument (RAI). CMS, Revised  

Long-Term Care Facility Resident Assessment Instrument Users Manual Version 2.0    
(RAI Users Manual), Dec. 2002, rev. Dec. 2005,  1.2 and 1.3. 

8 42 CFR  413.343(b) and RAI Users Manual,  2.5. CMS requires other comprehensive 

resident assessments at certain times as a condition of participation, which may be combined  
with MDS payment assessments when the timeframes coincide.  42 CFR  483.20 and RAI 
Users Manual,  2.1.  
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The SNF assesses the beneficiary during what is called the look-back 
period.  The length of the look-back period varies depending upon what the 
SNF is assessing.9  For example, a 7-day look-back period is used to assess 
how much therapy a beneficiary was provided.10  CMS specifies 
timeframes for the last day of the look-back period for each type of 
assessment.  For example, CMS states that for a 14-day assessment, the 
last day of the look-back period must occur on the 11th through the  
14th days of the beneficiarys stay.     
Under certain circumstances, CMS allows SNFs to extend the last day of 
the look-back period.  Such extensions are known as grace periods.11  CMS 
states that grace periods can be used, for example, to more fully capture 
therapy minutes or other treatments.12  However, CMS emphasizes that 
grace periods should be used sparingly and that SNFs may be subject to 
review if they use grace periods routinely.13  SNFs have an incentive to 
use a grace period for the 5-day assessment because it allows them to 
count more days of therapy, which may result in increased payments.14  
See Appendix A for additional information on the look-back periods and 
grace periods for each type of assessment. 
Types of RUGs.  There are 53 RUGs, and each RUG has a different 
Medicare per diem payment rate.  Medicare groups the 53 RUGs into  
8 distinct categories.15  Two categoriesRehabilitation and Rehabilitation 
Plus Extensive Servicesare for beneficiaries who need physical therapy, 
speech therapy, or occupational therapy, typically after recovering from an 
episode such as a hip fracture or a stroke.  
The remaining six categories are for beneficiaries who require very little 
or no therapy.  These categories are Extensive Services, Special Care, 
Clinically Complex, Reduced Physical Function, Impaired Cognition, and 
 
9 The most frequent look-back period is 7 days, although some are 14 days and others are  
30 days.  RAI Users Manual, ch. 3, p. 29. 
10 Ibid., p. 185. 
11 Ibid.,  2.5.  
12 Ibid.  
13 Ibid. 
14 The highest paying RUGs require that beneficiaries receive at least 5 days of therapy during 
the look-back period.  For 5-day assessments, the look-back period for therapy may be shorter 
than 7 days because the SNF cannot include days prior to the date of admission.  If a SNF does 
not use the grace period for the 5-day assessment, the look-back period is up to 5 days long.  
However, if a SNF uses a grace period, the look-back period is 6 or 7 days long.  In contrast, for 
later assessments, the look-back period for therapy is always 7 days.   
15 CMS, RAI Users Manual,  6.3, 6.4, and 6.6.  
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Behavior Problems.  In this report, we refer to the RUGs in the two 
therapy categories as therapy RUGs.  We refer to the RUGs in the 
remaining six categories as nontherapy RUGs.  See Appendix B for 
information about all 53 RUGs. 
Medicare payments for therapy RUGs.  Medicare payment rates for therapy 
RUGs are almost twice as high, on average, as the rates for nontherapy 
RUGs.16  In addition, Medicare generally pays more for higher levels of 
therapy.  
The therapy RUGs are divided into five levels of therapy:  ultra high, very 
high, high, medium, or low.  The SNF categorizes the beneficiary into one 
of the five therapy levels based primarily on the number of minutes of 
therapy provided during the look-back period.17  For example, if the 
beneficiary received 45 minutes of therapy during the  
look-back period, he or she is categorized into a low-therapy RUG, whereas 
if the beneficiary received 720 minutes, he or she is categorized into an 
ultra high therapy RUG. 
Medicare generally pays the most for ultra high therapy.  As shown in 
Table 1, the average per diem rate for the ultra high therapy RUGs is 
$511, compared to $283 for low-therapy RUGs.  
Table 1:  Average Payment Rates for Each Level of Therapy, 2008 
Number of Minutes  Average Per 
Level of Therapy  per Week of  Diem Payment 
Therapy  for RUGs in 2008
Ultra high therapy   720 or more  $511 
Very high therapy  500 to 719  $407 
High therapy   325 to 499  $356 
Medium therapy   150 to 324  $362 
Low therapy   45 to 149  $283 
Source:  OIG analysis of FY 2008 unadjusted per diem urban rates.   
 
 
16 OIG analysis of FY 2008 unadjusted per diem urban rates.  There is an urban and a rural 
payment rate for each RUG.  The urban payment rate is lower than the rural rate for the 
therapy RUGs.  See 72 Fed. Reg. 43412, 43418-19 (Aug. 3, 2007). 
17 CMS, RAI Users Manual,  6.6.  In addition to applying the minutes of therapy provided, 
SNFs must apply other criteria to categorize a beneficiary into a therapy RUG, such as how 
often certain nursing services are provided. 
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Medicare payments for RUGs by ADL scores.  RUGs are further divided by 
the amount of assistance a beneficiary needs with certain ADLs.18  As part 
of the assessment, SNFs assign each beneficiary an ADL score based on 
how much assistance he or she needs with certain daily activities, such as 
eating.  If a beneficiary needs high levels of assistance, he or she is 
categorized into a RUG with high ADL scores, whereas a beneficiary who 
needs less assistance is categorized into a RUG with low or medium ADL 
scores.19 
Medicare pays higher rates for RUGs with high ADL scores than for RUGs 
with lower ADL scores.  On average, the per diem rate for RUGs with high 
ADL scores is $36 more than for RUGs with low ADL scores.20   
Changes to Medicare payments to SNFs.  The prospective payment system 
for SNFs has changed in several ways since its inception.  Over time, CMS 
has changed the number of RUGs, as well as the payment rates for RUGs.  
In FY 2006, CMS increased the number of RUGs from 44 to 53.  These 
changes were intended to be budget neutral and to not affect overall 
payments to SNFs.  However, CMS found that payments to SNFs in  
FY 2009 were an estimated $780 million more than intended.  CMS did 
not respond to this increase in overall payments until FY 2010, when it 
decreased rates for certain RUGs.   
In FY 2011, CMS will increase the number of RUGs from 53 to 66, and 
again CMS has stated that it intends these changes to be budget neutral.  
In addition, CMS will change how SNFs account for therapy that is 
provided to beneficiaries concurrently and in group settings.  SNFs, 
however, will still base the amount of therapy needed on the amount 
provided during the look-back period.   
Safeguarding Medicare Payments to SNFs 
CMS relies on different types of contractors to prevent and reduce fraud, 
waste, and abuse in SNF billing for Medicare Part A payments.  Certain 
contractors are responsible for processing and paying Part A claims.  At 
their discretion, these contractors may conduct targeted medical reviews 
 
18 The one exception is the Extensive Services category.  The RUGs in this category are not 
grouped by the amount of assistance a beneficiary needs with daily activities. 
19 Each RUG is associated with a range of ADL scores.  In addition, each therapy level and 
nontherapy category typically includes three types of RUGs:  RUGs associated with a range of 
high ADL scores, medium ADL scores, and low ADL scores.  In this report, we refer to these 
three types as RUGs with high, medium, and low ADL scores.    
20 OIG analysis of FY 2008 unadjusted per diem urban rates.   
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I N T R O D U C T I O N  
 
of SNF claims to prevent improper payments.  Other contractors are 
responsible for identifying fraud and abuse and for referring cases to law 
enforcement, when appropriate.  Finally, another group of contractors is 
responsible for identifying and recouping any overpayments made to 
SNFs.   
METHODOLOGY   
We based this study on data from two sources:  (1) all paid Part A SNF 
claims from 2006 and 2008; and (2) data from the Online Survey, 
Certification and Reporting (OSCAR) system.  We used these data to 
determine the extent to which SNF billing changed from 2006 to 2008 and 
varied by type of SNF ownership in 2008.  We also used the data to 
identify SNFs with questionable billing in 2008. 
Analysis of SNF Billing by Year  
We identified the universe of paid Part A SNF claim line items for  
2006 and 2008 from CMSs National Claims History File.21  We based our 
analysis on the RUGs that SNFs submitted on these claims.22  We 
analyzed the RUGs to determine the extent to which SNF billing changed 
from 2006 to 2008.  For each year, we determined the distribution of the 
RUGs and then compared the 2 years.  In addition, we assessed whether 
the average length of stay changed from 2006 to 2008.  
We paid particular attention to changes in higher paying RUGs, which 
include RUGs for ultra high therapy and RUGs with high ADL scores.  We 
combined the data from the two therapy categoriesRehabilitation and 
Rehabilitation Plus Extensive Servicesto determine how often SNFs 
billed for each of the different therapy levels:  ultra high, very high, high, 
medium, and low.  In addition, we looked at how often SNFs billed for 
RUGs with high ADL scores within each therapy level and each  
nontherapy category.  We also assessed whether SNFs use of grace 
periods changed from 2006 to 2008.    
Next, we determined whether key characteristics of beneficiaries changed 
between 2006 and 2008.  We looked specifically at whether the 
distribution of beneficiaries ages and admitting diagnoses changed from 
2006 to 2008.  We also looked at changes in the use of RUGs for ultra high 
 
21 In this report, we refer to claim line items as claims.     
22 We based our analysis on the RUG billed by the SNF for each assessment.  This RUG may 
have spanned two claims. 
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therapy and RUGs with high ADL scores for each age group and for each 
of the top 20 admitting diagnoses.23 
Analysis of Billing by Type of SNF Ownership   
We used OSCAR data to determine whether each SNF is for-profit,  
nonprofit, or government owned.  We then assessed whether the 
percentage of RUGs for ultra high therapy, the percentage of RUGs with 
high ADL scores, and the average length of stay varied by type of 
ownership.   
Next, we determined whether the variation in billing was associated with 
differences in SNFs beneficiary populations.  For this analysis, we 
assessed whether the distribution of the beneficiaries ages and admitting 
diagnoses varied by type of ownership.  We also looked at whether the 
percentage of RUGs for ultra high therapy, the percentage of RUGs with 
high ADL scores, and the average length of stay varied by type of 
ownership for each age group and for each of the top 20 admitting 
diagnoses. 
In addition, we compared SNF billing among SNFs owned by large chains, 
those owned by small chains, and those that are independently owned.  
We conducted this analysis for for-profit SNFs and for nonprofit SNFs.  
We identified the SNFs that were part of a chain using OSCAR data.24  
We considered a chain to be large if it owned at least 100 SNFs and small 
if it owned fewer than 100 SNFs.  We also assessed the extent to which 
billing changed by the SNFs acquired by large chains between 2006 and 
2008.  For each chain, we compared the billing by the newly acquired 
SNFs for the 6 months before acquisition to the same SNFs billing for the 
6 months after acquisition.   
 
 
 
 
23 We defined the age groups as less than 65 years of age, 65 up to 70 years, 70 up to 75 years, 
75 up to 80 years, 80 up to 85 years, 85 up to 90 years, 90 up to 95 years, and 95 years of age or 
more.  The admitting diagnosis on the claim is based on the International Classification of 
Diseases, Ninth Revision, Clinical Modification (ICD-9), which is the official system for 
assigning codes to diagnoses and procedures.  We used the first three characters of the ICD-9 
code to obtain the beneficiarys admitting diagnosis. 
24 The OSCAR data indicate whether a SNF is owned by a multifacility organization, which we 
refer to as a chain.  Other available data sources were used to determine the dates that SNFs 
were acquired by chains.       
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Identification of SNFs With Questionable Billing  
We based this analysis on the 12,286 SNFs that had at least 50 Part A 
stays in 2008.25  For each SNF, we determined:  (1) the percentage of 
RUGs for ultra high therapy, (2) the percentage of RUGs with high ADL 
scores, and (3) the average length of stay.  We considered a SNF to have 
questionable billing if it was in the top 1 percent for any of the three 
measures.  We also highlighted the SNFs with questionable billing on 
more than one of these measures.     
Lastly, we determined whether these SNFs had beneficiary populations 
that indicated a need for a particularly high use of higher paying RUGs or 
for longer lengths of stay.  To conduct this analysis, we calculated SNFs 
expected use of these RUGs based on national averages for each age group 
and admitting diagnosis.  If their actual use was at least 50 percent higher 
than their expected use, we concluded that their questionable billing could 
not be explained by differences in their beneficiary populations.  We did 
the same analysis for length of stay. 
Limitations  
This study assesses SNF billing based on an analysis of Medicare  
Part A claims.  It does not, however, determine whether the claims were 
appropriate.  A companion study, based on a medical review, will address 
this question and determine whether Part A SNF claims met Medicare 
coverage requirements.   
Standards  
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on Integrity 
and Efficiency.   
 
 
 
25 We established a minimum of 50 Part A stays per SNF to ensure the reliability of the 
measures.  For SNFs with fewer Part A stays, changes in the characteristics of a small number 
of Part A stays could have a large effect on the measures, making the measures less reliable. 
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F I N D I N G S  
 F I N D I N G S  
Medicare pays SNFs different 
From 2006 to 2008, SNFs increasingly billed for 
rates for different RUGs.  
higher paying RUGs, even though beneficiary 
Ultra high therapy RUGs 
characteristics remained largely unchanged  
generally have the highest 
reimbursement rates of all the 
RUGs.  RUGs for high levels of assistance with daily activities also have 
high rates.  From 2006 to 2008, SNFs significantly increased their use of 
both of these types of RUGs.  At the same time, the characteristics of the 
beneficiaries remained largely unchanged.26  
Billing for ultra high therapy increased substantially from 2006 to 2008   
In 2006, 17 percent of all RUGs were for ultra high therapy.  In 2008, this 
share increased to 28 percent.  Over the same period, SNFs use of the 
other levels of therapyvery high, high, medium, and lowdecreased or 
stayed about the same.  For example, SNFs use of high therapy decreased 
from 16 percent in 2006 to 11 percent in 2008.  Similarly, the percentage 
of RUGs in the nontherapy categories decreased from 16 percent in  
2006 to 12 percent in 2008.  See Chart 1. 
Chart 1:  Changes in SNF Billing From 2006 to 2008 
 
          
 
 
 
 
 
 
 
 
 
 
 
 
 
      Source:  OIG analysis of Part A SNF claims, 2010. 
 
 
26 In addition, there were only slight changes in the total number of Part A stays and the 
average length of stay during this time.  The total number of stays increased from  
2.4 million in 2006 to 2.5 million in 2008, and the average length of stay increased from  
27.3 days to 27.6 days. 
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F I N D I N G S  
The shift to ultra high therapy RUGs caused a substantial increase in  
Part A payments to SNFs.  Overall, payments increased by  
$4.3 billion, or 18 percent, from 2006 to 2008.  As shown in Table 2, 
payments to SNFs for ultra high therapy rose from $5.7 billion in 2006 to 
$10.7 billion in 2008, an increase of nearly 90 percent.  At the same time, 
payments for all other levels of therapy decreased by 2 percent and 
payments for nontherapy RUGs decreased by 19 percent, for a total 
decrease of nearly three-quarters of a billion dollars.   
 
Table 2:  Changes in Medicare Payments From 2006 to 2008 
  Total Medicare  Total  Medicare 
Payments  Payments  Difference in 
RUGs  2006  2008  Payments 
Ultra high therapy RUGs  $5.7 billion  $10.7 billion  $5.04 billion 
Other therapy RUGs  $15.6 billion  $15.3 billion  -$0.25 billion 
Nontherapy RUGs  $2.5 billion  $2.0 billion  -$0.46 billion 
Total*  $23.8 billion  $28.1 billion  $4.32 billion 
* Medicare payments in 2008 do not sum to total because of rounding. 
Source:  OIG analysis of Part A SNF claims, 2010. 
 
The shift to ultra high therapy RUGs was also associated with an 
increased use of grace periods.  SNFs use of grace periods increased 
substantially, from 51 percent in 2006 to 61 percent in 2008 for 5-day 
assessments.  Although CMS guidance states that grace periods should be 
used sparingly, SNFs used grace periods almost universally for ultra high 
therapy RUGs.  In 2008, for 5-day assessments, SNFs used grace periods 
for 96 percent of ultra high therapy RUGs, compared to 55 percent for 
other therapy RUGs and 20 percent for nontherapy RUGs.  SNFs likely 
used grace periods for ultra high therapy RUGs because the grace periods 
allow them to count more days of therapy when determining the RUG.  
Billing for high levels of assistance with daily activities also increased from 
2006 to 2008 
SNFs receive higher reimbursement rates for RUGs with high ADL scores 
than for those with lower ADL scores.  In 2006, 30 percent of RUGs had 
high ADL scores, compared to 34 percent of RUGs in 2008.  Within each 
therapy level, SNFs use of RUGs with high ADL scores increased by at 
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F I N D I N G S  
 
least 3 percentage points.  This same increase was seen in all but one of 
the nontherapy categories.27  
The shift toward higher paying RUGs did not appear to be the result of 
changes in beneficiary characteristics 
Even though SNFs significantly increased their billing for higher paying 
RUGs, beneficiaries ages and diagnoses at admission were largely 
unchanged from 2006 to 2008.  The average age of beneficiaries changed 
minimally, from 79.9 to 79.8 years of age, and the distribution of 
beneficiaries ages also did not change significantly during this time.  
Additionally, the top 20 admitting diagnoses of beneficiaries were identical 
and accounted for over half of all admissions in both years.  The 
distribution of the top 20 diagnoses also did not differ substantially.28  See 
Appendix C for more detailed information about beneficiaries ages and 
diagnoses in 2006 and 2008.   
Moreover, SNFs increased their billing for higher paying RUGs regardless 
of the beneficiaries ages or diagnoses.  Specifically, SNFs increased their 
billing for ultra high therapy from 2006 to 2008 by at least 10 percentage 
points for each age group and for each of the top 20 admitting diagnoses.  
See Appendix D for the increase from 2006 to 2008 by age group and 
diagnosis.  Similarly, SNFs increased their billing for RUGs with high 
ADL scores from 2006 to 2008 by at least 2 percentage points for each age 
group and for all but 1 of the top 20 admitting diagnoses.   
 
In 2008, for-profit SNFs accounted 
For-profit SNFs were far more likely than  
for 69 percent of all SNFs while 
nonprofit or government SNFs  
nonprofit and government SNFs 
to bill for higher paying RUGs  
accounted for 27 percent and  
5 percent, respectively.29  The for-profit SNFs were more likely to bill for 
ultra high therapy and for RUGs with high ADL scores than the nonprofit 
and government SNFs.   
 
27 SNFs use of RUGs with high ADL scores in the Impaired Cognition category decreased by  
1 percentage point.  Also, we excluded the Extensive Services category from this analysis 
because the RUGs in this category are not grouped by ADL scores. 
28 The largest change from 2006 to 2008 was a 5-percentage point increase in the use of the 
Care Involving Use of Rehabilitation Procedures diagnosis (ICD-9 code V57).  Compared to 
the other top 20 diagnoses, this diagnosis was not associated with a particularly high use of 
ultra high therapy or RUGs with high ADL scores. 
29 Totals do not sum to 100 percent because of rounding. 
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F I N D I N G S  
As shown in Chart 2, 32 percent of RUGs from for-profit SNFs were for 
ultra high therapy, compared to 18 percent from nonprofit SNFs and  
13 percent from government SNFs.  In addition, 35 percent of all RUGs 
from for-profit SNFs had high ADL scores, compared to  
31 percent of RUGs from nonprofit and from government SNFs.   
Chart 2:  Billing for Ultra High Therapy and RUGs With High ADL Scores, by 
Type of SNF Ownership, 2008 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source:  OIG analysis of Part A SNF claims, 2010. 
For-profit SNFs also had longer lengths of stay, on average, compared to 
those of the other types of SNFs.  The average length of stay in for-profit 
SNFs was 29 days, compared to 23 days in nonprofit SNFs and 25 days in 
government SNFs. 
The differences among types of ownership did not appear to be the result 
of differences in SNFs beneficiary populations.  In fact, key beneficiary 
characteristicsspecifically, the distributions of beneficiaries ages, as 
well as beneficiaries diagnoses at admissionwere similar across the 
three types of ownership.     
Moreover, for-profit SNFs use of ultra high therapy RUGs was higher 
than nonprofit and government SNFs use of these RUGs for each age 
group and for each of the top 20 admitting diagnoses.  See Appendix E for 
the difference by type of ownership.  For-profit SNFs use of RUGs with 
high ADL scores was also higher in each age group and in 16 of the top 20 
admitting diagnoses.   
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FF II NN DD II NN GG SS   
For-profit SNFs that were owned by large chains were the most likely to bill for 
higher paying RUGs  
Among the 10,303 for-profit SNFs, about 20 percent were owned by  
10 large chains, nearly half were owned by smaller chains, and the 
remaining were independently owned.  As shown in Table 3, for-profit 
SNFs owned by large chains were more likely than other for-profit SNFs 
to bill for higher paying RUGs.  These SNFs were more likely to bill for 
ultra high therapy and for high ADL scores than other for-profit SNFs.  In 
addition, for-profit SNFs owned by large chains had longer average 
lengths of stay than other types of for-profit SNFs.   
For-profit SNFs owned by large chains were also much more likely to bill 
for higher paying RUGs than the three types of nonprofit SNFs.  In 
addition, these for-profit SNFs were more likely to have longer lengths of 
stay than each type of nonprofit SNF.  See Appendix F for more 
information about nonprofit SNFs.   
Table 3:  Billing by For-Profit SNFs, 2008 
  SNFs Owned  SNFs Owned 
Independently  by Small  by Large 
  
Owned SNFs  Chains  Chains 
(n = 3,678)  (n = 4,579)  (n = 2,046) 
Percentage of RUGs 
28% 29%  43%
for ultra high therapy  
Percentage of RUGs 
33% 34%  38%
with high ADL scores 
Average length of stay  28 days 29 days  31 days
Source:  OIG analysis of Part A SNF claims, 2010. 
It is also worth noting that the billing by the for-profit SNFs purchased by 
large chains changed soon after the SNFs were acquired.  Between  
2006 and 2008, nine large for-profit chains acquired a total of 159 SNFs.30  
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 
 
30 The number of SNFs acquired by the large chains ranged from 1 to 67.  Note that  
1 of the 10 large chains did not acquire any SNFs during this period. 
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F I N D I N G S  
average lengths of stay in the newly acquired SNFs increased, with the 
average increases ranging from 1 to 15 days. 
   
Some SNFs billed much more frequently 
A number of SNFs had questionable  
for higher paying RUGs than other SNFs.  
billing in 2008 
Some SNFs also had unusually long 
average lengths of stay, compared to those of other SNFs.  These billing 
patterns indicate that certain SNFs may be routinely placing beneficiaries 
into higher paying RUGs regardless of the beneficiaries care and resource 
needs or keeping beneficiaries in Part A stays longer than necessary.   
Notably, a number of SNFs used ultra high therapy much more frequently 
than other SNFs.  For three-quarters of SNFs, up to 39 percent of their 
RUGs were for ultra high therapy.  In comparison, for the top  
1 percent of SNFs, at least 77 percent of their RUGs were for ultra high 
therapy.  Similarly, for three-quarters of SNFs, up to 43 percent of their 
RUGs had high ADL scores.  In comparison, for the top 1 percent SNFs, at 
least 76 percent of their RUGs had high ADL scores.  Additionally, while 
the average lengths of stay were up to 34 days for three-quarters of SNFs, 
the top 1 percent of SNFs had average lengths of stay of at least 48 days.  
See Appendix G for more information about the distribution of these three 
measures. 
A total of 348 SNFs were in the top 1 percent using at least one of the 
measures discussed above.  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.  The vast 
majority of these SNFs were for-profit (309 SNFs), and over 50 of these 
were owned by four for-profit chains.  Finally, 19 of the 348 SNFs were in 
the top 1 percent for 2 measures and 1 was in the top 1 percent for all 
three measures.  Most of these 20 SNFs were in the top 1 percent both for 
RUGs for ultra high therapy and RUGs with high ADL scores.     
 
 
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  R E C O M M E N D A T I O N S  
We found that SNFs increasingly billed for higher paying RUGs from  
2006 to 2008.  Specifically, payments to SNFs for ultra high therapy 
increased by nearly 90 percent, or $5 billion, from 2006 to 2008.  We also 
found that RUGs for high levels of assistance with daily activities 
increased. This shift toward higher paying RUGs did not appear to be the  
result of changes in beneficiary characteristics, such as age and diagnosis.   
Additionally, we found that for-profit SNFs, particularly those owned by 
large chains, were more likely to bill for higher paying RUGs than  
nonprofit and government SNFs.  Furthermore, we identified a number of 
SNFs with questionable billing, which indicates that some SNFs may be 
routinely placing beneficiaries into higher paying RUGs regardless of the 
beneficiaries care and resource needs or keeping beneficiaries in Part A 
stays longer than necessary. 
Taken together, these findings raise concerns about the potentially 
inappropriate use of higher paying RUGs, particularly ultra high therapy.  
The findings also indicate that the current payment system provides 
incentives to SNFs to bill for ultra high therapy and for high levels of 
assistance when these levels of care  may not be  needed.  We recognize that 
CMS is making several changes to the RUGs in FY 2011.  However, more 
needs to be done to reduce the potentially inappropriate and significant 
increases in payments for ultra high therapy and other higher paying 
RUGs. 
We recommend that CMS: 
Monitor overall payments to SNFs and adjust rates, if necessary  
CMS will increase the number of RUGs in FY 2011 and intends for this 
change to remain budget neutral.   CMS should vigilantly monitor overall  
payments to SNFs and adjust RUG rates annually, if necessary, to ensure 
that the changes do not significantly increase overall payments.  
Change the current method for determining how  much therapy  is needed to 
ensure appropriate payments 
The amount of therapy that the SNF provides to  the beneficiary during 
the look-back period largely determines the amount that Medicare pays 
the SNF.  CMS should consider several options to ensure that the amount  
of therapy paid for by Medicare accurately reflects beneficiaries needs.   
To more accurately predict these needs, CMS should consider requiring 
each SNF to use more information about the spell of illness that qualified 
a beneficiary for the SNF stay. For example, a SNF could use the 
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RR EE CC OO MM MM EE NN DD AA TT II OO NN SS   
 
beneficiarys hospital diagnosis and other information from the hospital 
stay to better predict the beneficiarys therapy needs.   
CMS should also consider requiring SNFs to independently verify 
beneficiaries therapy needs.  For example, therapists with no financial 
relationship to the SNF could determine the amount of therapy needed 
throughout a beneficiarys stay.  These changes would limit the ability of 
SNFs to bill for more therapy than is appropriate. 
CMS should also consider developing guidance that specifies the types of 
patients for whom each level of therapy, including ultra high therapy, is 
appropriate.  This guidance could include various clinical scenarios as well 
as a list of hospital diagnoses that are appropriate for each level of 
therapy.  This information would help ensure that appropriate amounts of 
therapy are provided to beneficiaries and provide Medicare contractors 
with more concrete guidance to review claims for potential fraud and 
abuse. 
Strengthen monitoring of SNFs that are billing for higher paying RUGs 
CMS should instruct its contractors to monitor SNFs billing for higher 
paying RUGs using the indicators discussed in this report.  Specifically, 
the contractors should determine for each SNF:  (1) the percentage of 
RUGs for ultra high therapy, (2) the percentage of RUGs with high ADL 
scores, and (3) the average length of stay.  CMS should develop thresholds 
for each of these measures and instruct contractors to conduct additional 
reviews of SNFs that exceed them.  If SNFs from a particular chain 
frequently exceed these thresholds, then additional reviews should be 
conducted of the other SNFs in that chain.   
Contractors should use this information to target their efforts to more 
effectively identify and prevent inappropriate billing.  Contractors could 
conduct medical reviews of a sample of claims from SNFs that exceed 
these thresholds.  Contractors could use their findings to recover 
inappropriate payments, to place certain SNFs on prepayment review, and 
to initiate fraud investigations.   
CMS should also establish explicit criteria regarding appropriate use of 
grace periods and instruct contractors to monitor SNFs use of grace 
periods.   
Follow up on the SNFs identified as having questionable billing  
In a separate memorandum, we will refer the SNFs that we identified as 
having questionable billing to CMS for appropriate action.   
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R E C O M M E N D A T I O N S  
 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with three of the four recommendations.  In general, CMS 
stated that changes to the SNF prospective payment system initiated in 
FY 2010 will result in more accurate payments to SNFs.  OIG, however, 
remains concerned that further changes, as we recommended, are 
necessary to reduce potentially inappropriate SNF payments. 
In response to our first recommendation, to monitor overall payments to 
SNFs, CMS concurred and stated that it would assess the impact of the 
recent changes on overall SNF payments as data became available and 
would expect to recalibrate RUG rates in future years, as appropriate.   
In response to our second recommendation, to change the current method 
for determining how much therapy is needed, CMS did not concur but 
stated that it is committed to pursuing additional improvements to the 
SNF payment system.  CMS noted several concerns with relying on 
information from the beneficiarys hospital stay, such as the diagnosis and 
therapy utilization, to determine the beneficiarys therapy needs during a 
SNF stay.  It further noted that it has several initiatives designed to 
consider the utilization of therapy services in different settings.  
In response to our third recommendation, to strengthen monitoring of 
SNFs, CMS concurred and stated that it would determine whether 
additional safeguards, including thresholds, shall be put in place by the 
Medicare contractors to target their efforts to identify and prevent 
inappropriate billing.  Further, CMS noted that it would share the 
information with the appropriate Medicare contractors to consider the 
issues identified in this report when prioritizing their medical review 
strategies and other interventions.   
Finally, in response to our fourth recommendation, to follow up on the 
SNFs identified as having questionable billing, CMS concurred and stated 
that it would forward the list of SNFs with questionable billing to the 
appropriate contractors.   
While we recognize CMSs intent to monitor overall payments to SNFs, we 
remain concerned about adjusting rates in a timely manner.  In FY 2006, 
when CMS increased the number of RUGs from 44 to 53, CMS intended 
these changes to be budget neutral.  CMS did not respond to significant 
annual increases in overall payments until FY 2010.   
We also recognize that CMS made a number of changes to the SNF 
payment system in FY 2010 and that these changes should improve the 
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R E C O M M E N D A T I O N S  
accuracy of payments.  However, we remain concerned that the payment 
system continues to provide incentives to SNFs to bill for more therapy 
than is needed.  We understand CMSs concerns about using hospital data 
to determine the amount of therapy the beneficiary needs; however, we 
strongly encourage CMS to pursue other options to reduce this 
vulnerability.  As we recommended, CMS should also consider:  (1) using 
therapists with no financial relationship to the SNF to determine the 
amount of therapy needed throughout a beneficiarys stay; and  
(2) developing guidance that specifies the types of patients for whom each 
level of therapy, including ultra high therapy, is appropriate. 
The full text of CMSs comments is provided in Appendix H. 
 
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   A P P E N D I X ~ A  
 
 
Centers for Medicare & Medicaid Services 
Timeframes for Conducting Beneficiary 
Assessments  
Last Day of Look-Back Period  
 
(From the Date of Admission) 
Assessment 
Type  Timeframe  Grace Period 
5-Day   Day 1 to 5  Day 6 to 8 
14-Day   Day 11 to 14  Day 15 to 19 
30-Day  Day 21 to 29  Day 30 to 34 
60-Day  Day 50 to 59  Day 60 to 64 
90-Day  Day 80 to 89  Day 90 to 94 
Source:  Centers for Medicare & Medicaid Services, Resident                                    
Assessment Instrument Users Manual. 
 
 
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 A P P E N D I X ~ B  
 
 
  Description of the 53 Resource Utilization Groups* 
 
 
         Therapy  
RUG Category                 RUG  ADL** Scores  Per Diem Rate 
               Level 
Therapy RUGs 
 
RUX  Ultra high  High  $602 
  RUL  Ultra high  Low  $529 
RVX  Very high  High  $456 
  RVL  Very high  Low  $426 
Rehabilitation Plus 
RHX  High  High  $387 
Extensive Services 
 
RHL  High  Low  $380 
RMX  Medium  High  $443 
 
RML  Medium  Low  $406 
RLX  Low    $314 
 
RUC  Ultra high  High  $511 
  RUB  Ultra high  Medium  $468 
RUA  Ultra high  Low  $446 
  RVC  Very high  High  $411 
RVB  Very high  Medium  $390 
  RVA  Very high  Low  $351 
   Rehabilitation  RHC  High  High  $358 
 
  RHB  High  Medium  $341 
RHA  High  Low  $316 
 
RMC  Medium  High  $328 
RMB  Medium  Medium  $320 
 
RMA  Medium  Low  $312 
  RLB  Low  High  $289 
RLA  Low  Low  $247 
 
Nontherapy RUGs 
  SE3      $362 
Extensive Services  SE2      $308 
  SE1      $274 
SSC    High  $270 
   Special Care    SSB    Medium  $255 
SSA    Low  $251 
 
CC2    High  $268 
CC1    High  $245 
 
CB2    Medium  $233 
Clinically Complex 
  CB1    Medium  $223 
CA2    Low  $221 
  CA1    Low  $207 
* RUG. 
** Activities of daily living. 
 
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A P P E N D I X ~ B  
 
 
 
 
 
 
 
Description of the 53 Resource Utilization Groups (continued) 
 
   
          Therapy 
  RUG Category               RUG   ADL Scores  Per Diem Rate
            Level 
 
  Nontherapy RUGs (continued) 
 
  PE2    High  $214 
  PE1    High  $210 
  PD2    High  $204 
 
PD1    High  $201 
 
  Reduced Physical  PC2    Medium  $193 
  Function  PC1    Medium  $191 
  PB2    Low  $170 
 
PB1    Low  $169 
 
  PA2    Low  $167 
  PA1    Low  $163 
  IB2    High  $198 
 
  IB1    High  $195 
 
  Impaired Cognition  IA2    Low  $179 
  IA1    Low  $171 
  BB2    High  $196 
BB1    High  $191 
Behavior Problems 
BA2    Low  $177 
BA1    Low  $166 
Source:  Office of Inspector General analysis of fiscal year 2008 per diem rates for RUGs, 2010.  
Analysis was based on the unadjusted urban rates.   
 
 
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   A P P E N D I X ~ C 
 
 
Table C-1:  The Distribution of Beneficiaries Ages From 2006 to 2008 
Percentage of Part A Stays 
Beneficiaries Ages at  Percentage- 
Admission  2006  2008  Point 
Difference* 
Age < 65  8.0%  9.6%  1.6% 
65  Age < 70  7.4%  7.7%  0.3% 
70  Age < 75  10.8%  10.6%  -0.2% 
75  Age < 80  17.0%  15.7%  -1.3% 
80  Age < 85  22.2%  21.2%  -1.0% 
85  Age < 90  20.1%  20.4%  0.4% 
90  Age < 95  11.0%  11.2%  0.2% 
Age  95  3.6%  3.7%  0.1% 
   Total*  100.0%  100.0%    
 * Percentages may not sum to 100 percent and may not equal the percentage-point difference 
because of rounding. 
Source:  Office of Inspector General analysis of Part A skilled nursing facility claims, 2010. 
 
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A P P E N D I X ~ C  
 
 
 
Table C-2:  The Distribution of Beneficiaries Diagnoses at Admission From 2006 to 2008 
Percentage of Part A Stays 
Percentage- 
Beneficiaries Admitting Diagnoses*  
2006 2008  Point 
Difference**
Top 20 Diagnoses (International Classification of Diseases,  
Ninth Revision) 
V57  Care involving use of rehabilitation procedures  12.1% 17.0%  4.9
V54  Other orthopedic aftercare  3.7% 4.2%  0.5
486  Pneumonia organism unspecified  4.3% 4.1%  -0.2
428  Heart failure  4.4% 3.8%  -0.6
780  General symptoms  3.6% 3.8%  0.2
599  Other disorders of urethra and urinary tract  3.1% 3.1%  0.0
820  Fracture of neck or femur  3.4% 2.7%  -0.7
496  Chronic airway obstruction not elsewhere classified  2.1% 2.0%  -0.1
Encounter for other and unspecified procedures and 
V58 
aftercare  1.9% 1.9%  0.1
728  Disorders of muscle, ligament, and fascia  1.4% 1.9%  0.5
715  Osteoarthrosis and allied disorders  2.1% 1.8%  -0.3
401  Essential hypertension  1.7% 1.7%  0.0
438  Late effects of cerebrovascular disease  1.7% 1.6%  -0.2
250  Diabetes mellitus  1.8% 1.6%  -0.3
436  Acute but ill-defined cerebrovascular disease   1.9% 1.4%  -0.5
427  Cardiac dysrhythmias  1.4% 1.4%  -0.1
682  Other cellulitis and abscess  1.4% 1.3%  -0.1
719   Other and unspecified disorders of joint   1.3% 1.3%  0.0
Symptoms involving nervous and musculoskeletal 
781 
systems  1.1% 1.2%  0.1
Other ill-defined and unknown causes of morbidity and 
799 
mortality  1.3% 1.2%  -0.1
All Other Diagnoses  44.2% 41.1%  -3.1
   Total**  100.0% 100.0% 
 * The diagnoses are sorted in descending order by the frequency in 2008. 
** Percentages may not sum to 100 percent and may not equal the percentage-point difference because of rounding. 
Source:  Office of Inspector General analysis of Part A skilled nursing facility claims, 2010. 
 
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      AAAA PPPP PPPP EEEE NNNN DDDD IIII XXXX ~~~~ FDDD     
 
Chart D-1:  Use of Ultra High Therapy for Each Age Group, by Year 
 
 
 
 
 
 
 
 
 
 
 
 
Source:  Office of Inspector General (OIG) analysis of Part A skilled nursing facility (SNF) claims, 2010. 
 
Chart D-2:  Use of Ultra High Therapy for Top 20 Admitting Diagnoses, by Year* 
 
 
 
 
 
* The diagnoses are sorted in descending order by the percentage of resource utilization groups (RUGs) for ultra high 
therapy in 2008. 
Source:  OIG analysis of Part A SNF claims, 2010. 
 
 
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      AAAA PPPP PPPP EEEE NNNN DDDD IIII XXXX ~~~~ FDEE     
Chart E-1:  Use of Ultra High Therapy for Each Age Group, by Type of SNF* Ownership, 2008 
 
 
 
 
 
 
 
 
 
* Skilled nursing facility. 
Source:  Office of Inspector General (OIG) analysis of Part A SNF claims, 2010. 
 
 
Chart E-2:  Use of Ultra High Therapy for Top 20 Admitting Diagnoses, by Type of SNF Ownership, 
2008* 
 
 
 
 
* The diagnoses are sorted in descending order by the percentage of resource utilization groups (RUGs) for ultra high 
therapy in for-profit SNFs. 
Source:  OIG analysis of Part A SNF claims, 2010. 
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   A P P E N D I X ~ F  
 
 
Billing by Nonprofit Skilled Nursing Facilities,* 2008 
SNFs Owned 
Independently  SNFs Owned by 
by Small 
   Owned SNFs  Large Chains  
Chains 
(N = 2,235)  (N = 179) 
(N = 1,552) 
Percentage of RUGs** 
17%  20%  11% 
for ultra high therapy  
Percentage of RUGs 
with high activities of  31%  31%  29% 
daily living scores 
Average length of stay  23 days  23 days  24 days 
* SNF. 
** Resource utilization groups. 
Source:  Office of Inspector General analysis of Part A SNF claims, 2010. 
 
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   A P P E N D I X ~ G  
 
 
Distribution of Three Billing Measures Among Skilled Nursing Facilities, by Quartile* 
 Measures  Q1  Q2  Q3  Q4  Top 1 Percent 
Percentage of 
Greater than 6  Greater than 20  Greater than 39 
RUGs** for ultra  0 to 6 percent  77 to 94 percent 
percent to 20 percent  percent to 39 percent  percent to 94 percent
high therapy  
Percentage of 
RUGs with high  Greater than 23  Greater than 32  Greater than 43 
0 to 23 percent  76 to 96 percent 
activities of daily  percent to 32 percent  percent to 43 percent  percent to 96 percent
living scores 
Average length of  Greater than 24 days   Greater than 29  Greater than 34 days 
5 to 24 days  48 to 61 days 
stay  to 29 days  days to 34 days  to 61 days
* Q1, Q2, Q3, and Q4 are quartiles.  Each quartile includes 25 percent of all skilled nursing facilities (N = 12,286).  
** Resource utilization groups. 
Source:  Office of Inspector General analysis of Part A skilled nursing facility claims, 2010. 
 
OEI-02-09-00202    QUESTIONABLE BILLING BY SKILLED NURSING FACILITIES  27  x 
A  P  PEN  D  H 
Centers for Medicare & Medicaid Services Comments 
/ 	 ....... "" 
'
~ 	
( ,S'! DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid SelVicss
Administrator 
Washington. DC 20201 
DATE:  OCT  2 8 2010 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Donald M. Berwick, M.D. 

Administrator 

SUBJECT: 	 Office ofInspector General's Draft Report: "Questionable Billing by Skilled 
Nursing Facilities" (OEI-02-09-00202) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review the 
Office of Inspector General's (OIG) draft report entitled "Questionable Billing by Skilled 
Nursing Facilities." 
The objectives of the review were to: 1) determine the extent to which billing by skilled nursing 
facilities (SNFs) changed from 2006 to 2008; 2) determine the extent to which billing varied by 
type ofSNF ownership in 2008; and 3) identify SNFs that had questionable billing in 2008. The 
DIG found that from 2006 to 2008, SNFs increasingly billed for higher paying Resource 
Utilization Groups (RUGs) and that for-profit SNFs were far more likely than nonprofit or 
government SNFs to bill for higher paying RUGs.  In addition, the DIG found a number of 
instances ofquestionable billing in 2008. 
Like the DIG, CMS has been concerned with the increasing utilization of the highest paying 
RUGs. In the fiscal year (FY) 2010 SNF Prospective Payment System (PPS) final rule, CMS 
made several changes to address these concerns. 
 	 CMS recalibrated the nursing case-mix indexes by making a downward adjustment which 
resulted in a $1;05 billion decrease in aggregate payments for FY 2010. 
 	 CMS finalized the Resource Utilization Group Version 4 (RUG-IV) classification 
system, which provides comprehensive changes to the SNF PPS. 
 	 CMS finalized the Minimum Data Set Version 3.0 CMDS 3.0) assessment instrument. 
The CMS believes that the recent changes to the MDS 3.0 coding requirements and 
implementation ofthe RUG-IV classification system will result in more accurate SNF payment, 
including reallocation ofpayrnents from therapy to medically complex conditions. We believe 
implementation of the RUG-IV classi.fication system will improve payment accuracy, incentivize 
access to care for the sickest patients, and significantly reduce program vulnerabilities. CMS 
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A P P E N D I X ~ H  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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A P P E N D I X ~ H  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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  A C K N O W L E D G M E N T S
 
This report was prepared under the  direction of Jodi Nudelman, Regional 
Inspector General for Evaluation and Inspections in the New York  
regional office, and Meridith Seife, Deputy Regional Inspector General.   
Judy Bartlett and Judy Kellis served as the team leaders for this study.  
Other principal Office of Evaluation and Inspections staff from the New 
York regional office who contributed to the report include  
Christine Moundas and Rachel Siman; central office staff who contributed 
include Kevin Farber and Sandy Khoury.  
 
 
OEI-02-09-00202     QUESTIONABLE BILLING BY  SKILLED  NURSING  FACILITIES   31   
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.