DEPARTMENT OF HEALTH & HUMAN SERVICES 	 Office of Inspector ~eneral 
Washmgton, D.C.  20201 
JUL 08 20U 
TO: 	 Donald M. Berwick, M.D. 
Administrator 
Centers for Medicare & Medicaid Services 
FROM:  Stuart Wright 
Deputy Inspector General 
for Evaluation and Inspections 
SUBJECT: 	 Early Alert Memorandum Report:  Changes in Skilled Nursing Facilities 
Billing in Fiscal Year 2011, OEI-02-09-00204 
This memorandum report presents our results to date regarding skilled nursing facilities 
(SNF) billing in fiscal year (FY) 2011.  Specifically, this report describes the extent to 
which billing by SNFs changed from the last half of FY 2010 to the first half of FY 2011 . 
This memorandum report is a followup to an earlier Office of Inspector General (OIG) 
report.!  In that report, 01U found that Medicare payments to SNFs increased from 2006 
to 2008, even though beneficiary characteristics remained largely unchanged. 
Specifically, payments to SNFs for the highest level of therapy increased by nearly 
90 percent from 2006 to 2008, rising from $5.7 billion to $10.7 billion. Billing for high 
levels of assistance with ADLs also increased. 
SUMMARY 
The Centers for Medicare & Medicaid Services (CMS) made a number of changes to the 
SNF payment system that became effective at the beginning of FY 2011.  In particular, 
CMS changed how SNFs bill for concurrent therapy.  CMS expected this change to 
decrease billing for higher levels of therapy.  Because CMS did not intend to decrease 
overall payments to SNFs, it increased the payment rates for therapy.  CMS also changed 
how SNFs bill for extensive services, such as tracheostomy care, and for assistance with 
beneficiaries' activities of daily living (ADL). 
Although CMS intended the FY 2011 changes to be budget neutral, Medicare payments 
increased by $2.1 billion, or 16 percent, from the last half of FY 2010 to the first half of 
FY 2011.  Contrary to CMS' s expectations, in the first half of FY 2011, SNFs billed for 
higher levels of therapy and for very little concurrent therapy.  These unanticipated 
billing patterns contributed to the overall increase in payments.  At the same time, several 
1 OIG, Questionable Billing by Skilled Nursing Facilities, OEI-02-09-00202, December 2010. 
OEI-02-09-00204  Changes in SNF Billing in FY 2011   
 
Page 2  Donald M. Berwick, M.D. 
 
 
of CMSs changes reduced billing for certain higher-paying groups.  Between the last 
half of FY 2010 and the first half of FY 2011, billing decreased slightly for therapy 
overall.  Billing for extensive services and for high levels of assistance with ADLs also 
decreased. 
 
The data indicate that CMS should adjust payment rates to address the significant 
increases in payments to SNFs.  The data also show that CMS should make changes to 
how SNFs account for group therapy.  Lastly, the data highlight the need for further 
changes to make Medicare payments more consistent with beneficiaries care and 
resource needs.   
 
We plan to conduct a full review of SNF billing at the end of FY 2011 and may issue 
formal recommendations to CMS at that time.  However, based on the data in this report, 
CMS should take immediate action.  CMS has proposed a number of changes to the SNF 
payment system and will issue a final rule for FY 2012.  CMS should use this opportunity 
to address the issues identified in this memorandum report. 
 
BACKGROUND  
 
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.2  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.3   
 
Medicare pays SNFs under a prospective payment system.  During a Part A stay, SNFs 
classify beneficiaries into groups based on their care and resource needs.  These groups are 
called resource utilization groups (RUG).  SNFs use an assessment known as the Minimum 
Data Set (MDS) to classify beneficiaries into RUGs.4  The MDS assesses the beneficiarys 
clinical condition, functional status, and expected use of services.  SNFs must conduct these 
assessments 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 the beneficiarys care needs.5  
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 is categorized into a RUG.  A 
beneficiary may be categorized into different RUGs during his or her stay. 
 
 
                                                 
2 Social Security Act,  1812(a)(2)(A) and 1861(h); 42 U.S.C.  1395d(a)(2)(A) and 1395x(h).  
3 42 CFR  409.30 and 409.31.  
4 The MDS is part of CMSs Resident Assessment Instrument (RAI).  CMS, Long-Term Care Facility Resident 
Assessment Instrument Users Manual, ver. 3.0 (RAI Manual 3.0), Sept. 2010,  1.2 and 1.3. 
5 42 CFR  413.343(b) and CMS, RAI Manual 3.0,  2.8.  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.  See 42 CFR  483.20 and RAI Manual 3.0,  2.6 and 2.11. 
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 3  Donald M. Berwick, M.D. 
 
 
 
Types of RUGs  
Each RUG has a different Medicare per diem payment rate.  Beginning in FY 2011, CMS 
increased the number of RUGs from 53 to 66.  Medicare groups these 66 RUGs into eight 
distinct categories.  Two categoriesRehabilitation and Rehabilitation Plus Extensive 
Servicesare for beneficiaries who need physical therapy, speech therapy, or occupational 
therapy, typically to recover from an event such as a hip fracture or a stroke.  In this report, 
we refer to the RUGs in the two therapy categories as therapy RUGs.    
 
The remaining six categories are for beneficiaries who require very little or no therapy.  We 
refer to the RUGs in these six categories as nontherapy RUGs.  These categories are 
Extensive Services, Special Care High, Special Care Low, Clinically Complex, Reduced 
Physical Function, and Behavioral Symptoms and Cognitive Performance.  See Appendix A 
for information about all RUGs in FY 2010 and FY 2011.  
 
Medicare Payments for Therapy  
Medicare payment rates for therapy RUGs are more than 112 times higher, on average, than 
the rates for nontherapy RUGs.6  Additionally, within the therapy RUGs, 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, and low.  The SNF categorizes a beneficiary into one of the five therapy levels 
based primarily on the number of minutes of therapy provided during a 7-day assessment 
period.7  For example, if the beneficiary received 45 minutes of therapy during the 
assessment 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.  In FY 2011, the average per diem 
rate for the ultra high therapy RUGs is $699, compared to $430 for low therapy RUGs.  
 
Beneficiaries in a Part A stay can receive three different types of therapy: 
 
  individual, in which the therapist works with only one beneficiary; 
  concurrent, in which the therapist works with two beneficiaries at the same time 
using different treatments; and 
  group, in which the therapist works with two to four beneficiaries at the same 
time using similar treatments.  
 
Beginning in FY 2011, SNFs were required to divide concurrent therapy minutes among 
beneficiaries when determining each beneficiarys RUG.8  For example, when two 
                                                 
6 OIG analysis of FYs 2010 and 2011 unadjusted per diem urban rates.  There is an urban and a rural payment rate for 
each RUG.  The urban payment rates are generally lower than the rural rates for therapy RUGs.  See  
74 Fed. Reg. 40288, 4029840300 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 4289442895, 4289742899                
(Jul. 22, 2010).   
7 CMS, RAI Manual 3.0,  6.6.  In addition to the minutes of therapy provided, SNFs must use other criteria to 
categorize a beneficiary into a therapy RUG, such as how often certain nursing services are provided. 
8 74 Fed. Reg. 40288, 4031540319 (Aug. 11, 2009) and CMS, RAI Manual 3.0,  6.6 and ch. 3,  O0400. 
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 4  Donald M. Berwick, M.D. 
 
 
beneficiaries receive 60 minutes of therapy concurrently, the SNF counts 30 minutes 
when determining each beneficiarys RUG.9  In contrast, CMS did not require SNFs to 
divide group therapy minutes among beneficiaries.10  For example, when one therapist 
provides group therapy to four beneficiaries for 60 minutes, the SNF counts all  
60 minutes when determining each beneficiarys RUG.   
 
As a result of the new requirement to divide concurrent therapy minutes among 
beneficiaries, CMS expected a decrease in SNF billing for higher levels of therapy in   
FY 2011.11  CMS did not intend the changes implemented in FY 2011 to decrease overall 
payments to SNFs.12  As a result, CMS increased the per diem payment rate for each 
level of therapy beginning in FY 2011.  For example, CMS increased the average per 
diem rate for ultra high therapy RUGs from $528 in FY 2010 to $699 in FY 2011, a  
32-percent increase.  See Table 1 for the average per diem rates for each level of therapy.  
 
Table 1:  Average Amount That Medicare Pays SNFs per Diem for Each Level of 
Therapy, FYs 2010 and 2011 
Number of Therapy   Average  Average  Percentage 
Minutes Provided  per Diem  per Diem  Increase From 
Level of Therapy 
During Assessment  Payment   Payment  FY 2010 to  
Period   FY 2010  FY 2011   FY 2011 
Low   45 to 149  $288  $430  49% 
Medium   150 to 324  $369  $488  32% 
High   325 to 499  $364  $532  46% 
Very high   500 to 719  $418  $594  42% 
Ultra high   720 or more  $528  $699  32% 
Source:  OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011.  See 74 Fed. Reg. 40288,       
4029840299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 4289442895 (Jul. 22, 2010). 
 
Medicare Payments for Extensive Services  
Extensive services include tracheostomy care, the use of a ventilator or respirator, and 
infection isolation.  Two categories of RUGs include extensive services:  Rehabilitation 
Plus Extensive Services, which includes therapy; and Extensive Services, which does not 
include therapy.  Beginning in FY 2011, CMS substantially narrowed the definition of 
extensive services.13  It made this change because it found that many of the beneficiaries 
                                                 
9 Effective FY 2011, SNFs were also required to report how many minutes of each type of therapy were provided to 
each beneficiary.  In contrast, prior to FY 2011, SNFs only reported the total number of therapy minutes provided to 
each beneficiary.  Compare CMS, RAI Manual 3.0, ch. 3,  O0400 with CMS, Long-Term Care Facility Resident 
Assessment Instrument Users Manual 2.0 (RAI Manual 2.0), Dec. 2002, revised Dec. 2008, ch. 3,  P1.b.  
10 During both FYs 2010 and 2011, CMS limited group therapy to 25 percent of the total therapy provided to each 
beneficiary.  See CMS, RAI Manual 3.0,  6.6, and RAI Manual 2.0, ch. 3,  P2.b. 
11 For example, in FY 2010, if a beneficiary received 320 minutes of individual therapy and 400 minutes of concurrent 
therapy, this beneficiary was categorized into an ultra high therapy RUG (320 + 400 = 720 minutes).  In contrast, in  
FY 2011, this same beneficiary is categorized into a very high therapy RUG (320 + 400/2 = 520 minutes).  
12 74 Fed. Reg. 40288, 4033840339 (Aug. 11, 2009). 
13 Compare CMS, RAI Manual 3.0,  6.6 with RAI Manual 2.0,  6.6.  
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 5  Donald M. Berwick, M.D. 
 
 
previously classified as needing extensive services required fewer resources than 
expected.14 
 
Medicare Payments for Assistance With ADLs  
RUGs are further divided by the amount of assistance a beneficiary needs with certain 
ADLs.15  As part of the assessment, SNFs assign each beneficiary an ADL score based on 
how much assistance he or she needs with certain ADLs, 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 lower ADL 
scores.16  Medicare pays higher rates for RUGs with high ADL scores than for RUGs with 
lower ADL scores.  In FY 2011, CMS changed both how the ADL score was calculated and 
the range of ADL scores associated with each RUG.17   
 
Other Changes to the SNF Payment System  
CMS made several other changes to the SNF payment system.  Prior to FY 2011, during 
a beneficiarys first assessment, SNFs were allowed to place the beneficiary in a therapy 
RUG based on scheduled (but not yet provided) therapy.  Beginning in FY 2011, CMS no 
longer allowed this, explaining that studies indicated that SNFs were often overpaid 
because beneficiaries did not always receive the level of therapy that was scheduled.  
Instead, in FY 2011, CMS introduced an optional start-of-therapy assessment, which 
allows SNFs to recalculate a beneficiarys RUG if therapy was started later during the 
stay.18  Additionally, prior to FY 2011, CMS allowed SNFs to wait 8 to 10 days to 
conduct an end-of-therapy assessment after all therapy was discontinued.  Beginning in 
FY 2011, CMS required SNFs to conduct this assessment within 1 to 3 days.19 
 
METHODOLOGY 
 
We based this study on information from:  (1) all paid Part A SNF claims from the last 
half of FY 2010 through the first half of FY 2011 and (2) MDS beneficiary assessment 
data from the same period.20   
 
We first identified the universe of paid Part A SNF claims from the last half of FY 2010 
(April 1 to September 30, 2010) and the first half of FY 2011 (October 1, 2010, to  
                                                 
14 74 Fed. Reg. 22208, 2223022231 (May 12, 2009). 
15 The one exception is the Extensive Services category.  The RUGs in this category are not divided by the amount of 
assistance a beneficiary needs with ADLs. 
16 Each RUG is associated with a range of ADL scores.  Within each category, we refer to the RUGs with the highest 
range of ADL scores as RUGs with high ADL scores.  For example, for the Clinically Complex category, we consider 
the two RUGs with ADL scores ranging from 15 to 16 to be RUGs with high ADL scores. 
17 Compare CMS, RAI Manual 3.0,  6.6 with RAI Manual 2.0,  6.6.   
18 74 Fed. Reg. 40288, 4034640349 (Aug. 11, 2009), 74 Fed. Reg. 22208, 2224422246 (May 12, 2009), and CMS, 
RAI Manual 3.0,  2.8. 
19 While SNFs are required to recalculate the RUG after all therapy is discontinued, they are not required to recalculate 
the RUG when the beneficiarys level of therapy changes substantially. 
20 The CMS claims data were obtained from the Services Tracking Analysis and Reporting System.  These data 
included all claims with processing dates before June 1, 2011.   
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 6  Donald M. Berwick, M.D. 
 
 
March 31, 2011).21  For each 6-month period, we calculated the total amount billedboth 
for therapy and nontherapy RUGs.   
 
Next, we compared the distributions of the RUGs for each period.22  Specifically, we 
determined the percentages of RUGs billed for each level of therapy for both periods.  For 
this analysis, 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.   
 
Next, for first half of FY 2011, we used MDS data to determine the extent to which SNFs 
billed for each type of therapy:  concurrent, group, and individual.23  Because SNFs did not 
have to report this information prior to FY 2011, we compared these data to CMSs 
expected use of each type of therapy.  CMS based its expectations on the Staff Time and 
Resource Intensity Verification (STRIVE) study, which found that about three-quarters of 
therapy was provided individually, one-quarter was provided concurrently, and less than  
1 percent was provided in a group setting.24   
 
Lastly, we determined the percentage of RUGs billed for extensive services.  We did this 
analysis separately for extensive services with and without therapy.  We also analyzed how 
often SNFs billed for RUGs with high ADL scores.  We compared this information for the 
two periods to determine whether there were any differences.  
 
This study was conducted in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
 
RESULTS 
 
Medicare Payments to SNFs Increased by $2.1 Billion From the Last Half of  
FY 2010 to the First Half of FY 2011 
CMS made several changes to how Medicare paid SNFs for Part A stays in FY 2011.  
While CMS intended these changes to be budget neutral, overall payments to SNFs 
instead increased significantly.  As shown in Table 2, payments to SNFs rose from  
$12.7 billion during the last half of FY 2010 to $14.8 billion during the first half of  
FY 2011, an increase of 16 percent.  The total increase of $2.1 billion was primarily due 
to payments for therapy RUGs, which rose by $1.8 billion.  In contrast, payments for 
nontherapy RUGs increased by $0.2 billion. 
 
 
                                                 
21 In this report, we refer to claim line items as claims.     
22 We based our analysis on the RUGs that SNFs submitted on the claims.  A RUG from a beneficiarys assessment 
may span two claims.  In this report, we count this as one RUG.   
23 For example, to determine the use of concurrent therapy, we summed the minutes of concurrent therapy reported by 
SNFs for all beneficiaries and divided by the total number of minutes reported for all therapy.  
24 The STRIVE study was conducted by the Iowa Foundation for Medical Care under contract with CMS.  Data were 
collected in 2006 and 2007.  See https://www.qtso.com/strive.html.  Accessed on May 2, 2011.   
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 7  Donald M. Berwick, M.D. 
 
 
Table 2:  Change in Medicare Payments From the Last Half of FY 2010 
to the First Half of FY 2011 
Total Medicare Payments 
Difference in 
Type of RUG 
Last Half of FY 2010  First Half of FY 2011  Payments*  
Therapy   $12.2  billion  $14.0  billion  $1.8  billion 
Nontherapy   $0.6  billion  $0.8  billion  $0.2  billion 
Total*  $12.7  billion  $14.8  billion  $2.1  billion 
* Payments may not subtract to the difference and sum to the total because of rounding. 
Source:  OIG analysis of Part A SNF claims, 2011. 
 
SNF billing for higher-paying therapy RUGs increased, which CMS did not anticipate.  
Medicare pays more for RUGs in which the beneficiary receives higher levels of therapy.  
CMS expected that the changes implemented in FY 2011 would result in a decrease in 
SNF billing for higher levels of therapy.  However, contrary to what CMS expected, 
billing for higher levels of therapy actually increased in the first half of FY 2011, 
compared to the last half of FY 2010.   
 
As shown in Table 3, billing for ultra high therapy increased by almost 2 percentage 
points and billing for high and very high therapy each increased by about 4 percentage 
points.  At the same time, billing for medium therapy decreased by nearly 10 percentage 
points.  Notably, billing for the three highest levels of therapy increased from the first to 
the second quarter of FY 2011.   
 
Table 3:  Change in Billing For Each Level of Therapy From the Last Half of FY 2010 to 
the First Half of FY 2011 
Percentage Point 
Level of Therapy   Last Half of FY 2010  First Half of FY 2011 
Change* 
Low   0.2%  0.2%  0.1 
Medium   20.6%  11.1%  -9.5 
High   9.2%  13.1%  3.9 
Very high   26.2%  30.2%  4.1 
Ultra high   43.8%  45.4%  1.5 
Total  100%  100%   
* Percentage differences do not subtract to percentage point change because of rounding.     
Source:  OIG analysis of Part A SNF claims, 2011. 
 
SNFs billed for less concurrent therapy than CMS expected.  CMS changed how SNFs 
must account for therapy provided concurrently.  Beginning in FY 2011, SNFs were 
required to divide concurrent therapy minutes among beneficiaries.  As a result of this 
new requirement, CMS expected a decrease in the number of therapy minutes billed per 
beneficiary and a decrease in the levels of therapy billed.  Instead, SNFs billed for far less 
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 8  Donald M. Berwick, M.D. 
 
 
concurrent therapy in FY 2011 than CMS expected and the anticipated shift to lower 
levels of therapy did not occur.   
 
As shown in Table 4, when CMS determined the reimbursement rates for SNFs during 
FY 2011, it assumed that SNFs use of concurrent therapy would be approximately  
25 percent of all therapy.  However, during the first half of FY 2011, less than 1 percent 
of all therapy minutes were for concurrent therapy.  Furthermore, SNFs use of 
concurrent therapy decreased each month, from 1.4 percent in October 2010 to  
0.7 percent in March 2011.   
 
 
Table 4:  The Use of Each Type of Therapy, as Expected by CMS and as Billed 
During the First Half of FY 2011 
Percentage Point 
Type of Therapy   Expected by CMS*  First Half of FY 2011 
Difference 
Concurrent  25.3%  0.9%  -24.4 
Group  0.5%  7.7%  7.2 
Individual   74.1%  91.4%  17.3 
Total  100%**  100%   
* CMSs expectations are based on the STRIVE study.   
** Percentages do not sum to total because of rounding. 
Source:  OIG analysis of MDS data, 2011. 
 
SNFs billed for more group and individual therapy than CMS expected.  While the use of 
concurrent therapy was much lower than expected, the use of both group and individual 
therapy was much higher than expected in the first half of FY 2011.  CMS expected 
group therapy to account for less than 1 percent of all therapy.  However, during the first 
half of FY 2011, SNF billing for group therapy accounted for nearly 8 percent of all 
therapy.  Lastly, CMS expected individual therapy to amount to about three-quarters of 
therapy; however, in the first half of FY 2011, individual therapy was about 91 percent of 
all therapy. 
 
Although Medicare Payments to SNFs Increased Overall, Several of CMSs 
Changes Reduced Billing for Certain Higher-Paying RUGs  
 
Overall, billing for therapy RUGs decreased slightly from the last half of FY 2010 to the 
first half of FY 2011.  Medicare pays SNFs more than 112 times as much for therapy 
RUGs, on average, as it does for nontherapy RUGs.  Billing for therapy RUGs decreased 
from 89 percent of all RUGs during the last half of FY 2010 to 86 percent during the first 
half of FY 2011.   
 
Two changes in FY 2011 likely contributed to this shift toward nontherapy RUGs.  First, 
in FY 2011, SNFs were no longer allowed to bill for therapy RUGs based on scheduled 
(but not yet provided) therapy.  Second, in FY 2011, SNFs were required to recalculate a 
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 9  Donald M. Berwick, M.D. 
 
 
beneficiarys RUG within 1 to 3 days after all therapy was discontinued, rather than  
8 to 10 days.  As a result, SNFs use of these end-of-therapy assessments increased from 
1.7 percent during the last half of FY 2010 to 2.8 percent during the first half of FY 2011.   
 
Billing for extensive services decreased substantially from the last half of FY 2010 to the 
first half of FY 2011.  Medicare pays more for RUGs in which the beneficiary requires 
extensive services than it does for RUGs in which the beneficiary does not require 
extensive services.  In FY 2011, CMS substantially narrowed the definition of extensive 
services, which likely decreased billing for these RUGs.    
 
As shown in Table 5, SNFs significantly reduced their billing for extensive services.  
Billing for therapy RUGs with extensive services decreased from nearly 42 percent of all 
RUGs during the last half of FY 2010 to less than 3 percent of all RUGs during the first 
half of FY 2011.  Additionally, billing for nontherapy RUGs with extensive services 
decreased from about 4 percent to less than 1 percent of all RUGs.   
 
 
Table 5:  Change in Billing for RUGs That Include Extensive 
Services From the Last Half of FY 2010 to the First Half of FY 2011 
Type of RUG   Last Half of FY 2010  First Half of FY 2011 
Therapy RUGs  
With Extensive Services  41.7%  2.7% 
Without Extensive Services  47.3%  83.3% 
Nontherapy RUGs  
With Extensive Services  4.2%  0.7% 
Without Extensive Services  6.9%  13.3% 
Total  100%  100% 
Source:  OIG analysis of Part A SNF claims, 2011. 
 
Billing for RUGs with high ADL scores decreased from the last half of FY 2010 to the 
first half of FY 2011.  In general, Medicare pays more for RUGs with high ADL scores 
than for RUGs with lower ADL scores.  In FY 2011, CMS changed how the ADL score 
was calculated and the range of ADL scores associated with each RUG; these changes 
likely contributed to SNFs decreased use of RUGs with high ADL scores.   
 
Billing for therapy RUGs with high ADL scores decreased from 35 percent during the 
last half of FY 2010 to 30 percent during the first half of FY 2011.  At the same time, 
beneficiaries need for assistance with ADLs did not change, on average.  The average 
ADL score was 13 during the last half of FY 2010 and, applying the FY 2010 rules, 
remained 13 during the first half of FY 2011.   
 
 
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 10  Donald M. Berwick, M.D. 
 
 
Current Timeframes for When SNFs May Calculate a Beneficiarys RUG May Lead 
to Inaccuracies 
SNFs must calculate a beneficiarys RUG on or about the 5th, 14th, 30th, 60th, and 90th day 
of a Part A stay, as well as when changes in the beneficiarys care needs occur.  SNFs 
gather information about the beneficiary during an assessment period to determine the 
beneficiarys RUG.  CMS specifies timeframes for the last day of assessment periods.  
For example, SNFs must set the last day of the assessment period sometime between the 
11th and the 19th day of a stay for the beneficiarys second assessment.  
 
Currently, a beneficiarys assessment periods can overlap substantially.  During the first 
half of FY 2011, 43 percent of RUGs had a 7-day assessment period that overlapped with 
another RUGs assessment period by at least 3 days.  This was an increase of  
4 percentage points from the last half of FY 2010.  This overlap typically occurred when 
SNFs chose the 8th day of the stay as the end of the beneficiarys first assessment, and 
then chose the 11th day as the end of the second assessment.  In these cases, the two 
assessment periods overlapped by 4 days.  When SNFs use overlapping assessment 
periods, the same information is used to calculate two different RUGs.  This may lead to 
inaccuracies in the assessment of beneficiaries changing needs and the corresponding 
RUGs.   
 
CONCLUSION 
 
In FY 2011, CMS made a number of changes to the SNF payment system.  In particular, 
CMS changed how SNFs bill for concurrent therapy.  CMS expected this change to 
decrease billing for higher levels of therapy.  Because CMS did not intend to decrease 
overall payments to SNFs, it increased the payment rates for therapy.  CMS also changed 
how SNFs bill for extensive services and for assistance with ADLs.  
 
Although CMS intended the FY 2011 changes to be budget neutral, Medicare payments 
increased by $2.1 billion, or 16 percent, from the last half of FY 2010 to the first half of 
FY 2011.  Contrary to CMSs expectations, in the first half of FY 2011, SNFs billed for 
higher levels of therapy and for very little concurrent therapy.  These unanticipated 
billing patterns contributed to the increase in payments.  At the same time, several of 
CMSs changes reduced billing for certain higher-paying RUGs.  Between the last half of 
FY 2010 and the first half of FY 2011, billing decreased slightly for therapy overall.  
Billing for extensive services and for RUGs with high ADL scores also decreased. 
 
These data indicate that CMS should adjust payment rates to address the significant 
increases in payments to SNFs.  Given the current trends, Medicare will pay over  
$4 billion more to SNFs in FY 2011 than in FY 2010.  In addition, the data show that 
CMS should make changes to how SNFs account for group therapy.  Currently, SNFs 
have a financial incentive to choose group therapy over individual or concurrent therapy.  
By better aligning Medicare payments to SNFs expenditures for each type of therapy, 
SNFs will more likely choose the type of therapy that best meets the beneficiarys needs.  
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 11  Donald M. Berwick, M.D. 
 
 
Lastly, the data highlight the need for further changes to make RUGs and Medicare 
payments more consistent with beneficiaries care and resource needs.  These changes 
could include requiring SNFs to recalculate a beneficiarys RUG whenever his or her 
level of therapy changes substantially, as well as reducing the overlap that occurs in 
assessment periods.   
 
We plan to conduct a full review of SNF billing at the end of FY 2011 and may issue 
formal recommendations to CMS at that time.  However, based on the data in this report, 
CMS should take immediate action.  CMS has proposed a number of changes to the SNF 
payment system and will issue a final rule for FY 2012.25  CMS should use this 
opportunity to address the issues identified in this memorandum report. 
 
This report is being issued directly in final form because it contains no recommendations.  
If you have comments or questions about this report, please provide them within 60 days.  
Please refer to report number OEI-02-09-00204 in all correspondence. 
   
                                                 
25 76 Fed. Reg. 26364, 2636426429 (May 6, 2011).   
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 12  Donald M. Berwick, M.D. 
 
 
 
APPENDIX A 
Therapy RUGs 
Range of ADL 
RUG  RUG Code  Therapy Level  Scores  Per Diem Rate 
Category  
FY 2010  FY 2011  FY 2010  FY 2011  FY 2010  FY 2011 
RUX  RUX  Ultra high  16 to 18  11 to 16  $617  $869 
RUL  RUL  Ultra high  7 to 15  2 to 10  $546  $847 
RVX  RVX  Very high  16 to 18  11 to 16  $468  $787 
RVL  RVL  Very high  7 to 15  2 to 10  $437  $698 
Rehabilitation 
Plus Extensive  RHX  RHX  High  13 to 18  11 to 16  $396  $723 
Services 
RHL  RHL  High  7 to 12  2 to 10  $386  $638 
RMX  RMX  Medium  15 to 18  11 to 16  $449  $668 
RML  RML  Medium  7 to 14  2 to 10  $413  $611 
RLX  RLX  Low  7 to 18  2 to 16  $319  $594 
RUC  RUC  Ultra high  16 to 18  11 to 16  $529  $634 
RUB  RUB  Ultra high  9 to 15  6 to 10  $485  $634 
RUA  RUA  Ultra high  4 to 8  0 to 5  $463  $513 
RVC  RVC  Very high  16 to 18  11 to 16  $421  $552 
RVB  RVB  Very high  9 to 15  6 to 10  $401  $468 
RVA  RVA  Very high  4 to 8  0 to 5  $364  $466 
RHC  RHC  High  13 to 18  11 to 16  $365  $488 
Rehabilitation 
RHB  RHB  High  8 to 12  6 to 10  $349  $434 
RHA  RHA  High  4 to 7  0 to 5  $326  $376 
RMC  RMC  Medium  15 to 18  11 to 16  $335  $435 
RMB  RMB  Medium  8 to 14  6 to 10  $326  $403 
RMA  RMA  Medium  4 to 7  0 to 5  $320  $324 
RLB  RLB  Low  14 to 18  11 to 16  $294  $431 
RLA  RLA  Low  4 to 13  0 to 10  $252  $264 
 
   
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 13  Donald M. Berwick, M.D. 
 
 
APPENDIX A (Continued) 
Nontherapy RUGs 
Range of ADL 
RUG Category  RUG Code  Scores  Per Diem Rate 
  
FY 2010  FY 2011  FY 2010  FY 2011  FY 2010  FY 2011 
SE3  ES3  7 to 18  2 to 16  $361  $661 
Extensive Services  SE2  ES2  7 to 18  2 to 16  $309  $518 
SE1  ES1  7 to 18  2 to 16  $276  $463 
SSC  17 to 18  $272 
     
Special Care  SSB  15 to 16  $258 
     
SSA  4 to 14  $253 
     
HE2  15 to 16  $447 
     
HE1  15 to 16  $371 
     
HD2  11 to 14  $418 
     
HD1  11 to 14  $349 
Special Care High       
HC2  6 to 10  $394 
     
HC1  6 to 10  $330 
     
HB2  2 to 5  $390 
     
HB1  2 to 5  $327 
     
LE2  15 to 16  $406 
     
LE1  15 to 16  $339 
     
LD2  11 to 14  $390 
     
LD1  11 to 14  $327 
Special Care Low       
LC2  6 to 10  $342 
     
LC1  6 to 10  $289 
     
LB2  2 to 5  $325 
     
LB1  2 to 5  $276 
     
CC2  CE2  17 to 18  15 to 16  $270  $361 
CC1  CE1  17 to 18  15 to 16  $248  $333 
CB2  CD2  12 to 16  11 to 14  $236  $342 
CB1  CD1  12 to 16  11 to 14  $225  $314 
CA2  CC2  4 to 11  6 to 10  $223  $300 
Clinically Complex 
CA1  CC1  4 to 11  6 to 10  $211  $278 
CB2  2 to 5  $278 
     
CB1  2 to 5  $257 
     
CA2  0 to 1  $235 
     
CA1  0 to 1  $219 
     
OEI-02-09-00204   Changes in SNF Billing in FY 2011 
   
 
Page 14  Donald M. Berwick, M.D. 
 
 
APPENDIX A (Continued) 
 
Nontherapy RUGs (continued) 
Range of ADL 
RUG Code  Per Diem Rate 
RUG Category   Scores 
FY 2010  FY 2011  FY 2010  FY 2011  FY 2010  FY 2011 
IB2  6 to 10  $202 
     
IB1  6 to 10  $199 
Impaired Cognition       
IA2  4 to 5  $183 
     
IA1  4 to 5  $177 
     
Behavior Problems    BB2  BB2  6 to 10  2 to 5  $200  $249 
(RUG-III) 
  BB1  BB1  6 to 10  2 to 5  $196  $238 
Behavioral Symptoms and  BA2  BA2  4 to 5  0 to 1  $182  $207 
Cognitive Performance 
(RUG IV)  BA1  BA1  4 to 5  0 to 1  $169  $197 
PE2  PE2  16 to 18  15 to 16  $217  $333 
PE1  PE1  16 to 18  15 to 16  $214  $317 
PD2  PD2  11 to 15  11 to 14  $206  $314 
PD1  PD1  11 to 15  11 to 14  $203  $298 
PC2  PC2  9 to 10  6 to 10  $197  $270 
Reduced Physical Function 
PC1  PC1  9 to 10  6 to 10  $196  $257 
PB2  PB2  6 to 8  2 to 5  $175  $229 
PB1  PB1  6 to 8  2 to 5  $172  $219 
PA2  PA2  4 to 5  0 to 1  $171  $189 
PA1  PA1  4 to 5  0 to 1  $166  $181 
Source:  OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011.  See 74 Fed. Reg. 40288,     
4029840299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 4289442895 (Jul. 22, 2010). 
 
OEI-02-09-00204   Changes in SNF Billing in FY 2011