Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
I P
NAPPROPRIATE  AYMENTS 
 
  S N
TO  KILLED  URSING 
 
F C M
ACILITIES  OST  EDICARE 
M T B
ORE  HAN A  ILLION 
D 2009 
OLLARS IN 
 
 
 
Daniel R. Levinson  
Inspector General 
 
November 2012 
OEI-02-09-00200   
   
EXECUTIVE SUMMARY:  INAPPROPRIATE PAYMENTS TO SKILLED 
NURSING FACILITIES COST MEDICARE MORE THAN A BILLION DOLLARS 
IN 2009 
OEI-02-09-00200 
 
WHY WE DID THIS STUDY  
 
In recent years, the Office of Inspector General has identified a number of problems with 
billing by skilled nursing facilities (SNF), including the submission of inaccurate, 
medically unnecessary, and fraudulent claims.  Further, the Medicare Payment Advisory 
Commission has raised concerns about SNFs improperly billing for therapy to obtain 
additional Medicare payments.  In fiscal year (FY) 2012, Medicare paid $32.2 billion for 
SNF services.   
 
HOW WE DID THIS STUDY 
 
We based this study on a medical record review of a stratified random sample of SNF 
claims from 2009.  The reviewers determined whether the information reported by the 
SNFs on the Minimum Data Set (MDS) was supported by and consistent with the 
medical record.  The MDS is a standardized tool that SNFs use to assess each 
beneficiary.  SNFs use the information on the MDS to classify beneficiaries into resource 
utilization groups (RUG).  The RUGs determine how much Medicare pays the SNFs.    
 
WHAT WE FOUND 
 
SNFs billed one-quarter of all claims in error in 2009, resulting in $1.5 billion in 
inappropriate Medicare payments.  The majority of the claims in error were upcoded; 
many of these claims were for ultrahigh therapy.  The remaining claims in error were 
downcoded or did not meet Medicare coverage requirements.  In addition, SNFs 
misreported information on the MDS for 47 percent of claims.  SNFs commonly 
misreported therapy, which largely determines the RUG and the amount that Medicare 
pays the SNF.     
 
WHAT WE RECOMMEND 
 
We recognize that the Centers for Medicare & Medicaid Services (CMS) has recently 
made several significant changes to SNF payments.  However, more needs to be done to 
reduce inappropriate payments to SNFs.  We recommend that CMS:  (1) increase and 
expand reviews of SNF claims, (2) use its Fraud Prevention System to identify SNFs that 
are billing for higher paying RUGs, (3) monitor compliance with new therapy 
assessments, (4) change the current method for determining how much therapy is needed 
to ensure appropriate payments, (5) improve the accuracy of MDS items, and (6) follow 
up on the SNFs that billed in error.  CMS concurred with all six recommendations.   
   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................6 
Findings......................................................................................................10 
SNFs billed one-quarter of claims in error  
in 2009, resulting in $1.5 billion in inappropriate payments .........10 
SNFs misreported information on the MDS for 47 percent of 
claims ............................................................................................. 11 
Conclusion and Recommendations ............................................................14 
Agency Comments and Office of Inspector General Response .................17 
Appendixes ................................................................................................19 
A:  Description of the 53 Resource Utilization Groups in Effect 
During Our Review Period ............................................................19 
B:  Therapy Minutes Received by Therapy Level .........................21 
C:  Sample Design .........................................................................22 
D:  Sample Sizes, Point Estimates, and 95-Percent Confidence    
Intervals for Estimates Presented in the Report .............................23 
E:  Point Estimates and 95-Percent Confidence Intervals of 
Minimum Data Set Categories With Misreported Information .....24 
F:  Agency Comments ....................................................................25 
Acknowledgments......................................................................................29 
 
   
   
OBJECTIVES 
1.  To assess the appropriateness of Medicare payments for skilled 
nursing facility (SNF) claims in 2009. 
2.  To determine the extent to which SNFs misreported information that 
affects Medicare payments. 
BACKGROUND 
SNFs provide skilled nursing care, rehabilitation services, and other 
services to Medicare beneficiaries who meet certain conditions.  In fiscal 
year (FY) 2012, Medicare paid $32.2 billion for SNF services.1    
The Office of Inspector General (OIG) has identified a number of 
problems with SNF billing.  Notably, OIG found that 26 percent of claims 
submitted by SNFs in FY 2002 were not supported by the medical record, 
representing $542 million in potential overpayments.2  Recent OIG 
investigations have also found problems with SNF billing.  For example, 
one SNF reached a settlement agreement on allegations of fraudulent 
billing for medically unnecessary therapy.3   
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 
payment system encourages SNFs to furnish therapy, even when it is of 
little or no benefit.4    
This study is part of a larger body of work about SNF payments and 
quality of care.  The first study found that from 2006 to 2008, SNFs 
increasingly billed for higher paying categories, even though beneficiary 
 
1 Centers for Medicare & Medicaid Services (CMS), 2012 CMS Statistics, Table III.6.  
Accessed at https://www.cms.gov/ResearchGenInfo/02_CMSStatistics.asp on September 
14, 2012.    
2 OIG, A Review of Nursing Facility Resource Utilization Groups, OEI-02-02-00830,  
February 2006.   
3 Department of Justice, Council Bluffs Area Nursing Home Reaches Settlement 
Agreement on Allegations of Fraudulent Billing to Medicare for Physical, Occupational, 
and Speech Therapy Services, June 28, 2012.  Accessed at 
http://www.justice.gov/usao/ias/news/2012/Bethany%20Lutheran%20Homes%206-28-
2012.html on July 12, 2012.     
4 MedPAC, Report to Congress:  Promoting Greater Efficiency in Medicare, ch. 8, p. 
191, June 2007.  MedPAC reiterated this concern in response to the planned payment 
changes in FY 2011.  See Report to Congress: Medicare Payment Policy, ch. 7, p. 151, 
March 2011. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           1   
   
characteristics remained largely unchanged.5  Another study will assess the 
extent to which SNFs met certain Federal requirements regarding the 
quality of care provided to beneficiaries.6    
Medicare Coverage Requirements for Part A SNF Stays   
The Part A SNF benefit covers skilled nursing care, rehabilitation services, 
and other services.  These services commonly include physical, 
occupational, and speech therapy; skin treatments; and assistance with 
eating, bathing, and toileting.  Medicare covers these services for up to 
100 days during any spell of illness.7   
To qualify for the SNF benefit, the beneficiary must have been in the 
hospital for at least 3 consecutive days and the hospital stay must have 
occurred within 30 days of admission to the SNF. 8  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.9  In 
addition, these services must be ordered by a physician and be for the 
same condition that the beneficiary was treated for in the hospital.10   
Medicare Payments to SNFs  
Medicare pays SNFs under a prospective payment system.  SNFs use a 
standardized tool known as the Minimum Data Set (MDS) to assess each 
beneficiarys clinical condition, functional status, and expected and actual 
use of services.11  SNFs use certain items on the MDS to classify 
beneficiaries into resource utilization groups (RUG).12  The RUGs 
determine how much Medicare pays the SNF.    
 
5 OIG, Questionable Billing in Skilled Nursing Facilities, OEI-02-09-00202,  
December 2010. 
6 OIG, Medicare Requirements for Quality of Care in Skilled Nursing Facilities,  
OEI-02-09-00201, forthcoming. 
7 Social Security Act,  1812(a)(2)(A), 42 U.S.C.  1395d(a)(2)(A). 
8 42 CFR  409.30(a). 
9 42 CFR  409.31(b)(1) and (3) and 409.31(a)(2).   
10 42 CFR  409.31.   Medicare also covers SNF services if the condition requiring such 
services arose when the beneficiary was receiving care in a SNF for a condition treated 
during the prior hospital stay. 
11 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 Manual 2.0), Dec. 2002, rev. Dec. 2005,  1.2.  SNFs must conduct  a 
comprehensive assessment of each beneficiarys needs using the RAI.   
42 CFR  483.20(b).  
12 RAI Manual 2.0,  1.3.  At the time of our review, 108 MDS items were used to 
determine the RUG. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           2   
   
For many of the MDS items, SNFs assess the beneficiary during what is 
called the look-back period.13  SNFs report this information on the MDS, 
which in addition to determining the RUG, is used to develop a care plan 
for the beneficiary.  Several of the MDS items are also reported on CMSs 
Nursing Home Compare Web site, which provides information about each 
nursing home to the public.   
SNFs must conduct assessments on or about the 5th, 14th, 30th, 60th, and 
90th days of a Part A stay, as well as on certain other occasions, to account 
for changes in the beneficiarys care needs.14  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.   
Types of RUGs.  Each RUG has a different Medicare per diem payment 
rate.  Medicare groups the RUGs into eight distinct categories.15  Two 
categoriesRehabilitation and Rehabilitation Plus Extensive Services
are for beneficiaries who need physical therapy, speech therapy, or 
occupational therapy, typically after 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 
little to no therapy.  We refer to the RUGs in these categories as 
nontherapy RUGs.  At the time of our review, there were 53 RUGs.  See 
Appendix A for a description of the 53 RUGs. 
Medicare Payments for Therapy RUGs.  Medicare payment rates for 
therapy RUGs are typically higher than the rates for nontherapy RUGs.  In 
addition, Medicare typically pays more for higher levels of therapy.  The 
therapy RUGs are divided into five levels:  ultrahigh, very high, high, 
medium, or low.  The SNF categorizes each beneficiary into one of the 
five therapy levels based primarily on the number of minutes of therapy 
provided during the look-back period.16  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 ultrahigh therapy RUG.  
 
13 The length of the look-back period varies depending upon the MDS item.  For 
example, a 7-day look-back period is used to determine the amount of therapy that was 
provided, while a 14-day look-back period is used to determine whether dialysis was 
provided.  See CMS, RAI Manual 2.0,  3.3 (the discussion of the look-back period 
begins on page 3-29). 
14 42 CFR  413.343(b) and CMS, RAI Manual 2.0,  2.5. 
15 CMS, RAI Manual 2.0,  6.3, 6.4, and 6.6.  In FY 2011, CMS revised the eight 
categories. 
16 CMS, RAI Manual 2.0,  6.6.   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           3   
   
Medicare generally pays the most for ultrahigh therapy.  See Appendix B 
for further information on the therapy levels.   
Changes to Medicare Payments to SNFs.  For FYs 2011 and 2012, CMS 
made a number of changes to SNF payments.  Notably, for FY 2011, CMS 
increased the number of RUGs from 53 to 66 to allocate payments more 
accurately.17  CMS also changed how SNFs account for therapy provided 
to multiple beneficiaries concurrently or in group settings.18  Further, SNFs 
must complete a change of therapy assessment when the amount of 
therapy provided no longer reflects the RUG and an end of therapy 
assessment when therapy has been discontinued for 3 consecutive days.19  
Lastly, in FY 2012, CMS reduced payments to SNFs by approximately 
$3.9 billion to correct for unintended excessive payments made in           
FY 2011.20   
Despite these changes, the payment issues we highlight in this report, 
which are based on 2009 data, are still relevant to the current system.  
Notably, CMS still bases SNF payments for therapy RUGs on the amount 
of therapy SNFs provided during the look-back period.   
Documentation for Part A SNF Stays   
CMS expects SNFs to document in the medical record the care that a 
beneficiary needs and receives, as well as how he or she responds to the 
care received.21  CMS states, in particular, that good clinical practice 
requires SNFs to document the number of minutes of therapy provided to 
a beneficiary.22  In addition, the medical record should support and be 
consistent with the MDS. 
 
 
 
 
17 74 Fed. Reg. 40288, 40338 (Aug. 11, 2009).   
18 In concurrent therapy, the therapist works with two beneficiaries at the same time using 
different treatments.  For this type of therapy, SNFs are now required to allocate half the 
total therapy minutes to each beneficiary when determining the RUG.  See 74 Fed. Reg. 
at 4031540319; and CMS, RAI Manual 3.0,  6.6.  In group therapy, the therapist works 
with four beneficiaries at the same time using the same or similar treatments.  For this 
type of therapy, SNFs are now required to allocate a quarter of the total therapy minutes 
to each beneficiary when determining the RUG.  See 76 Fed. Reg. 48486, 48514 (Aug. 8, 
2011).   
19 76 Fed. Reg. at 48517-48526.   
20 76 Fed. Reg. at 48500.  
21 CMS, RAI Manual 2.0,  1.14.  See also RAI Manual 3.0,  1.3.  
22 CMS, RAI Manual 2.0,  1.14.  See also RAI Manual 3.0,  1.3, and ch. 3,  O. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           4   
   
CMS Oversight of SNFs 
CMS contracts with State Survey and Certification agencies to determine 
whether SNFs are in compliance with Federal requirements.23  One of the 
requirements that surveyors verify is the accuracy of the MDS.  Surveyors cite 
facilities for deficiencies if they do not comply with requirements, which may 
affect their participation in Medicare.24   
In addition, CMS relies on various contractors to identify, prevent, and reduce 
fraud, waste, and abuse for Medicare Part A payments, including SNF 
payments.  Medicare Administrative Contractors (MAC) are responsible for 
processing and paying Part A claims.  At their discretion, these contractors may 
conduct targeted medical reviews of SNF claims to prevent improper 
payments.25  Other contractors overseeing SNFs include Recovery Audit 
Contractors (RAC), which identify and recoup any overpayments made to 
SNFs, and Zone Program Integrity Contractors and Program Safeguard 
Contractors, which identify fraud and abuse and refer cases to law 
enforcement, when appropriate.   
Lastly, CMS monitors the accuracy of payments made to providers through the 
Comprehensive Error Rate Testing (CERT) program.  The CERT contractor 
reviews a sample of claims to determine an error rate.  CMS defines the error 
rate as the percentage of total dollars that Medicare erroneously paid or 
denied.  For FY 2010, the error rate for inpatient SNF services was  
3.3 percent.26  
Related Reports 
The first study in this series found that from 2006 to 2008, SNFs 
increasingly billed for higher paying RUGs, even though beneficiary 
characteristics remained largely unchanged.27  Additionally, for-profit 
SNFs were far more likely to bill for higher paying RUGs.  Furthermore, 
348 SNFs had questionable billing, indicating that certain SNFs may be 
routinely placing beneficiaries into higher paying RUGs regardless of the 
 
23 CMS, State Operations Manual, Pub. No. 100-07, ch. 1,  1010, rev. 1, issued  
May 21, 2004. 
24 42 CFR  488.330. 
25 CMS provides guidance to MACs on how to conduct medical reviews of SNF claims.  
See Medicare Program Integrity Manual, Pub. No. 100-08, ch. 6,  6.1.3, rev. 196,  
issued March 30, 2007. 
26 CMS, The Supplementary Appendices for the Medicare Fee-for-Service 2010 Improper 
Payment Report, p.10.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Monitoring-Programs/CERT/Downloads/Supplementary-Appendices-for-the-
Medicare-Fee-for-Service-2010-Improper-Payment-Report.pdf on June 28, 2012.     
27 OIG, Questionable Billing in Skilled Nursing Facilities, OEI-02-09-00202, December 
2010. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           5   
   
beneficiaries care and resource needs.  OIG recommended that CMS   
(1) monitor overall payments to SNFs and adjust rates, if necessary;  
(2) change the current method for determining how much therapy is 
needed to ensure appropriate payments; (3) strengthen monitoring of SNFs 
that are billing for higher paying RUGs; and (4) follow up on the SNFs 
identified as having questionable billing.  CMS concurred with all of the 
recommendations but the second one, noting concerns about relying on 
information from the beneficiarys hospital stay to determine the 
beneficiarys therapy needs. 
Another OIG study found that despite changes to the SNF payment system 
in FY 2011 that were meant 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 2011.28  Contrary to CMSs expectations, in the first 
half of FY 2011, SNFs billed for higher levels of therapy, which 
contributed to the overall increase in payments.  The data indicated that 
CMS should adjust payment rates to address the significant increases in 
payments to SNFs.  As noted earlier, in FY 2012, CMS reduced payments 
to SNFs by approximately $3.9 billion. 
METHODOLOGY 
We based this study on a medical record review of a random sample of 
Part A SNF claims from calendar year 2009. 
Selection of Sample for Medical Review   
Using CMSs National Claims History File, we first identified all Part A 
SNF claims with a service date in 2009.29  We grouped these claims by 
stay using the admission date and identified the stays that ended in 2009.  
We then grouped these stays into three strata defined by the length of the 
stay and the number of claims.  We selected a stratified simple random 
sample of 245 stays and then selected 499 claims from these stays.30  
These claims project to the 6,445,273 claims in the population.  See 
Appendix C for more information about how we selected the stays and the 
claims.     
 
28 OIG, Changes in Skilled Nursing Facilities Billing in Fiscal Year 2011,  
OEI-02-09-00204, July 2011. 
29 In this report, we refer to claim line items as claims. 
30 We stratified the sample in this way to meet the objectives of this study and our 
companion study, Medicare Requirements for Quality of Care in Skilled Nursing 
Facilities, OEI-02-09-00201, forthcoming. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           6   
   
Medical Record Review 
We used a contractor to collect and review the medical records for each 
sampled claim.  The contractor made up to five attempts to obtain the 
medical records.  We had a 100-percent response rate.   
We also contracted with medical record reviewers.  The reviewers 
consisted of three registered nurses, each of whom had at least 12 years of 
SNF experience, and a physical therapist, an occupational therapist, and a 
speech therapist.  The nurses reviewed the records and consulted with the 
therapists as needed.  The reviewers used a standardized data collection 
instrument that was based on Medicare coverage requirements, CMS 
guidance for completing the MDS, and CMS guidance to MACs for 
reviewing SNF claims.  The instrument was developed in collaboration 
with the reviewers and tested on a separate sample of claims.31  The 
reviewers conducted the medical review between April and September 
2011.   
The reviewers determined whether each claim met Medicare coverage 
requirements that (1) the SNF stay be related to a condition that was 
treated in the prior hospital stay, (2) the beneficiary needs and receives 
daily skilled nursing or therapy, and (3) the beneficiary has a physician 
order for skilled nursing or therapy.  If the beneficiary became ineligible 
for SNF care at some point during the stay, the reviewers indicated 
approximately when the stay should have ended.  In this report, we refer to 
this group of claims as not meeting Medicare coverage requirements. 
If a claim met the requirements above, the reviewers then focused on the 
MDS items used to determine the RUGs.  For each MDS item, the 
reviewers determined whether the information reported by the SNFs for 
the item was supported and consistent with the medical record.  If an MDS 
item was inaccurate, the reviewers recoded the item on the basis of their 
review of the medical record.     
For the MDS items related to therapy, the reviewers looked in the medical 
record for the number of days and minutes of therapy provided to the 
beneficiary during the look-back period and compared them to those 
recorded on the MDS.  The reviewers noted any inconsistencies and 
recoded the MDS on the basis of their review of the medical record.  They 
also determined whether the therapy provided during the look-back period 
 
31 We conducted a preliminary review of 25 claims to test the instrument and to ensure 
consistency among the reviewers. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           7   
   
was reasonable and necessary.32  For those claims in which they 
determined that a portion of the therapy was not reasonable and necessary, 
they estimated the amount of therapy that was reasonable and necessary 
and recoded the MDS items.  In addition, the reviewers noted any 
inconsistencies between the amount of therapy provided during and after 
the look-back period.33   
Analysis  
We analyzed the information from the medical review to determine the 
percentage of claims SNFs billed in error and the amount Medicare 
inappropriately paid for them.  To do this, we first determined the number 
and percentage of claims that did not meet Medicare coverage 
requirements.  We projected this percentage to the population of Part A 
SNF claims for stays that ended in 2009. 
For the remaining claims, we generated a revised RUG for each claim on 
the basis of the recoded MDS data from the medical reviewers.  We used 
CMSs SAS program to generate the revised RUG.34  If the original RUG 
was a higher paying RUG than the revised RUG, we considered the claim 
to be upcoded.  Conversely, if the original RUG was a lower paying RUG 
than the revised RUG, we considered the claim to be downcoded.  We 
calculated the overall percentage of claims that were inaccurate (i.e., 
upcoded or downcoded) and projected this rate to the population of Part A 
SNF claims for stays that ended in 2009.  
Next, we determined the total amount Medicare inappropriately paid for 
SNF claims.  For the claims that did not meet Medicare coverage 
requirements, we calculated the amount that Medicare paid 
inappropriately by multiplying the payment rate by the number of days 
that did not meet Medicare coverage requirements.  For the claims with 
inaccurate RUGs, we determined the net difference between the amount 
that was paid and the amount that should have been paid.  We added this 
to the amount that Medicare inappropriately paid for claims that did not 
 
32 This is consistent with CMSs instructions to the MACs for reviewing SNF claims.  
CMS instructs medical reviewers to determine whether the services indicated on the 
MDS were rendered and were reasonable and necessary.  If the reviewer determines that 
some services provided were not reasonable and necessary or were not supported in the 
medical record, the reviewer enters the correct data and calculates the RUG.  The MAC 
then pays the claim according to the revised RUG.  See Medicare Program Integrity 
Manual, ch. 6,  6.1.3, rev. 196, issued March 30, 2007. 
33 The reviewers did not recode the MDS on the basis of this analysis.  
34 We generated a RUG for each claim except in two instances.  For two claims, the SNF 
billed the default payment rate, which we considered to be appropriate on the basis of 
Medicare policy.  SNFs receive the default rate if they do not submit the MDS to 
Medicare in accordance with the assessment schedule.   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           8   
   
meet Medicare coverage requirements and projected it to the population of 
all Part A SNF claims for stays that ended in 2009.   
Lastly, we analyzed the extent to which SNFs misreported information on 
the MDS for items that affect SNF payment.35  For each category of MDS 
items established by CMS, we calculated the percentage of claims 
associated with inaccurate MDS information.36  We also calculated the 
overall percentage of claims associated with one or more inaccurate MDS 
items.  We projected the results to the population of all Part A SNF claims 
for stays that ended in 2009. 
Standards  
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. 
 
35 This analysis did not include the 12 claims that did not meet Medicare coverage 
requirements for the entire claim period or that were billed at the default rate. 
36 The categories of MDS items are listed in the RAI Manual 2.0, ch. 3.   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           9   
   
FINDINGS 
SNFs billed one-quarter of claims in error in 2009, 
resulting in $1.5 billion in inappropriate Medicare 
payments 
On the basis of our medical record review, we found that SNFs billed an 
estimated 25 percent of claims in error in 2009.  Medicare inappropriately 
paid $1.5 billion for these claims.  This represents 5.6 percent of the  
$26.9 billion paid to SNFs in 2009.  See Table 1 for the percentage of SNF 
claims that were in error and Appendix D for the confidence intervals. 
 
              Table 1:  Percentage of SNF Claims That Were in Error, 2009  
Percentage of          
Type of Error 
SNF Claims 
   
Inaccurate RUGs  22.8% 
   
      Upcoded  20.3% 
   
      Downcoded  2.5% 
Did Not Meet Coverage Requirements  2.1% 
       
   Total  error rate  24.9% 
 
Source:  OIG analysis of medical record review results, 2012. 
 
SNFs billed inaccurate RUGs in 23 percent of claims 
As noted earlier, SNFs use the MDS to assess beneficiaries and classify 
them into RUGs.  Each RUG is associated with a different payment rate.  
SNFs billed inaccurate RUGs in 23 percent of claims.  Most of these 
claims were upcoded; far fewer were downcoded.  Claims with inaccurate 
RUGs amounted to a net $1.2 billion in inappropriate Medicare payments.   
Notably, 20 percent of claims billed by SNFs had higher paying RUGs 
than were appropriate.  In these cases, the SNFs upcoded the RUGs on the 
claims.  For approximately half of these claims, SNFs billed for ultrahigh 
therapy RUGs when they should have billed for lower levels of therapy or 
nontherapy RUGs.37   
For 57 percent of the upcoded claims, SNFs reported providing more 
therapy on the MDS than was indicated in the medical record.  For a 
quarter of the upcoded claims, reviewers determined that the amount of 
therapy indicated in the beneficiaries medical records was not reasonable 
 
37 The point estimate is 48 percent with a 95-percent confidence interval of 35 to  
62 percent.  
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           10   
   
and necessary.  For example, in one case, the SNF provided the highest 
level of therapy to the beneficiary even though the medical record 
indicated that the physician refused to sign the order for therapy.  In 
another example, the SNF provided an excessive amount of therapy to the 
beneficiary given her condition.  In another example, the SNF reported on 
the MDS that speech therapy was provided even though the record 
contained an evaluation of the beneficiary concluding that no speech 
therapy was needed and that speech therapy had not been provided.   
For the upcoded claims, the difference in payments between the RUGs 
billed by the SNFs and the RUGs supported by the medical records was 
often quite large.  In many instances, it amounted to over $100 per day, 
and in one case, the difference was $414 per day.      
The remaining 3 percent of claims had lower paying RUGs than were 
appropriate.  In these cases, the SNFs downcoded the RUGs on the claims.  
The difference in payments between the RUGs billed by the SNFs and the 
RUGs supported by the medical records was typically less than $100 per 
day.  In the most extreme case, the difference amounted to $166 per day. 
Two percent of SNF claims did not meet Medicare coverage 
requirements  
A smaller percentage of claims did not meet Medicare coverage 
requirements.  For some of these claims, beneficiaries were not eligible for 
SNF care, either because they did not need skilled nursing or therapy on a 
daily basis or because there were no physician orders for these services.  
For the remaining claims, the beneficiaries became ineligible for SNF care 
at some point during the claim period because they no longer needed or 
received skilled nursing or therapy on a daily basis.  
SNFs misreported information on the MDS for  
47 percent of claims 
SNFs reported inaccurate information, which was not supported or 
consistent with the medical record, on at least one MDS item for  
47 percent of claims.  SNFs use the MDS to assess each beneficiarys 
clinical condition, functional status, and expected and actual use of 
services.  Certain items on the MDS are used to determine the RUG; 
therefore, misreporting information for these items can lead to inaccurate 
RUGs and inappropriate payments.38  SNFs also use the MDS to develop  
care plans for each beneficiary, so inaccurate information on the MDS can 
affect care.  In addition, several MDS items are reported on CMSs 
 
38 Inaccuracies in the MDS items do not always result in a change in the RUG.   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           11   
   
Nursing Home Compare Web site, which provides information to the 
public about each nursing home.   
For 30 percent of claims, SNFs misreported the amount of therapy that the 
beneficiaries received or needed.  As noted earlier, the amount of therapy 
that SNFs report on the MDS largely determines the RUG and Medicare 
payments to SNFs.  See Table 2 for MDS categories with misreported 
information and Appendix E for additional categories and the confidence 
intervals. 
 
Table 2:  MDS Categories With Misreported Information 
 
MDS Category With Misreported  Percentage of Claims 
Information 
   
Therapy (i.e., physical,   
occupational, speech)  30.3% 
   
Special Care (e.g., intravenous   
medication, tracheostomy care)    16.8% 
   
Activities of Daily Living (e.g., bed   
mobility, eating)  6.5% 
    
Oral/Nutritional Status (e.g.,   
parenteral feeding)  4.8% 
   
Skin Conditions and Treatments   
(e.g., ulcers, wound dressings)  2.4% 
 
Source:  OIG medical record review, 2012.                                          
Note:  The rows do not sum to 47 percent because some claims had 
more than one problem.                                                                           
 
In addition, reviewers found several instances in which SNFs provided 
more therapy during the look-back period than they did during periods that 
did not determine payment rates.  In one example, the SNF provided 90 to 
110 minutes of therapy a day to the beneficiary during the look-back 
period; however, after that period, the SNF provided only about half that 
amount of therapy to the beneficiary.  In another example, the SNF 
provided 50 to 55 minutes of therapy a day to the beneficiary during the 
look-back period.  It lowered the amount to 30 to 40 minutes a day during 
the rest of the coverage period but then raised it back to 50 to 55 minutes 
during the next look-back period.   
For 17 percent of claims, SNFs misreported whether the beneficiaries 
received special care.  The inaccuracies came primarily from one MDS 
item in this categoryintravenous medication.  At the time of our review, 
SNFs were allowed to report intravenous medication if the beneficiary 
received it in the hospital prior to or during the SNF stay.  For these 
claims, the medical records either did not indicate that intravenous 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           12   
   
medication was provided during the hospital or SNF stay or clearly 
contradicted that these services were provided.39   
For 7 percent of claims, SNFs misreported the amount of assistance 
beneficiaries needed with activities of daily living (e.g., bed mobility, 
transfers, eating, and toilet use).  Beneficiaries who need high levels of 
assistance may be placed into higher paying RUGs.  In several cases, 
SNFs reported on the MDS that beneficiaries needed more assistance than 
was indicated in the medical record.  For example, one SNF reported that 
a beneficiary needed extensive assistance with transferring between two 
locations, such as from a bed to a chair; however, the medical record noted 
that the beneficiary was able to do this independently.   
SNFs also misreported MDS items related to oral and nutritional status 
and items related to skin conditions and treatments.  Notably, for the items 
related to skin conditions and treatments, SNFs did not always report the 
correct number or stage of skin ulcers or they reported the presence of 
burns or open lesions inaccurately.  They also did not always correctly 
report skin treatments, such as surgical wound care or ulcer care.    
 
 
39 In FY 2011, CMS changed the rules about reporting intravenous medication on the 
MDS; it no longer allowed SNFs to report whether it was provided during the prior 
hospital stay.  It also revised the RUGs so that reporting this item no longer placed the 
beneficiary into a higher paying RUG. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           13   
   
CONCLUSION AND RECOMMENDATIONS 
SNFs billed one-quarter of claims in error in 2009, resulting in $1.5 billion 
in inappropriate Medicare payments.  The majority of the claims in error 
were upcoded; many of these were for ultrahigh therapy.  The remaining 
claims in error were downcoded or did not meet Medicare coverage 
requirements.  In addition, SNFs misreported information on the MDS for 
47 percent of claims.  SNFs commonly misreported the amount of therapy 
the beneficiary received or needed, which largely determines how much 
Medicare pays the SNF.     
We recognize that CMS has made several significant changes to SNF 
payments for FYs 2011 and 2012.  However, more needs to be done to 
reduce inappropriate payments to SNFs.  Given the findings of this report 
and our prior report, further actions are needed to deter SNFs from billing 
inappropriately and to prevent Medicare from paying for these claims. 
Considering the high cost of SNF services, substantial savings to the 
Government could result if CMS focused additional attention on these 
payments.     
Therefore, we recommend that CMS: 
Increase and Expand Reviews of SNF Claims 
CMS should instruct its contractors to conduct more medical reviews of 
SNF claims.  CMS should also expand the scope of these medical reviews 
to more closely scrutinize the MDS items that SNFs commonly misreport.  
As part of these efforts, contractors should identify SNFs or SNF chains 
with recurring problems.  They should target these SNFs in their reviews 
and possibly refer them for further investigation, depending upon the 
nature of the issues.  These efforts will help to ensure that SNF payments 
are accurate and that SNFs are reporting information on the MDS 
correctly.  
Use Its Fraud Prevention System To Identify SNFs That Are 
Billing for Higher Paying RUGs 
Our current report provides further evidence that some SNFs are 
incorrectly reporting certain MDS items, such as therapy and activities of 
daily living, to place beneficiaries into higher paying RUGs.  CMS should 
use its Fraud Prevention System to identify and target these SNFs.  
Specifically, CMS should target SNFs that have a high percentage of 
claims for ultrahigh therapy and for high levels of assistance with 
activities of daily living.   
 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           14   
   
 
 
Monitor Compliance With the New Therapy Assessments 
As of October 2011, SNFs must complete a change of therapy 
assessment when the amount of therapy provided no longer reflects the 
RUG and an end of therapy assessment when therapy is discontinued for 
3 days.  Under this new policy, SNFs are paid less when a beneficiarys 
need for therapy decreases or ends.  This policy helps to align payments 
for therapy to beneficiaries needs and reduces the incentive to provide 
substantially more therapy during the look-back period than during 
periods that do not determine payment rates.  However, the success of this 
policy relies on SNFs completing the new assessments appropriately.   
CMS should instruct its MACs and RACs to closely monitor SNFs 
utilization of these assessments through analyses of claims data.  Such 
analyses will identify SNFs that are using the assessments infrequently or 
not at all.  The MACs and RACs should then target these SNFs for review 
to establish whether therapy assessments are being completed, as required. 
Change the Current Method for Determining How Much 
Therapy Is Needed To Ensure Appropriate Payments  
The findings of this report provide further evidence that CMS needs to 
change how it pays for therapy.  Currently, the amount of therapy that a 
SNF provides to the beneficiary during the look-back period largely 
determines the amount that Medicare pays the SNF.  This method creates 
incentives for SNFs to provide and bill for high levels of therapy when 
these levels may not be needed.    
We are aware that CMS is considering two alternative approaches for 
determining how it pays for therapy.  In the first option, CMS is 
considering basing payment for therapy RUGs on patient need, by using 
patient diagnoses and service needs to predict the appropriate level of 
therapy.  In the second option, CMS would also predict the appropriate 
level of therapy but would then reconcile payments after the services have 
been provided.  While our review does not provide information about 
which method is more appropriate, it does show that CMS needs to change 
how it pays for therapy to reduce the incentives for SNFs to provide more 
therapy than necessary and to better align payments to beneficiaries 
needs. 
Improve the Accuracy of MDS Items  
CMS should increase its efforts to ensure that SNFs are completing the 
MDS accurately.  This is critical to ensuring that SNF payments are 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           15   
   
accurate and that beneficiaries are assessed and cared for appropriately.    
It is also essential because several MDS items are published on CMSs 
Nursing Home Compare Web site, which provides information to the 
public about each nursing home.  
Specifically, CMS should instruct the nursing home surveyors to more 
closely monitor the accuracy of the MDS.  Surveyors should particularly 
focus on the categories of MDS items that we identified as problematic 
and cite facilities for deficiencies when necessary.  Additionally, CMS 
should instruct the MACs to provide education to all SNFs, as well as 
specific training to selected SNFs, to improve the accuracy of their MDS 
reporting.   
Follow up on the SNFs That Billed in Error  
In a separate memorandum, we will refer to CMS for appropriate action 
the SNFs with claims in our sample that had inaccurate RUGs or that did 
not meet coverage requirements.    
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           16   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with all six of our recommendations.  CMS stated that it 
has taken and continues to take proactive steps to reduce inaccurate, 
medically unnecessary, and fraudulent claims by SNFs.    
CMS concurred with our first recommendation and stated that it will issue 
a Technical Assistance Letter to the MACs with a link to the OIG report.  
If the MACs choose to increase and expand their review of SNFs, CMS 
will ask that they more closely scrutinize the MDS items most commonly 
misreported and identify specific SNFs or SNF chains with reoccurring 
issues and focus their reviews on them.  In addition, in August 2012, CMS 
issued a Comparative Billing Report targeted to 5,000 SNFs to help them 
identify potential errors in their billing practices and make changes to 
prevent improper billing and payment in the future.  
CMS concurred with our second recommendation.  It stated that it is 
committed to building reliable models in the Fraud Prevention System that 
can detect and generate alerts for suspicious billing behavior and it is 
currently developing a SNF Model that examines claims data. 
CMS concurred with our third recommendation and stated that it is 
conducting internal monitoring activities related to SNF utilization and 
provider reaction to the FY 2012 PPS final rule policies.  As part of this 
monitoring, it is analyzing the number of change of therapy assessments 
that are being completed.  In addition, it will conduct further monitoring 
activities, including analyses by provider type and the provision of therapy 
by patient risk scores. 
CMS concurred with our fourth recommendation and stated that it plans to 
research alternative SNF payment approaches for therapy and eventually 
develop an implementable model to account for therapy furnished in 
SNFs. 
CMS concurred with our fifth recommendation and stated that it will 
convene a meeting with surveyors representing several States and all  
10 regions to discuss the onsite survey process and how to improve its 
effectiveness with investigating MDS items.  CMS also noted that it has 
recently clarified guidance related to surveyor citation of MDS 
assessments and continues to review those and related guidance.  It also 
plans to conduct additional surveyor training related to the MDS. 
CMS concurred with our sixth recommendation and will review the data 
provided by OIG and take appropriate actions consistent with the agencys 
policies. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           17   
   
We support CMSs efforts to address these issues.  For the full text of 
CMSs comments, see Appendix F.      
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           18   
   
APPENDIX A 
Description of the 53 Resource Utilization Groups* in Effect 
During Our Review Period 
 
             Therapy     Per Diem Rate  Per Diem Rate 
RUG Category                 RUG 
             Level  FY2009  FY2010 
Therapy RUGs   
RUX  Ultrahigh  $623  $617 
RUL  Ultrahigh  $547  $546 
RVX  Very high  $472  $468 
RVL  Very high  $440  $437 
Rehabilitation Plus 
RHX  High  $400  $396 
Extensive Services 
RHL  High  $393  $386 
RMX  Medium  $458  $449 
RML  Medium  $420  $413 
RLX  Low  $325  $319 
RUC  Ultrahigh  $529  $529 
RUB  Ultrahigh  $485  $485 
RUA  Ultrahigh  $462  $463 
RVC  Very high  $425  $421 
RVB  Very high  $404  $401 
RVA  Very high  $363  $364 
   Rehabilitation  RHC  High  $370  $365 
  RHB  High  $353  $349 
RHA  High  $328  $326 
RMC  Medium  $340  $335 
RMB  Medium  $331  $326 
RMA  Medium  $323  $320 
RLB  Low  $300  $294 
RLA  Low  $256  $252 
Nontherapy RUGs   
SE3    $375  $362 
Extensive Services  SE2    $319  $309 
SE1    $284  $276 
SSC    $279  $272 
   Special Care  SSB    $264  $258 
SSA    $259  $253 
CC2    $278  $270 
CC1    $253  $248 
CB2    $241  $236 
Clinically Complex 
CB1    $231  $225 
CA2    $229  $223 
CA1    $214  $211 
* RUG. 
Continued on next page. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           19   
   
 
APPENDIX A (CONTINUED) 
Description of the 53 Resource Utilization Groups* in Effect 
During Our Review Period 
        Therapy   Per Diem Rate  Per Diem Rate 
RUG Category               RUG 
              Level  FY 2009  FY 2010 
Nontherapy RUGs (continued)   
  PE2    $221  $217 
PE1    $217  $214 
PD2    $211  $206 
  PD1    $208  $203 
Reduced Physical  PC2    $200  $197 
 
Function  PC1    $197  $196 
    PB2    $176  $175 
PB1    $174  $172 
PA2    $173  $171 
PA1    $168  $166 
IB2    $205  $202 
  IB1    $202  $199 
Impaired Cognition  IA2    $185  $183 
IA1    $177  $177 
BB2    $203  $200 
BB1    $197  $196 
Behavior Problems 
BA2    $184  $182 
BA1    $171  $169 
 
Source:  73 Fed. Reg. 4642426 (Aug. 8, 2008); 74 Fed. Reg. 40298300 (Aug. 11, 2009).  
The amounts are based on unadjusted 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.  
*RUG. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           20   
   
APPENDIX B 
 
 
    Therapy Minutes Received by Therapy Level 
 
Therapy Minutes 
Received During the  
Therapy Level  Look-Back Period 
Ultrahigh  720 or more 
Very High  500719 
High  325499 
Medium  150324 
Low  45149 
 
Source:  Centers for Medicare & Medicaid 
Services, Resident Assessment Instrument 
Manual (RAI) Version 2.0, ch. 6. See also RAI 
Manual Version 3.0, ch. 6. 
       
 
   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           21   
   
APPENDIX C 
 
Sample Design
 Number of  Number  Number of  Number 
Stays in  of Stays  Claims in  of Claims 
the  in the   the  in the 
Stratum  Stratum Description  Population  Sample  Population   Sample 
Length of stay less than 21 days 
in 2009 and 3 or fewer claims in 
2009 
We selected all claims from 
1  each stay.  1,264,073   55  1,792,685  78  
Length of stay 21 or more days 
in 2009 and 3 or fewer claims in 
2009 
We selected all claims from 
2  each stay.  435,893   45  1,133,322   117  
Stays with over 3 claims in 2009 
If the stay had 4 to 7 claims, we 
randomly selected 2.  If the stay 
had over 7 claims, we randomly 
selected 40 percent of the 
3  claims.  668,799   145  3,519,266   304  
   Total     2,368,765   245  6,445,273   499  
Source:  Office of Inspector General medical record review, 2012. 
   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           22   
   
APPENDIX D 
Sample Sizes, Point Estimates, and 95-Percent Confidence    
Intervals for Estimates Presented in the Report 
 
  Sample  Point  95-Percent  
Characteristic 
Size  Estimate  Confidence Interval 
 
SNF claims in error in 2009  499  24.9%  19.9%30.4% 
   
SNF claims with inaccurate RUGs  499  22.8%  18.0%28.2% 
SNF claims with higher paying RUGs than 
were appropriate (upcoded)  499  20.3%  15.6%25.6% 
Upcoded SNF claims that had an ultrahigh 
RUG  101  48.2%  34.9%61.7% 
Upcoded SNF claims in which SNFs reported 
providing more therapy on the MDS than was 
indicated in the medical record  101  56.8%  42.8%70.2% 
Upcoded SNF claims in which reviewers 
determined that the amount of therapy was not 
reasonable and necessary  101  25.6%  14.6%39.4% 
SNF claims with lower paying RUGs than were 
appropriate (downcoded)  499  2.5%  1.3%4.5% 
SNF claims that did not meet Medicare 
coverage requirements  499  2.1%  0.7%4.7% 
Total inappropriate Medicare payments for 
SNF claims  499  $1.5 billion  $988 million$2.0 billion 
Inappropriate Medicare payments in proportion 
to total payments to SNFs in 2009  499  5.6%  3.7%7.6% 
Medicare payments for SNF claims with 
inaccurate RUGs  499  $1.2 billion  $736 million$1.6 billion 
SNF claims that had inaccurate information on 
the MDS  487  47.3%  41.2%53.5% 
 
Source:  Office of Inspector General medical record review, 2012. 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           23   
   
APPENDIX E 
 
Point Estimates and 95-Percent Confidence Intervals of 
Minimum Data Set* Categories With Misreported Information 
 
 
Point Estimate  95-Percent 
 
MDS Category  (n=487)  Confidence Interval 
 
Therapy minutes and days for physical, 
  30.3%  24.7%  36.3%  
occupational, and speech therapy 
   
Special care (e.g., intravenous 
16.8%  12.3%  22.1% 
medication, tracheostomy care)   
Activities of daily living  (e.g., bed 
6.5%  4.1%  9.7%  
mobility, eating) 
Oral/nutritional status (e.g., parenteral 
4.8%  2.5%  8.2% 
feeding) 
Skin conditions and treatments  
2.4%  1.0%  4.8% 
(e.g., ulcers, wound dressings) 
Nursing rehab/restorative care (e.g.,   
grooming, communication, transfer)  0.8%  0.2%  2.2% 
Continence  0.6%  0.1%  1.8% 
Problem conditions (e.g., fever,   
delusions, vomiting)  0.6%  0.0%  2.4% 
Disease diagnosis  0.5%  0.0%  2.0% 
Medications  0.2%  0.0%  1.2% 
Physician orders  0.2%  0.0%  1.0% 
Respiratory therapy  0.2%  0.0%  1.0% 
Physician visits  0.1%  0.0%  1.0% 
Cognitive patterns  0.0%  N/A 
Communication/hearing patterns  0.0%  N/A 
Mood and behavior patterns  0.0%  N/A 
Time awake  0.0%  N/A 
 
Source:  Office of Inspector General medical record review, 2012. 
* MDS 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           24  APPENDIX F 
Agency Comments 
(',p-tcl....-,.,  	
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
-~.......... ,, 
(; 	 Administrator 

Washington, DC 20201 
SEP 2 7 ZOll
DATE: 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Marilyn Ta~nner 

Acting ~dmihistrator 

SUBJECT: 	 Office ofInspector General (OIG) Draft Report: Inappropriate Payments to 
Skilled Nursing Facilities Cost Medicare More Than a Billion Dollars in 2009 
(OEI-02-09-00200) 
Thank you for the opportunity to review and comment on the OIG draft report titled, 
"Inappropriate Payments to Skilled Nursing Facilities Cost Medicare More lban a Billion 
Dollars in 2009," (OEI-02-09-00200).  The Centers for Medicare & Medicaid Services (CMS) 
appreciates the time and resources OIG has utilized in reviewing this issue. 
The CMS has taken and continues to take proactive steps to reduce inaccurate, medically 
unnecessary, and fraudulent claims by skilled nursing facilities (SNFs).  CMS is committed to 
identifying and educating SNFs who consistently bill for a high number of services specifically 
for higher paying resource utilization groups (RUGs). lbe measures implemented by CMS 
include issuing a Comparative Billing Report (CBR) focused on SNFs with high therapy 
utilization, implementing internal monitoring activities related to SNF utilization, and utilizing 
the Fraud Prevention System to look for aberrant billing practices. These efforts are designed to 
address the issues the OIG has found over the past few years with billing by SNFs as well as the 
concerns expressed by the Medicare Payment Advisory Commission regarding SNFs billing 
improperly for therapy to obtain additional Medicare payments. These initiatives are discussed 
in greater detail in CMS's responses to the OIG's recommendations. 
lbe findings contained in this report reflect OIG's review ofSNF claims from 2009 to determine 
ifthe information reported on the Minimum Data Set (MDS) was consistent and supported by 
documentation in the medical record. lbe SNFs use the information on the MDS to assign 
beneficiaries to RUGs. The amount Medicare pays the SNFs is based on the RUG level of a 
beneficiary. lbis report is the second in a series of reports about SNF payments and quality of 
care. 
lbe OIG found that in 2009, one-quarter of all claims billed by SNFs were in error.  This 
resulted in a potential $1.5 billion in inappropriate payments.  Upcoding, mainly for ultra-high 
therapy, was the error seen on the majority ofthe claims. The other claims were either 
Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)  25   
   
APPENDIX F (CONTINUED) 
 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           26   
   
APPENDIX F (CONTINUED) 
   
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           27   
   
APPENDIX F (CONTINUED) 
 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           28   
   
 
ACKNOWLEDGMENTS 
This report was prepared under the direction of Jodi Nudelman, Regional 
Inspector General for Evaluation and Inspections in the New York regional 
office, and Nancy Harrison and Meridith Seife, Deputy Regional 
Inspectors General. 
Judy Kellis served as the team leader for this study.  Other Office of 
Evaluation and Inspections staff from the New York regional office who 
conducted the study include Judy Bartlett.  Central office staff who 
provided support include Kevin Farber, Sandy Khoury, Berivan Demir 
Neubert, Sue Nonemaker, Debra Roush, and Julie Taitsman. 
 
 
 Inappropriate Payments to SNFs Cost Medicare More Than a Billion Dollars in 2009 (OEI-02-09-00200)           29   
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.  
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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 
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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 
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