Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

QUESTIONABLE BILLING BY 

SKILLED NURSING FACILITIES . 

 

Daniel R. Levinson 

Inspector General 

December 2010 

OEI-02-09-00202 
 

 EXECUTIVE SUMMARY 

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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EXECUTIVE SUMMARY 

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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EXECUTIVE SUMMARY 

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 beneficiary’s hospital diagnosis 

and other information from the hospital stay to better predict the 

beneficiary’s 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 beneficiary’s 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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EXECUTIVE SUMMARY

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 beneficiary’s hospital 

stay to determine the beneficiary’s 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 CMS’s 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. 
 

 TABLE OF CONTENTS 

EXECUTIVE SUMMARY .....................................i

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 

 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
 

 INTRODUCTION 

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 beneficiary’s 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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OEI-02-09-00202 QUESTIONABLE BILLING BY S KILLED NURSING FACILITIES 2 

INTRODUCTION

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 beneficiary’s 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 CMS’s Resident Assessment Instrument (RAI). CMS, Revised 

Long-Term Care Facility Resident Assessment Instrument User’s Manual Version 2.0 

(RAI User’s Manual), Dec. 2002, rev. Dec. 2005, §§ 1.2 and 1.3. 

8 42 CFR § 413.343(b) and RAI User’s 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 

User’s Manual, § 2.1. 
 

INTRODUCTION 

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 beneficiary’s stay. 

3 

 

ent. 

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 assessm

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 categories—Rehabilitation and Rehabilitation 

Plus Extensive Services—are 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 User’s 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 User’s Manual, §§ 6.3, 6.4, and 6.6. 

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INTRODUCTION 

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 

Level of Therapy 

Number of Minutes 

per Week of 

Therapy 

Average Per 

Diem Payment 

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 User’s 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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INTRODUCTION 

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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INTRODUCTION 

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 CMS’s 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 categories—Rehabilitation and 

Rehabilitation Plus Extensive Services—to 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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INTRODUCTION 

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. 

7 

isition. 

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 acqu

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 beneficiary’s 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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INTRODUCTION 

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. 

8 

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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FINDINGS FINDINGS 

Medicare pays SNFs different 

rates for different RUGs. 

Ultra high therapy RUGs 

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 

From 2006 to 2008, SNFs increasingly billed for 

higher paying RUGs, even though beneficiary 

characteristics remained largely unchanged 

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 therapy—very high, high, medium, and low—decreased 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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FINDINGS 

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

RUGs 

Total Medicare 

Payments 

2006 

Total Medicare 

Payments 

2008 

Difference in 

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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FINDINGS 

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. 

For-profit SNFs were far more likely than 

nonprofit or government SNFs 

to bill for higher paying RUGs 

11 

In 2008, for-profit SNFs accounted 

for 69 percent of all SNFs while 

nonprofit and government SNFs 

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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FINDINGS 

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 

characteristics—specifically, the distributions of beneficiaries’ ages, as 

well as beneficiaries’ diagnoses at admission—were 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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FINDINGS 

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 

 Independently 

Owned SNFs 

(n = 3,678) 

SNFs Owned 

by Small 

Chains 

(n = 4,579) 

SNFs Owned 

by Large 

Chains 

(n = 2,046) 

Percentage of RUGs 

for ultra high therapy 28% 29% 43%

Percentage of RUGs 

with high ADL scores 33% 34% 38%

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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FINDINGS 

average lengths of stay in the newly acquired SNFs increased, with the 

average increases ranging from 1 to 15 days. 

 

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. 

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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OEI-02-09-00202 QUESTIONABLE BILLING BY S KILLED NURSING FACILITIES 15 

 RECOMMENDATIONS 

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 
 

RECOMMENDATIONS 

beneficiary’s hospital diagnosis and other information from the hospital 

stay to better predict the beneficiary’s 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 beneficiary’s 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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RECOMMENDATIONS 

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 beneficiary’s hospital stay, such as the diagnosis and 

therapy utilization, to determine the beneficiary’s 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 CMS’s 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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RECOMMENDATIONS 

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 CMS’s 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 beneficiary’s 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 CMS’s comments is provided in Appendix H. 

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 APPENDIX~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 User’s Manual. 

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20 

* RUG. 

Description of the 53 Resource Utilization Groups* 

RUG Category RUG Therapy 

 Level ADL** Scores Per Diem Rate 

Therapy RUGs 

RUX Ultra high High $602 

RUL Ultra high Low $529 

RVX Very high High $456 

RVL Very high Low $426 

RHX High High $387 

RHL High Low $380 

RMX Medium High $443 

RML Medium Low $406 

Rehabilitation Plus 

Extensive Services 

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 

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 

 Rehabilitation 

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 

CB1 Medium $223 

CA2 Low $221 

Clinically Complex 

CA1 Low $207 

 APPENDIX~B 

** Activities of daily living. 

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APPENDIX~B 

Description of the 53 Resource Utilization Groups (continued) 

RUG Category RUG Therapy 

 Level ADL Scores Per Diem Rate

Nontherapy RUGs (continued) 

PE2 High $214 

PE1 High $210 

PD2 High $204 

PD1 High $201 

PC2 Medium $193 

PC1 Medium $191 

PB2 Low $170 

PB1 Low $169 

PA2 Low $167 

Reduced Physical 

Function 

PA1 Low $163 

IB2 High $198 

IB1 High $195 

Impaired Cognition IA2 Low $179 

IA1 Low $171 

BB2 High $196 

BB1 High $191 

BA2 Low $177 Behavior Problems 

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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 APPENDIX~C

Table C-1: The Distribution of Beneficiaries’ Ages From 2006 to 2008 

Percentage of Part A Stays 

Beneficiaries’ Ages at 

Admission 2006 2008 

PercentagePoint 

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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APPENDIX~C 

 

 

Table C-2: The Distribution of Beneficiaries’ Diagnoses at Admission From 2006 to 2008

Percentage of Part A Stays 

Beneficiaries’ Admitting Diagnoses* 2006 2008 

PercentagePoint 

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

V58 Encounter for other and unspecified procedures and 

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

781 Symptoms involving nervous and musculoskeletal 

systems 1.1% 1.2% 0.1

799 Other ill-defined and unknown causes of morbidity and 

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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 APPENDIX~D APPENDIX~F 

 

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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 APPENDIX~D APPENDIX~E APPENDIX~F 

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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 APPENDIX~F 

Billing by Nonprofit Skilled Nursing Facilities,* 2008 

 

Independently 

Owned SNFs 

(N = 2,235) 

SNFs Owned 

by Small 

Chains 

(N = 1,552) 

SNFs Owned by 

Large Chains 

(N = 179) 

Percentage of RUGs** 

for ultra high therapy 17% 20% 11% 

Percentage of RUGs 

with high activities of 

daily living scores 

31% 31% 29% 

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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 APPENDIX~G 

Distribution of Three Billing Measures Among Skilled Nursing Facilities, by Quartile* 

Measures Q1 Q2 Q3 Q4 Top 1 Percent 

Percentage of 

RUGs** for ultra 

high therapy 

0 to 6 percent Greater than 6 

percent to 20 percent 

Greater than 20 

percent to 39 percent 

Greater than 39 

percent to 94 percent 77 to 94 percent 

Percentage of 

RUGs with high 

activities of daily 

living scores 

0 to 23 percent Greater than 23 

percent to 32 percent 

Greater than 32 

percent to 43 percent 

Greater than 43 

percent to 96 percent 76 to 96 percent 

Average length of 

stay 5 to 24 days Greater than 24 days to 29 days 

 Greater than 29 

days to 34 days 

Greater than 34 days 

to 61 days 48 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. 

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A P PEN D x H 

Centers for Medicare & Medicaid Services Comments 

/ 	...'.... "" 

( ~ DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid SelVicss ,S'!­ 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 

OEI·02·09·00202 QUESTIONABLE BILLING BY SKILLED NURSING FACILITIES 28 
 

APPENDIX~H 

O E I - 0 2 - 0 9 - 0 0 2 0 2 QUESTIONABLE BILLING BY S KILLED NURSING FACILITIES 29 
 

APPENDIX~H 

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 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 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 S KILLED 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 OIG’s 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.