Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

THE MEDICARE PAYMENT 

SYSTEM FOR SKILLED NURSING 

FACILITIES NEEDS TO BE 

REEVALUATED 

Daniel R. Levinson 

Inspector General 

September 2015 

OEI-02-13-00610 
 

 

EXECUTIVE SUMMARY: THE MEDICARE PAYMENT SYSTEM FOR SKILLED 

NURSING FACILITIES NEEDS TO BE REEVALUATED 

OEI-02-13-00610 

WHY WE DID THIS STUDY 

The Office of Inspector General (OIG), the Medicare Payment Advisory Commission, and 

other entities have raised longstanding concerns regarding Medicare’s skilled nursing 

facility (SNF) payment system. These concerns focus on SNF billing, the method of 

paying for therapy, and the extent to which Medicare payments exceed SNFs’ 

costs. Medicare pays SNFs a daily rate for nursing, therapy, and other services. The daily 

rate for therapy is primarily based on the amount of therapy provided, regardless of the 

specific beneficiary characteristics or care needs. 

Previously, OIG found that SNFs increasingly billed for the highest level of therapy even 

though key characteristics of SNF beneficiaries remained largely unchanged from 2006 to 

2008. OIG also found that SNFs billed one-quarter of all 2009 claims in error—primarily 

by billing for higher levels of therapy than they provided or were reasonable or 

necessary—which resulted in $1.5 billion in inappropriate Medicare payments. This study 

provides further evidence that supports and quantifies these concerns. 

HOW WE DID THIS STUDY 

This study was based on several data sources, including Medicare Part A SNF claims, 

Medicare cost reports, and beneficiary assessments. We used Medicare cost reports to 

compare Medicare payments to SNFs’ costs for therapy over a 10-year period. We used 

claims to determine the extent to which SNF billing and beneficiary characteristics 

changed from fiscal years (FYs) 2011 to 2013. Finally, we determined the extent to which 

changes in SNF billing affected Medicare payments. 

WHAT WE FOUND 

We found that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy. 

We also found that under the current payment system, SNFs increasingly billed for the 

highest level of therapy even though key beneficiary characteristics remained largely the 

same. Increases in SNF billing—particularly for the highest level of therapy—resulted in 

$1.1 billion in Medicare payments in FYs 2012 and 2013. 

WHAT WE RECOMMEND 

The findings of this and prior OIG reports demonstrate the need for the Centers for 

Medicare & Medicaid Services (CMS) to reevaluate the Medicare SNF payment system. 

Payment reform could save Medicare billions of dollars and encourage SNFs to provide 

services that are better aligned with beneficiaries’ care needs. We recommend that CMS: 

(1) evaluate the extent to which Medicare payment rates for therapy should be reduced, (2) 

change the method for paying for therapy, (3) adjust Medicare payments to eliminate any 

increases that are unrelated to beneficiary characteristics, and (4) strengthen oversight of 

SNF billing. CMS concurred with all four of our recommendations. 
 

TABLE OF CONTENTS 

Objectives.................................................................................................... 1 

Background ................................................................................................. 1 

Methodology ............................................................................................... 6 

Findings....................................................................................................... 7 

Medicare payments for therapy greatly exceed SNFs’ costs 

for therapy ....................................................................................... 7 

SNFs increasingly billed for the highest level of therapy even 

though key beneficiary characteristics remained largely the 

same ................................................................................................ 9 

Increases in SNF billing—particularly for the highest level of
 

therapy—resulted in $1.1 billion in Medicare payments in 

FYs 2012 and 2013........................................................................ 10 

Conclusion and Recommendations ........................................................... 12 

Agency Comments and OIG Response......................................... 14 

Appendixes................................................................................................ 15 

A: Medicare Payment Rates per Day per RUG in FY 2013 ......... 15 

B: Detailed Methodology ............................................................. 17 

C: Changes in Key Beneficiary Characteristics From FYs 2011 to 
 

2013......................................................................................... 21 

D: Increases in the Use of Ultra High Therapy From FYs 2011 
 

to 2013, by Key Beneficiary Characteristic ............................ 23 

E: Estimates of Medicare Payments in FYs 2012 and 2013 

Resulting From Changes in SNF Billing ................................. 25 

F: Agency Comments ................................................................... 26 

Acknowledgments ..................................................................................... 29 
 

 

 

 

 

 

 

OBJECTIVES 

1. To compare Medicare payments to skilled nursing facility (SNF) costs 

for therapy. 

2. To determine the extent to which SNF billing and key beneficiary 

characteristics changed from fiscal years (FYs) 2011 to 2013. 

3. To determine the extent to which changes in SNF billing affected 

Medicare payments. 

BACKGROUND 

SNFs provide skilled nursing care, therapy, and other services to Medicare 

beneficiaries under the Part A benefit. In 2012, nearly 2 million Medicare 

beneficiaries received these services.1 

The Office of Inspector General (OIG), the Medicare Payment Advisory 

Commission (MedPAC), the American Health Care Association (AHCA)— 

the largest association of long term and post-acute care providers—and 

other entities have raised longstanding concerns regarding Medicare’s SNF 

payment system. 

One concern about the SNF payment system is the extent to which 

Medicare payments exceed SNFs’ costs. MedPAC has found that Medicare 

payments are substantially higher than SNFs’ costs—specifically, that 

Medicare margins have been above 10 percent since 2000—and, each year 

during the last decade, has recommended that Congress decrease Medicare 

payments.2 Excessive Medicare payment rates are wasteful to taxpayers 

and could encourage SNFs to provide more therapy than beneficiaries need. 

Another concern about the SNF payment system is how Medicare pays for 

therapy. The current method is, according to CMS, “based primarily on the 

amount of therapy provided to a patient, regardless of the specific patient 

characteristics and care needs.”3

 A payment system that pays more as the 

volume of services increases creates a financial incentive to provide more 

____________________________________________________________ 

1

 Centers for Medicare & Medicaid Services (CMS), The Medicare and Medicaid 

Statistical Supplement, 2013 Edition, Table 6.4. Accessed at http://www.cms.gov/ 

Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ 

MedicareMedicaidStatSupp/2013.html on March 19, 2014. 2

 See MedPAC, Report to Congress: Medicare Payment Policy, March 2015, ch. 8, 

pp. 195 and 203. Accessed at http://www.medpac.gov/-documents-/reports on May 14, 

2015. Medicare margins are a standard method for comparing payments and costs. 3

 CMS, SNF PPS Payment Model Research, http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/SNFPPS/therapyresearch.html on May 4, 2015. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 1 
 

 

 

 

 

 

 

 

services than the beneficiary may need. The AHCA, for example, 

“recognizes [the] concern surrounding therapy utilization” and supports 

“shifting Medicare away from paying providers based solely on their 

volume of services.”4 In addition, OIG, MedPAC, and others have 

recommended changing the method of paying for therapy from one based 

primarily on volume to one based primarily on beneficiary characteristics.5 

Concerns also exist about SNF billing under the current system. Notably, 

in December 2010, OIG found that SNFs increasingly billed for the highest 

level of therapy, even though key beneficiary characteristics remained 

largely unchanged.6 OIG also found that SNFs billed one-quarter of all 

2009 claims in error, resulting in $1.5 billion in inappropriate Medicare 

payments.7 For the vast majority of these claims, SNFs billed for higher 

levels of therapy than they provided or were reasonable or necessary. Such 

billing can create quality of care concerns. For example, a beneficiary— 

who received hospice care before and after her SNF stay—received 

physical therapy 5 days a week for 5 weeks, even though her medical 

records indicated that she asked that the therapy be discontinued.8 

In addition, OIG investigations have found problems with SNF billing. For 

example, a SNF chain agreed to a $3.75 million settlement over allegations 

of fraudulent billing for medically unnecessary therapy.9 Another SNF 

chain paid $3.5 million to settle a case that involved allegations of 

____________________________________________________________ 

4

 AHCA, AHCA Medicare Payment Reform Initiative: SNF-Only Bundled Payment 

Model (Preliminary). The latter was accessed at 

http://www.ahcancal.org/solutions/download/medicare_concept_issue_brief.pdf on 

March 12, 2014. 

5

 See, for example, OIG, Inappropriate Payments to Skilled Nursing Facilities Cost 

Medicare More Than a Billion Dollars in 2009, OEI-02-09-00200, November 2012. 6

 OIG, Questionable Billing by Skilled Nursing Facilities, OEI-02-09-00202, 

December 2010. 

7

 Claims billed in error are upcoded or downcoded or do not meet Medicare coverage 

requirements. See OIG, Inappropriate Payments to Skilled Nursing Facilities Cost 

Medicare More Than a Billion Dollars in 2009, OEI-02-09-00200, November 2012. 8

 OIG, Skilled Nursing Facilities Often Fail To Meet Care Planning and Discharge 

Planning Requirements, OEI-02-09-00201, February 2013. 9

 Department of Justice (DOJ), Two Companies to Pay $3.75 Million for Allegedly 

Causing Submission of Claims for Unreasonable or Unnecessary Rehabilitation Therapy 

at Skilled Nursing Facilities, September 5, 2014. Accessed at 

http://www.justice.gov/opa/pr/2014/September/14-civ-943.html on September 10, 2014. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 2 
 

 

 

 

 

 

medically unnecessary therapy and false reports of therapy being 

delivered.10 

This report provides policymakers with key information regarding the SNF 

payment system and SNF billing under this system. This information is 

especially relevant now because the payments for emerging models—such 

as accountable care organizations and bundled payments—are based on 

current fee-for-service payments.11 This report is a companion to another 

report that focuses on SNF billing for changes in therapy.12 

The SNF Payment System 

The Medicare Part A SNF benefit covers skilled nursing care, therapy 

services (i.e., physical, occupational, and speech therapy), and other 

services.13 To qualify for the SNF benefit, the beneficiary must be admitted 

to the SNF within 30 days of an inpatient hospital stay that lasted at least 

3 consecutive days.14 

During a Part A stay, a SNF periodically assesses a beneficiary to classify 

him or her into a resource utilization group (RUG), which determines how 

much Medicare pays the SNF each day for the beneficiary’s care.15 

Types of RUGs. CMS groups the 66 RUGs into 8 categories. Two 

categories—Rehabilitation and Rehabilitation Plus Extensive Services—are 

for therapy RUGs; the remaining six categories are for nontherapy RUGs. 

Therapy RUGs are for beneficiaries who need physical therapy, speech 

therapy, or occupational therapy, typically to recover from an event such as 

a hip fracture or a stroke. Nontherapy RUGs are for beneficiaries who 

require skilled nursing care, but very little or no therapy. 

The therapy RUGs are divided into five levels: ultra high, very high, high, 

medium, and low. The SNF categorizes a beneficiary into one of these 

____________________________________________________________ 

10 DOJ, New York Catholic Nursing Chain to Pay $3.5 Million to Resolve Allegations 

Concerning Claims for Rehabilitation Therapy, March 2, 2015. Accessed at 

http://www.justice.gov/usao-ma/pr/new-york-catholic-nursing-chain-pay-35-millionresolve-allegations-concerning-claims on March 13, 2015. 11 See, for example, MedPAC and the Urban Institute, The Need to Reform Medicare’s 

Payments to Skilled Nursing Facilities Is as Strong as Ever, January 2015, p 2.
 12 OIG, Skilled Nursing Facility Billing for Changes in Therapy: Improvements Are 

Needed, OEI-02-13-00611, June 2015. 13 Social Security Act (SSA), §§ 1812(a)(2)(A) and 1861(i); 42 U.S.C. §§ 1395d(a)(2)(A)
 

and 1395x(i). 

14 42 CFR § 409.30(a)(1) and (b)(1). 

15 SNFs use an assessment known as the Minimum Data Set (MDS) to classify 

beneficiaries into RUGs. The MDS is part of CMS’s Resident Assessment Instrument 

(RAI). CMS, Long-Term Care Facility Resident Assessment Instrument User’s Manual, 

ver. 3.0 (RAI Manual 3.0), May 2013, § 1.3.
 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 3 
 

 

 

 

 

levels primarily on the basis of the amount of therapy provided during a 

7-day assessment period.16 For example, if a beneficiary received 45 

minutes of therapy during the assessment period, he or she is typically 

categorized into a low therapy RUG, whereas if a beneficiary received 

720 minutes, he or she is typically categorized into an ultra high therapy 

RUG. 

In addition, RUGs are generally divided by the amount of assistance a 

beneficiary needs with certain Activities of Daily Living (ADLs), such as 

eating. If a beneficiary needs high levels of assistance, he or she is 

categorized into a RUG with a high ADL score, whereas a beneficiary who 

needs less assistance is categorized into a RUG with a lower ADL score. 

Medicare Payment Rates for RUGs. Payment rates for therapy RUGs are 

typically higher than for nontherapy RUGs. Payment rates typically 

increase as the level of therapy increases and as the ADL score increases. 

For example, the average daily payment rate for ultra high therapy RUGs 

was $620 in FY 2013, while the average rate for low therapy RUGs was 

$362. See Appendix A for the Medicare payment rate for each RUG in FY 

2013. 

For each RUG, the payment rate is the sum of three components: nursing, 

therapy, and room and board. Table 1 shows the base rate for each 

component in FY 2013. For example, SNFs are paid a base rate of $123 a 

day to cover the costs of providing therapy to a beneficiary. This rate is 

multiplied by a Therapy Index that varies with the level of therapy provided 

to the beneficiary.17

 ____________________________________________________________ 

16 CMS, RAI Manual 3.0, § 6.6.
 17 In FY 2013, the Indexes were 0.28 for low therapy, 0.55 for medium therapy, 0.85 for
 

high therapy, 1.28 for very high therapy, and 1.87 for ultra high therapy. See 77 Fed. Reg. 

46214, 46220, Table 4 (August 2, 2012). The base rate is also multiplied by a geographic 

factor to account for wage differences.
 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 4 
 

 

 

 

 

 

Table 1: Base Rate for Each Component of Medicare 

Payments to SNFs, FY 2013 

Component Base Rate per Day* 

Nursing $164 

Therapy** $123 

Room and board $83 

* These rates are for urban SNFs; rural SNFs have somewhat different rates. 

** This is the base rate for therapy RUGs. The base rate for nontherapy RUGs is 

$16 and covers, for example, SNFs’ costs for evaluating beneficiaries to 

determine whether they need therapy. 

Source: 77 Fed. Reg. 46214, 46219, Table 2, (August 2, 2012). 

Changes to Medicare Payment Rates. CMS updates the base rates each 

year using a market-basket index that reflects changes over time in the 

prices of goods and services.18 In addition, CMS changed payment rates— 

by changing the Therapy or Nursing Indexes—when it made significant 

revisions to the payment system.19 After each significant revision, CMS 

readjusted rates because SNF billing, particularly billing for therapy, was 

substantially higher than CMS expected.20 

Case Mix Creep. The SSA gives CMS the authority to adjust base rates to 

address “case mix creep”—that is, an increase in overall Medicare 

payments that is due to changes in SNF billing that do not reflect changes 

in beneficiaries’ characteristics.21 If CMS determines that case mix creep 

occurred, it can reduce rates to recoup Medicare payments that resulted 

from case mix creep. 

Although CMS has used a similar authority to adjust rates in the home 

health payment system, it has not done so for SNFs.22 For home health, 

CMS has conducted data analyses of Medicare claims and beneficiary 

____________________________________________________________ 

18 SSA, §§ 1888(e)(4)(E) (ii)(IV), (5)(A), and (5)(B)(i). Beginning in FY 2012, the Patient 

Protection and Affordable Care Act, section 3401(b), required that the market-basket 

index be reduced annually to account for increases in provider productivity, such as
 

through new technology. See SSA, § 1888(e)(5)(B)(ii). 

19 CMS made significant revisions in FY 2006, when it increased the number of RUGs
 

from 44 to 53, and in FY 2011, when it increased the number of RUGs to 66. See 70 Fed.
 

Reg. 45026, 45037-45040, Tables 4, 4a, 5, and 5a (August 4, 2005) and 75 Fed. Reg. 

42886, 42894-42900, Tables 4A, 4B, 5A, and 5B (July 22, 2010).
 20 For the readjustment associated with the FY 2006 revision, see 74 Fed. Reg. 40288, 

40298 (August 11, 2009) and 73 Fed. Reg. 46416, 46421-22 (August 8, 2008). For the 

readjustment associated with the FY 2011 revision, see 76 Fed. Reg. 48486, 48493 and 

48500 (August 8, 2011). 

21 SSA, § 1888(e)(4)(F).
 22 72 Fed. Reg. 49762, 49832 and 49843 (August 29, 2007) (using SSA, §
 

1895(b)(3)(B)(iv) to address home health case-mix creep). 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 5 
 

 

 

assessments to determine the extent to which increases in Medicare 

payments were due to case mix creep. As a result, CMS decreased home 

health rates by 2.75 percent in 2008 through 2010 to account for case mix 

creep.23 

METHODOLOGY 

We based this study on an analysis of: 1) Medicare cost reports from SNFs 

covering a 10-year period; 2) paid Part A SNF claims from the National 

Claims History file; 3) Part A hospital claims from the hospital stays that 

qualified the beneficiaries for these SNF stays; and 4) MDS beneficiary 

assessments.24 See Appendix B for more detailed information about the 

methodology. 

Limitations 

This study assesses SNF billing and beneficiary characteristics based on an 

analysis of all Medicare Part A claims. We did not determine the extent to 

which Medicare payments for specific SNF claims were appropriate, 

including whether services billed for were necessary. 

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. 

____________________________________________________________ 

23 Ibid. 

24 We excluded swing beds that are used for both hospital and SNF care. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 6 
 

 

 

 

 

 

 

FINDINGS 

Medicare payments for therapy greatly exceed SNFs’

costs for therapy 

Differences between Medicare payments for therapy and SNFs’ costs for 

therapy resulted in an average Medicare margin for therapy of 29 percent— 

that is, on average, SNFs received $29 more than their therapy costs for 

every $100 in Medicare payments for therapy.25 

Medicare pays SNFs a daily rate for therapy that is primarily based on the 

level of therapy provided to the beneficiary. In FY 2012, Medicare paid 

SNFs an average of $187 a day to provide therapy to a beneficiary. 

However, according to data that SNFs provided on Medicare cost reports, 

SNFs’ costs to provide therapy averaged $133 per day. 

The 29 percent Medicare margin for therapy is twice as high as the 

14 percent overall Medicare margin for SNF payments reported by 

MedPAC in FY 2012. Each year during the last decade, MedPAC has 

reported that the overall Medicare margin exceeded 10 percent and has 

recommended that Congress decrease Medicare payments.26 

The difference between Medicare payments and SNFs’ costs for 

therapy, combined with the current payment method, creates 

an incentive for SNFs to bill for higher levels of therapy than 

necessary 

The difference between therapy payments and costs, combined with the 

current method of paying for therapy, creates a strong financial incentive 

for SNFs to bill for higher levels of therapy even when beneficiaries do not 

need such levels.27 In FY 2012, with a Medicare margin of 29 percent, 

SNFs received an average of $66 a day more than their therapy costs when 

they billed for ultra high therapy for a beneficiary. In comparison, they 

received an average of $11 more than their therapy costs when they billed 

for low therapy. See Table 2.

 ____________________________________________________________ 

25 Medicare margins are a standard method for comparing payments and costs. See, for 

example, MedPAC, Report to Congress: Medicare Payment Policy, March 2015, ch. 8, 

p. 195. 26 Ibid. For over a decade, MedPAC has recommended that Congress eliminate the 

market-basket updates to SNF payment rates and, since 2012, has recommended 

decreasing the base rates. 

27 We did not determine the extent to which Medicare payments for specific SNF claims 

were appropriate, including whether services billed for were necessary. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 7 
 

 

 

Table 2: Average Payment and Cost for Therapy per Day per 

Beneficiary, by Level of Therapy, FY 2012 

Level of Therapy 

Average 

Payment Per 

Day 

Average 

Cost Per 

Day

 Difference Between 

Average Payment and 

Cost Per Day 

Ultra high $231 $165 $66 

Very high $156 $111 $45 

High $104 $74 $30 

Medium $67 $48 $19 

Low $37 $26 $11 

Source: OIG analysis of SNF cost reports, 2015. 

Medicare payments have greatly exceeded SNFs’ costs for 

therapy for the past decade 

Medicare payments for therapy rose faster than SNFs’ costs for therapy 

from FYs 2002 to 2010. In FY 2002, the difference between payments and 

costs resulted in a Medicare margin for therapy of 25 percent. As shown in 

Table 3, the margin increased to 42 percent by FY 2010. In FY 2011, the 

margin decreased; however, it remained near 30 percent. 

Table 3: Medicare Margin for Therapy, by Selected Fiscal Years 

Fiscal Year Medicare Margin for Therapy 

2002 25% 

2004 34% 

2006 36% 

2008 40% 

2010 42% 

2011 31% 

2012 29% 

Source: OIG analysis of SNF cost reports, 2015. 

Two factors accounted for increasing payments for therapy. First, SNFs 

increasingly billed for higher levels of therapy. Second, as required by 

statute, CMS increased the base payment rate each year by the marketbasket index, which is intended to reflect changes over time in the prices of 

goods and services. In FY 2011, overall payments for therapy decreased; 

however, they continued to greatly exceed SNFs’ costs for therapy.28 

SNFs also employed strategies to optimize revenues. Specifically, SNFs 

increasingly provided the minimum number of therapy minutes for the 

____________________________________________________________ 

28 In FY 2011, CMS decreased the therapy payment rate by decreasing the Therapy 

Indexes. Prior to FY 2011, these Indexes ranged from 0.43 for low therapy to 2.25 for 

ultra high therapy. Beginning in FY 2011, the Indexes ranged from 0.28 to 1.87. Therapy 

payments are determined by multiplying the therapy base rate by the Therapy Index. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 8 
 

 

 

 

 

 

higher levels of therapy. This practice increased from FYs 2011 to 2013. 

For example, SNFs must provide therapy for 720 minutes or more during 

the 7-day assessment period to bill for ultra high therapy, and SNFs 

increasingly provided exactly 720 minutes. Notably, in FY 2011, SNFs 

provided exactly 720 minutes for 21 percent of ultra high therapy RUGs, 

which increased to 34 percent in FY 2013. See Table 4. 

Table 4: Percentage of RUGs in Which SNFs Provided the Minimum Number of

Required Therapy Minutes, by Level of Therapy and by Fiscal Year 

Level of Therapy 

Percentage of RUGs in Which SNFs Provided the 

Minimum Number of Required Therapy Minutes 

FY 2011 FY 2012 FY 2013 

Ultra high 21% 29% 34% 

Very high 12% 18% 22% 

High 10% 15% 18% 

Medium 7% 9% 10% 

Low 14% 13% 12% 

Source: OIG analysis of MDS assessments, 2015. 

SNFs increasingly billed for the highest level of 

therapy even though key beneficiary characteristics 

remained largely the same 

From FYs 2011 to 2013, SNFs increasingly billed for ultra high therapy, 

even though key beneficiary characteristics remained largely the same. As 

shown in Table 5, SNFs increased their billing for ultra high therapy RUGs 

from 49 percent of therapy days in FY 2011 to 57 percent in FY 2013. 

SNFs also increased their billing for other higher paying RUGs. During 

this same time period, SNFs increased their billing for therapy RUGs from 

90 to 92 percent of days and their billing for high ADL RUGs from 34 to 

36 percent. Finally, SNFs increased their billing for higher paying 

nontherapy RUGs from 54 to 60 percent of nontherapy days. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 9 
 

 

Table 5: Changes in SNF Billing from FYs 2011 to 2013 

Type of Billing Change FY 2011 FY 2012 FY 2013 

Percentage of therapy days billed for ultra high therapy RUGs 49% 53% 57% 

Percentage of days billed for therapy RUGs 90% 90% 92% 

Percentage of days billed for high ADL RUGs 34% 36% 36% 

Percentage of nontherapy days billed for higher paying RUG 

categories 54% 58% 60% 

Source: OIG analysis of SNF claims data, 2015. 

Increases in SNF billing were not due to changes in key 

beneficiary characteristics 

During the same time that SNFs increased their billing, key beneficiary 

characteristics remained largely the same. From FYs 2011 to 2013, the 

average age of SNF beneficiaries stayed about the same—79.5 and 

79.2 years, respectively. In addition, the top 20 reasons for the hospital 

stays that qualified beneficiaries for SNF stays were identical. The average 

length of the qualifying hospital stays changed minimally from 8.19 to 8.12 

days. The severity levels of the hospital stays also changed little. 

Appendix C provides more detailed information about beneficiaries’ 

characteristics in FYs 2011 and 2013. 

Moreover, SNFs increasingly billed for ultra high therapy across each of 

these beneficiary characteristics. The percentage of days billed as ultra 

high therapy increased by at least 5 percentage points for each of the top 20 

reasons for beneficiaries’ qualifying hospital stays. For example, for 

beneficiaries who were in the hospital for cellulitis prior to going to the 

SNF, the percentage of days billed as ultra high therapy increased from 

39 percent in FY 2011 to 49 percent in FY 2013. SNFs also increased their 

billing for ultra high therapy across other beneficiary characteristics, 

including age, and length and severity level of the qualifying hospital stay. 

Appendix D provides more detailed information about billing for ultra high 

therapy. 

Increases in SNF billing—particularly for the highest 

level of therapy—resulted in $1.1 billion in Medicare 

payments in FYs 2012 and 2013 

Medicare paid SNFs $53.1 billion in FYs 2012 and 2013; however, 

Medicare would have paid $52.0 billion if SNFs had not increased their 

billing for higher paying RUGs. As shown in Table 6, this increase in SNF 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 10 
 

 

 

billing resulted in $1.1 billion in Medicare payments in FYs 2012 and 

2013. Because the increases in SNF billing were not due to changes in key 

beneficiary characteristics, the increases in Medicare payments may be due 

to case mix creep. CMS can reduce rates to recoup Medicare payments 

that resulted from case mix creep. 

Table 6: Medicare Payments Resulting From Increased Billing for Higher 

Paying RUGs, by Fiscal Year 

Fiscal Year 

Actual 

Medicare 

Payments 

(millions) 

Medicare Payments Based on 

Billing From FY 2011* 

(millions) 

Medicare Payments Resulting 

From Increased Billing 

Since FY 2011 

(millions) 

2012 $26,228 $26,026 $202 

2013 $26,888 $26,004 $884 

Totals $53,116 $52,030 $1,086 

* We calculated what Medicare would have paid in FYs 2012 and 2013 if SNFs had not increased billing for higher 

paying RUGs—i.e., if the distribution of RUGs in these years were the same as the distribution in FY 2011. 

Source: OIG analysis of SNF claims data, 2015. 

Increased billing for ultra high therapy accounted for the vast 

majority of the $1.1 billion in Medicare payments 

This shift toward ultra high therapy accounted for nearly $900 million, or 

approximately 80 percent, of the $1.1 billion in increased Medicare 

payments. Other changes in SNF billing also contributed to the increased 

payments, but to a lesser extent than the shift to ultra high therapy. 

Appendix E provides more information about how changes in SNF billing 

affected Medicare payments. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 11 
 

 

CONCLUSION AND RECOMMENDATIONS 

The findings of this report provide further evidence that longstanding 

concerns about the SNF payment system must be addressed. We found that 

Medicare payments for therapy greatly exceeded SNFs’ costs for therapy. 

Combined with the current method of paying for therapy, this large 

difference between therapy payments and costs creates a strong financial 

incentive for SNFs to bill for higher levels of therapy than necessary. 

Under this system, SNFs increasingly billed for the highest level of therapy 

even though key beneficiary characteristics remained largely the same. 

Increases in SNF billing—particularly for the highest level of therapy— 

resulted in $1.1 billion in Medicare payments in FYs 2012 and 2013. 

The findings of this and prior OIG reports, which complement the work of 

MedPAC and others, demonstrate the need to reevaluate the Medicare SNF 

payment system. Payment reform could save Medicare billions of dollars 

and encourage SNFs to provide services that are better aligned with 

beneficiaries’ care needs. A reevaluation of the SNF payment system is 

also important because the payments for emerging models—such as 

accountable care organizations and bundled payments—are based on 

current fee-for-service payments. 

We recommend that CMS: 

Evaluate the extent to which Medicare payment rates for 

therapy should be reduced 

As this report shows, Medicare payments for therapy greatly exceed SNFs’ 

costs and create an incentive for SNFs to bill for higher levels of therapy 

than beneficiaries need. To address this problem, CMS should reduce the 

base rate for therapy. We recognize that CMS may need additional 

statutory authority to make such a change. CMS should analyze how to set 

an appropriate new base rate—possibly using SNF cost reports—and take 

steps to develop a legislative proposal, if necessary, to do so. The proposal 

could also seek to eliminate the market-basket update. 

Change the method of paying for therapy 

As we have recommended previously, CMS should change the current 

method of paying for therapy. CMS pays for therapy primarily based on 

the amount of therapy provided during the assessment period, rather than 

on beneficiary characteristics or care needs. Under this system, SNFs 

increasingly billed for the highest level of therapy even though key 

beneficiary characteristics remained largely the same. 

CMS should accelerate its efforts to develop and implement a new method 

of paying for therapy that relies on beneficiary characteristics or care needs. 

In both March 2007 and April 2014, CMS issued a report that reviewed 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 12 
 

 

 

 

various payment methods. CMS should publicly provide a timeline for 

completing the development and implementation of a new method of 

paying for therapy. As CMS develops the new payment method, it will also 

need to develop controls to monitor SNF billing under the new system. 

Adjust Medicare payments to eliminate the effect of case mix 

creep 

CMS has the authority to adjust payment rates if it determines that overall 

payments to SNFs increased due to changes in billing that are unrelated to 

changes in beneficiaries’ characteristics—that is, that are the result of case 

mix creep. This report adds to the growing evidence that case mix creep is 

occurring. CMS should quantify the amount of creep that has occurred and 

adjust payment rates to eliminate the effect of case mix creep. 

Strengthen oversight of SNF billing 

CMS should take other actions to minimize increases in SNF billing that do 

not reflect changes in beneficiary characteristics. These oversight activities 

should include increasing and expanding reviews of SNF claims and 

improving data analysis strategies. For example, CMS should develop 

strategies for identifying SNFs that have increased their billing for higher 

paying RUGs and determining whether these increases reflect changes in 

the characteristics of their beneficiaries. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 13 
 

 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with all four of our recommendations. 

First, CMS concurred with our recommendation to evaluate the extent to 

which Medicare payment rates for therapy should be reduced. CMS stated 

that additional statutory authority would be required for CMS to address 

this recommendation. CMS further noted that the FY 2016 President’s 

budget included a legislative proposal requiring a reduction to the marketbasket updates for SNF payment rates beginning in FY 2016. 

Second, CMS concurred with our recommendation to change the method of 

paying for therapy. CMS stated that it is conducting a project to study and 

evaluate SNF therapy payment options. It will use the results of this 

project to inform changes to the method of paying for therapy. 

Third, CMS concurred with our recommendation to adjust Medicare 

payments to eliminate the effect of case mix creep. CMS stated that it will 

consider various approaches to adjust payments if it determines that 

changes in overall payments to SNFs were unrelated to beneficiaries’ 

characteristics. 

Finally, CMS concurred with our recommendation to strengthen oversight 

of SNF billing. CMS stated that it will work to monitor SNF billing and 

target SNFs that rarely bill for changes in therapy or frequently use therapy 

assessments incorrectly for education and claims review. It will also 

consider the feasibility of refining the Fraud Prevention System to support 

the monitoring of SNF billings. 

For the full text of CMS’s comments, see Appendix F. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 14 
 

 

 

 

APPENDIX A 

Medicare Payment Rates per Day per RUG in FY 2013 

RUG Category RUG Therapy Level ADL Score Payment Rate 

per Day* 

Therapy RUGs 

Rehabilitation Plus Extensive 

Services 

RUX Ultra high 11 to 16** $751 

RUL Ultra high 2 to 10 $734 

RVX Very high 11 to 16** $668 

RVL Very high 2 to 10 $599 

RHX High 11 to 16** $605 

RHL High 2 to 10 $540 

RMX Medium 11 to 16** $555 

RML Medium 2 to 10 $509 

RLX Low 2 to 16 $488 

Rehabilitation 

RUC Ultra high 11 to 16** $569 

RUB Ultra high 6 to 10 $569 

RUA Ultra high 0 to 5 $476 

RVC Very high 11 to 16** $488 

RVB Very high 6 to 10 $423 

RVA Very high 0 to 5 $421 

RHC High 11 to 16** $425 

RHB High 6 to 10 $383 

RHA High 0 to 5 $337 

RMC Medium 11 to 16** $374 

RMB Medium 6 to 10 $351 

RMA Medium 0 to 5 $289 

RLB Low 11 to 16** $363 

RLA Low 0 to 10 $234 

Nontherapy RUGs 

Extensive Services 

ES3 2 to 16 $685 

ES2 2 to 16 $536 

ES1 2 to 16 $479 

Special Care High 

HE2 15 to 16** $463 

HE1 15 to 16** $384 

HD2 11 to 14** $433 

HD1 11 to 14** $361 

HC2 6 to 10 $409 

HC1 6 to 10 $342 

HB2 2 to 5 $404 

HB1 2 to 5 $339 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 15 
 

 

 

 

 

 

 

Medicare Payment Rates per Day per RUG in FY 2013 (continued) 

RUG Category RUG Therapy Level ADL Score Payment Rate 

per Day* 

Nontherapy RUGs (continued) 

Special Care Low 

LE2 15 to 16** $420 

LE1 15 to 16** $352 

LD2 11 to 14** $404 

LD1 11 to 14** $339 

LC2 6 to 10 $355 

LC1 6 to 10 $299 

LB2 2 to 5 $337 

LB1 2 to 5 $286 

Clinically Complex 

CE2 15 to 16** $375 

CE1 15 to 16** $345 

CD2 11 to 14** $355 

CD1 11 to 14** $325 

CC2 6 to 10 $311 

CC1 6 to 10 $288 

CB2 2 to 5 $288 

CB1 2 to 5 $267 

CA2 0 to 1 $244 

CA1 0 to 1 $227 

Behavioral Symptoms and 

Cognitive Performance 

BB2 2 to 5 $258 

BB1 2 to 5 $247 

BA2 0 to 1 $214 

BA1 0 to 1 $204 

Reduced Physical Function 

PE2 15 to 16** $345 

PE1 15 to 16** $329 

PD2 11 to 14** $325 

PD1 11 to 14** $309 

PC2 6 to 10 $280 

PC1 6 to 10 $267 

PB2 2 to 5 $237 

PB1 2 to 5 $227 

PA2 0 to 1 $196 

PA1 0 to 1 $188 

* These are the unadjusted urban rates. 

** We consider these ADL scores to be high. 

Source: 77 Fed. Reg. 46214, 46220–46221, Table 4 (August 2, 2012) and CMS, RAI Manual 3.0, § 6. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 16 
 

 

 

 

 

 

APPENDIX B 

Detailed Methodology 

Comparison of Medicare payments for therapy with SNFs’ costs 

for therapy 

We based this analysis on Medicare cost reports from SNFs. We obtained 

the cost reports for every other year from FYs 2002 to 2010 and for every 

year from FYs 2010 to 2012.29 For each fiscal year, we used these reports 

to calculate therapy payments and costs. 

To calculate therapy payments, for each SNF and for each therapy level, we 

multiplied: the number of days reported for the therapy level on the cost 

report, the Therapy Index, the base rate for therapy, and the SNF’s 

geographic factor.30 We then summed across the five therapy levels and 

across all SNFs to calculate total therapy payments for each fiscal year. 

Similarly, we determined SNFs’ costs for therapy by summing across the 

therapy costs reported by each SNF for each fiscal year.31 

We calculated the average therapy payment per day per beneficiary by 

dividing the total therapy payments by the total number of therapy days 

reported. We calculated the average therapy cost per day per beneficiary 

using the same method. To determine the extent to which therapy 

payments exceeded costs, we calculated the Medicare margin for therapy 

by subtracting total costs from total payments and then dividing by total 

payments. 

Next, for FY 2012, we determined the extent to which the difference 

between the average daily payment and cost for therapy varied by therapy 

level. To do this, for each therapy level, we multiplied the average 

payment per day by the Medicare margin for therapy.32 

Lastly, we examined the factors that affected Medicare payments for 

therapy during the 10-year period. We determined the extent to which 

SNFs increasingly billed for higher levels of therapy by calculating the 

____________________________________________________________ 

29 Medicare cost reports are publicly available at: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Files-for-Order/CostReports/Cost-Reports-by-FiscalYear.html. We analyzed reports from free-standing SNFs that had reporting periods of at 

least 10 months and no more than 13 months. 

30 These payments include beneficiary copayments. 31 We did not include cost reports with outlier therapy costs per day using a standard 

method. 

32 While SNFs report payment information by therapy level on the cost report, they do not 

report costs by therapy level. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 17 
 

 

 

 

 

average Therapy Index billed by SNFs for each year.33 In addition, we 

reviewed how CMS changed the base rate for therapy and the five Therapy 

Indexes over this time period. 

Analysis of the therapy minutes provided by SNFs using MDS 

assessments 

For each beneficiary assessment, the therapy level is primarily determined 

by the minutes of therapy provided during the 7-day assessment period.34 

Under the current payment system, SNFs can minimize their therapy costs, 

which optimizes their revenues, by providing the minimum number of 

minutes required for each of the five levels of therapy. For example, SNFs 

can provide exactly 500 minutes of therapy to beneficiaries in very high 

therapy RUGs. For FYs 2011 through 2013, for each therapy level, we 

calculated the percentage of RUGs for which the SNF provided the 

minimum number of required therapy minutes. For ultra high therapy, at 

least 720 minutes are required during the 7-day assessment period; for very 

high therapy, 500 minutes; for high therapy, 325 minutes; for medium 

therapy, 150 minutes; and for low therapy, 45 minutes. 

Analysis of changes in SNF billing from FYs 2011 to 2013 using 

SNF claims 

We determined the extent to which SNFs shifted from lower to higher 

paying RUGs, or vice versa, from FYs 2011 to 2013. Specifically, we 

determined the extent to which SNFs shifted their billing: 

	 from nontherapy to therapy RUGs; 

	 from lower levels of therapy RUGs to ultra high therapy RUGs; 

	 from lower paying nontherapy RUG categories to higher paying 

RUG categories;35 and 

	 from lower ADL RUGs to high ADL RUGs.

 ____________________________________________________________ 

33 For this calculation, we used the five Therapy Indexes that were in place prior to 

FY 2011. 

34 SNFs separately report the minutes associated with each mode of therapy—individual, 

concurrent, and group therapy. Beginning in FY 2011, SNFs were required to divide
 

concurrent therapy minutes among beneficiaries when determining each beneficiary’s 

therapy level; beginning in FY 2012, SNFs were also required to divide group therapy
 

minutes. So, in FY 2012, for example, the total minutes used to determine the therapy 

level included all minutes in individual therapy, half of the minutes in concurrent therapy,
 

and one-quarter of the minutes in group therapy. See CMS, RAI Manual 3.0, § 6.
 35 The three higher paying nontherapy categories are Extensive Services, Special Care 

High, and Special Care Low. The three lower paying categories are Clinically Complex,
 

Reduced Physical Function, and Behavioral Symptoms & Cognitive Performance. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 18 
 

 

 

 

For each of these types of billing changes, we determined the percentage of 

days billed in FYs 2011 to 2013. For example, we determined how the 

percentage of therapy days billed as ultra high therapy changed during 

these 3 years. 

Analysis of key beneficiary characteristics using SNF and 

hospital claims data 

We determined whether SNF billing changes were associated with changes 

in key beneficiary characteristics. To do this analysis, we used claims data 

to determine the following beneficiary characteristics: 1) the beneficiary’s 

age, 2) the length of the hospital stay that qualified the beneficiary for the 

SNF stay, 3) the reason for the qualifying hospital stay, and 4) the severity 

level of the hospital stay.36 

We chose beneficiary characteristics related to the qualifying hospital stay 

because SNF services must be for the same condition that the beneficiary was 

treated for in the hospital.37 In addition, some of the alternative methods for 

improving the SNF payment system that are being considered by CMS rely 

on information from the beneficiary’s hospital stay.38 

For each of these beneficiary characteristics, we determined how the 

distribution of SNF stays changed from FYs 2011 to 2013.39 For example, 

we determined the percentage of SNF stays associated with each of the 

top 20 reasons for the qualifying hospital stay. In addition, we determined 

how the percentage of days billed as ultra high therapy changed across 

these beneficiary characteristics. 

Analysis of the extent to which changes in SNF billing affected 

Medicare payments 

Using the Part A SNF claims, we first determined total Medicare payments 

for FYs 2012 and 2013. Next, we determined the extent to which changes 

in SNF billing that occurred since FY 2011 affected Medicare payments. 

____________________________________________________________ 

36 The reason for the hospital stay and the severity level were derived from the Medicare 

severity Diagnosis Related Group (MS-DRG) on the hospital claim. For example, the 

reason associated with MS-DRG 470 is major joint replacement of the lower extremity 

and the severity level is low because this MS-DRG is for beneficiaries without any major 

secondary conditions. 

37 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. 

38 See, for example, Acumen, SNF Therapy Payment Models Base Year Final Summary 

Report, April 2014, which Acumen completed under contract with CMS. 

39 We identified SNF stays from claims using SNF and beneficiary identifiers and 

admission dates. We matched these SNF stays to hospital claims using the qualifying 

hospital dates on the SNF claim and the beneficiary identifier. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 19 
 

 

To do this, we calculated what Medicare would have paid in FYs 2012 and 

2013 if the distribution of RUGs in these years was the same as the 

distribution in FY 2011—i.e., if SNFs had not increased or decreased 

billing for higher paying RUGs.40 

In addition, we determined the effect on Medicare payments of each of the 

four types of billing changes described above. For each type of billing 

change, we estimated what Medicare would have paid in FYs 2012 and 

2013 if the change had not occurred. 

____________________________________________________________ 

40 For this analysis, we calculated Medicare payments from claim line items, rather than 

claims. For less than half of 1 percent of claims, we adjusted the payments associated with 

the line items to account for minor discrepancies between the information on the claims 

and on the line items. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 20 
 

 

 

 

APPENDIX C 

Changes in Key Beneficiary Characteristics From FYs 2011 to 

2013 

Table C.1: Percentage of SNF Stays, by Age Group and by Fiscal Year 

Beneficiaries’ Ages at Admission 

Percentage of SNF Stays 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Age < 65 9.5% 10.0% 0.5% 

65 ≤ Age < 70 8.7% 9.7% 1.0% 

70 ≤ Age < 75 11.3% 11.9% 0.6% 

75 ≤ Age < 80 15.1% 15.0% -0.2% 

80 ≤ Age < 85 20.0% 18.8% -1.2% 

85 ≤ Age < 90 20.2% 19.3% -0.9% 

90 ≤ Age < 95 11.5% 11.7% 0.2% 

Age ≥ 95 3.7% 3.7% 0.0%

 Totals* 100.0% 100.0% 

* Totals and percentage-point differences may vary due to rounding. 

Source: OIG analysis of Part A SNF claims, 2015. 

Table C.2: Percentage of SNF Stays, by Average Length of Qualifying 

Hospital Stay and by Fiscal Year 

Average Length of Beneficiaries’ 

Qualifying Hospital Stays 

Percentage of SNF Stays 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Less than 3 days 1.2% 1.0% -0.2% 

3 days 19.8% 20.6% 0.8% 

4 days 14.5% 14.4% 0.0% 

5 days 11.4% 11.3% 0.0% 

6 or 7 days 16.5% 16.3% -0.2% 

8 or 9 days 9.8% 9.5% -0.2% 

10 to 19 days 17.1% 16.9% -0.2% 

20 days or more 6.6% 6.4% -0.1% 

Unknown** 3.2% 3.5% 0.3%

 Totals* 100.0% 100.0% 

* Totals and percentage-point differences may vary due to rounding. 

** In these cases, we were unable to identify the qualifying hospital stay. 

Source: OIG analysis of Part A SNF and hospital claims, 2015. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 21 
 

 

 

Table C.3: Percentage of SNF Stays, by Reason for Qualifying Hospital Stay and 

by Fiscal Year 

Top 20 Reasons for Beneficiaries’ Qualifying Hospital 

Stays 

Percentage of SNF Stays 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Major joint replacement of lower extremity 7.3% 7.6% 0.3% 

Septicemia 5.0% 6.0% 0.9% 

Heart failure and shock 4.1% 4.0% -0.1% 

Other hip and femur procedures 4.0% 4.1% 0.1% 

Simple pneumonia and pleurisy 3.9% 3.9% 0.0% 

Kidney and urinary tract infections 3.9% 3.6% -0.3% 

Renal failure 2.9% 3.1% 0.2% 

Intracranial hemorrhage or cerebral infarction 2.7% 2.8% 0.0% 

Rehabilitation 2.7% 2.9% 0.2% 

Chronic obstructive pulmonary disease 2.3% 2.2% -0.1% 

Respiratory infections and inflammations 2.1% 1.9% -0.2% 

Nutritional disorders 2.0% 1.7% -0.3% 

Degenerative nervous system disorders 1.5% 1.3% -0.2% 

Gastrointestinal hemorrhage 1.5% 1.5% 0.0% 

Cellulitis 1.4% 1.4% 0.0% 

Medical back problems 1.4% 1.2% -0.1% 

Irregular heartbeat 1.4% 1.4% 0.0% 

Acute myocardial infarction 1.3% 1.2% -0.1% 

Digestive disorders 1.3% 1.2% -0.1% 

Psychoses 1.2% 1.2% 0.0% 

Other 46.0% 45.9% -0.1%

 Totals* 100.0% 100.0% 

* Totals and percentage-point differences may vary due to rounding. The rows are sorted in descending order by the 

percentage of SNF stays in FY 2013. 

Source: OIG analysis of Part A SNF and hospital claims, 2015. 

Table C.4: Percentage of SNF Stays, by Severity Level of Qualifying 

Hospital Stay and by Fiscal Year 

Severity Level of Qualifying 

Hospital Stay 

Percentage of SNF Stays 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Low 31.4% 29.2% -2.1% 

Medium 23.8% 23.3% -0.5% 

High 34.0% 36.2% 2.2% 

Not applicable or unknown** 10.8% 11.2% 0.4%

 Totals* 100.0% 100.0% 

* Totals and percentage-point differences may vary due to rounding. 

** In these cases, we were unable to identify the qualifying hospital stay or the qualifying hospital stay was not 

associated with a severity level.
 

Source: OIG analysis of Part A SNF and hospital claims, 2015.
 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 22 
 

 

 

APPENDIX D 

Increases in the Use of Ultra High Therapy From FYs 2011 to 

2013, by Key Beneficiary Characteristic 

Table D.1: Use of Ultra High Therapy, by Age Group and by Fiscal Year 

Beneficiaries’ Ages at 

Admission 

Percentage of SNF Days Billed as Ultra High Therapy 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Age < 65 38% 45% 7% 

65 ≤ Age < 70 45% 53% 8% 

70 ≤ Age < 75 45% 54% 8% 

75 ≤ Age < 80 46% 54% 8% 

80 ≤ Age < 85 46% 54% 8% 

85 ≤ Age < 90 46% 54% 8% 

90 ≤ Age < 95 44% 52% 8% 

Age ≥ 95 39% 47% 8% 

* Percentage-point differences may vary due to rounding. 

Source: OIG analysis of Part A SNF claims, 2015. 

Table D.2: Use of Ultra High Therapy, by Average Length of Qualifying 

Hospital Stay and by Fiscal Year 

Average Length of Qualifying 

Hospital Stay 

Percentage of SNF Days Billed as Ultra High Therapy 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Less than 3 days 39% 47% 7% 

3 days 47% 56% 9% 

4 days 45% 53% 8% 

5 days 44% 52% 8% 

6 or 7 days 43% 51% 8% 

8 or 9 days 42% 50% 8% 

10 to 19 days 44% 52% 8% 

20 days or more 46% 52% 6% 

Unknown 45% 52% 7% 

* Percentage-point differences may vary due to rounding. 

Source: OIG analysis of Part A SNF and hospital claims, 2015. 

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Table D.3: Use of Ultra High Therapy, by Reason for Qualifying Hospital 

Stay and by Fiscal Year 

Top 20 Reasons for Qualifying Hospital Stay 

Percentage of SNF Days Billed as Ultra 

High Therapy 

FY 2011 FY 2013 

PercentagePoint 

Difference* 

Major joint replacement of lower extremity 59% 68% 9% 

Septicemia 36% 43% 8% 

Heart failure and shock 41% 49% 8% 

Other hip and femur procedures 49% 57% 8% 

Simple pneumonia and pleurisy 38% 46% 8% 

Kidney and urinary tract infections 41% 49% 8% 

Renal failure 41% 50% 9% 

Intracranial hemorrhage or cerebral infarction 61% 66% 5% 

Rehabilitation 64% 70% 6% 

Chronic obstructive pulmonary disease 40% 48% 9% 

Respiratory infections and inflammations 37% 44% 6% 

Nutritional disorders 42% 50% 8% 

Degenerative nervous system disorders 44% 50% 6% 

Gastrointestinal hemorrhage 38% 47% 9% 

Cellulitis 39% 49% 9% 

Medical back problems 49% 58% 9% 

Irregular heartbeat 43% 52% 9% 

Acute myocardial infarction 41% 49% 8% 

Digestive disorders 41% 50% 9% 

Psychoses 39% 45% 7% 

Other 43% 51% 8% 

* Percentage-point differences may vary due to rounding. The rows are sorted in descending order by the 

percentage of SNF stays in FY 2013. 

Source: OIG analysis of Part A SNF and hospital claims, 2015. 

Table D.4: Use of Ultra High Therapy, by Severity Level of Qualifying 

Hospital Stay and by Fiscal Year 

Severity Level of Qualifying 

Hospital Stay 

Percentage of SNF Days Billed as Ultra High Therapy 

FY 2011 FY 2013 Percentage-Point 

Difference* 

Low 48% 56% 9% 

Medium 44% 52% 9% 

High 43% 51% 8% 

Not applicable or unknown 43% 50% 7% 

* Percentage-point differences may vary due to rounding. 

Source: OIG analysis of Part A SNF and hospital claims, 2015. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 24 
 

 

 

APPENDIX E 

Estimates of Medicare Payments in FYs 2012 and 2013 Resulting From 

Changes in SNF Billing 

Type of Billing Change 

Estimated Increased 

Medicare Payments 

Resulting From Changes in 

Billing Since FY 2011 

(millions) 

Increased billing for ultra high therapy RUGs, rather 

than lower levels of therapy RUGs $879 

Increased billing for therapy RUGs, rather than 

nontherapy RUGs $127 

Increased billing for high ADL RUGs, rather than 

lower ADL RUGs $63 

Increased billing for higher paying nontherapy 

RUGs, rather than lower paying nontherapy RUGs $51 

Total* $1,121 

* This sums to $1,121 million, rather than $1,086 million (from Table 6), because these are 

estimates. Our methodology measured each billing change separately; it did not take into account 

that these billing changes can occur simultaneously. 

Source: OIG analysis of SNF claims data, 2015. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 25 
 

APPENDIX F 

Agency Comments 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 26 
 

 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 27 
 

 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 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 Bartlett served as team leader for this study, and Rachel Bryan served 

as lead analyst. We would also like to acknowledge the contributions of 

other Office of Evaluation and Inspections regional office staff, including 

Michael Rubin and Marissa Baron. Other Office of Evaluation and 

Inspections staff from the Baltimore regional office who supported the 

study include Berivan Demir Neubert. Other OIG staff who provided 

support include Clarence Arnold, Heather Barton, Evan Godfrey, and James 

Korn. 

The Medicare Payment System for SNFs Needs to Be Reevaluated (OEI-02-13-00610) 29 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95452, 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 individuals 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: 

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examine the performance of HHS programs and/or its grantees and contractors in carrying 

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The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

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