DEPARTMENT OF HEALTH & HUMAN SERVICES 	 Office of Inspector ~eneral 

Washmgton, D.C. 20201 

JUL 08 20U 

TO: 	 Donald M. Berwick, M.D. 

Administrator 

Centers for Medicare & Medicaid Services 

FROM: Stuart Wright 

Deputy Inspector General 

for Evaluation and Inspections 

SUBJECT: 	 Early Alert Memorandum Report: Changes in Skilled Nursing Facilities 

Billing in Fiscal Year 2011, OEI-02-09-00204 

This memorandum report presents our results to date regarding skilled nursing facilities 

(SNF) billing in fiscal year (FY) 2011. Specifically, this report describes the extent to 

which billing by SNFs changed from the last half of FY 2010 to the first half of FY 2011 . 

This memorandum report is a followup to an earlier Office of Inspector General (OIG) 

report.! In that report, 01U found that Medicare payments to SNFs increased from 2006 

to 2008, even though beneficiary characteristics remained largely unchanged. 

Specifically, payments to SNFs for the highest level of therapy increased by nearly 

90 percent from 2006 to 2008, rising from $5.7 billion to $10.7 billion. Billing for high 

levels of assistance with ADLs also increased. 

SUMMARY 

The Centers for Medicare & Medicaid Services (CMS) made a number of changes to the 

SNF payment system that became effective at the beginning of FY 2011. In particular, 

CMS changed how SNFs bill for concurrent therapy. CMS expected this change to 

decrease billing for higher levels of therapy. Because CMS did not intend to decrease 

overall payments to SNFs, it increased the payment rates for therapy. CMS also changed 

how SNFs bill for extensive services, such as tracheostomy care, and for assistance with 

beneficiaries' activities of daily living (ADL). 

Although CMS intended the FY 2011 changes to be budget neutral, Medicare payments 

increased by $2.1 billion, or 16 percent, from the last half of FY 2010 to the first half of 

FY 2011. Contrary to CMS' s expectations, in the first half of FY 2011, SNFs billed for 

higher levels of therapy and for very little concurrent therapy. These unanticipated 

billing patterns contributed to the overall increase in payments. At the same time, several 

1 OIG, Questionable Billing by Skilled Nursing Facilities, OEI-02-09-00202, December 2010. 

OEI-02-09-00204 Changes in SNF Billing in FY 2011 
Page 2 – Donald M. Berwick, M.D. 

OEI-02-09-00204 Changes in SNF Billing in FY 2011 

of CMS’s changes reduced billing for certain higher-paying groups. Between the last 

half of FY 2010 and the first half of FY 2011, billing decreased slightly for therapy 

overall. Billing for extensive services and for high levels of assistance with ADLs also 

decreased. 

The data indicate that CMS should adjust payment rates to address the significant 

increases in payments to SNFs. The data also show that CMS should make changes to 

how SNFs account for group therapy. Lastly, the data highlight the need for further 

changes to make Medicare payments more consistent with beneficiaries’ care and 

resource needs. 

We plan to conduct a full review of SNF billing at the end of FY 2011 and may issue 

formal recommendations to CMS at that time. However, based on the data in this report, 

CMS should take immediate action. CMS has proposed a number of changes to the SNF 

payment system and will issue a final rule for FY 2012. CMS should use this opportunity 

to address the issues identified in this memorandum report. 

BACKGROUND 

The Part A SNF benefit covers skilled nursing care, rehabilitation services (i.e., physical, 

occupational, and speech therapy), and other services for up to 100 days during any spell 

of illness.2

 To qualify, the beneficiary must need skilled services daily in an inpatient 

setting and must require the skills of technical or professional personnel to provide these 

services.3

 

Medicare pays SNFs under a prospective payment system. During a Part A stay, SNFs 

classify beneficiaries into groups based on their care and resource needs. These groups are 

called resource utilization groups (RUG). SNFs use an assessment known as the Minimum 

Data Set (MDS) to classify beneficiaries into RUGs.4

 The MDS assesses the beneficiary’s 

clinical condition, functional status, and expected use of services. SNFs must conduct these 

assessments on or about the 5th, 14th, 30th, 60th, and 90th days of a Part A stay, as well on 

certain other occasions to account for changes in the beneficiary’s care needs.5

 

Accordingly, if a beneficiary has a 100-day Part A stay, he or she will have at least five 

assessments. For each assessment, the beneficiary is categorized into a RUG. A 

beneficiary may be categorized into different RUGs during his or her stay. 

 

2 Social Security Act, §§ 1812(a)(2)(A) and 1861(h); 42 U.S.C. §§ 1395d(a)(2)(A) and 1395x(h). 3 42 CFR §§ 409.30 and 409.31. 4 The MDS is part of CMS’s Resident Assessment Instrument (RAI). CMS, Long-Term Care Facility Resident 

Assessment Instrument User’s Manual, ver. 3.0 (RAI Manual 3.0), Sept. 2010, §§ 1.2 and 1.3. 5 42 CFR § 413.343(b) and CMS, RAI Manual 3.0, § 2.8. CMS requires other comprehensive resident assessments at 

certain times as a condition of participation, which may be combined with MDS payment assessments when the 

timeframes coincide. See 42 CFR § 483.20 and RAI Manual 3.0, §§ 2.6 and 2.11.
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

Types of RUGs 

Each RUG has a different Medicare per diem payment rate. Beginning in FY 2011, CMS 

increased the number of RUGs from 53 to 66. Medicare groups these 66 RUGs into eight 

distinct categories. Two categories—Rehabilitation and Rehabilitation Plus Extensive 

Services—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. In this report, 

we refer to the RUGs in the two therapy categories as therapy RUGs. 

The remaining six categories are for beneficiaries who require very little or no therapy. We 

refer to the RUGs in these six categories as nontherapy RUGs. These categories are 

Extensive Services, Special Care High, Special Care Low, Clinically Complex, Reduced 

Physical Function, and Behavioral Symptoms and Cognitive Performance. See Appendix A 

for information about all RUGs in FY 2010 and FY 2011. 

Medicare Payments for Therapy 

Medicare payment rates for therapy RUGs are more than 11⁄2 times higher, on average, than 

the rates for nontherapy RUGs.6

 Additionally, within the therapy RUGs, Medicare 

generally pays more for higher levels of therapy. 

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

medium, and low. The SNF categorizes a beneficiary into one of the five therapy levels 

based primarily on the number of minutes of therapy provided during a 7-day assessment 

period.7

Medicare generally pays the most for ultra high therapy. In FY 2011, the average per diem 

rate for the ultra high therapy RUGs is $699, compared to $430 for low therapy RUGs. 

 For example, if the beneficiary received 45 minutes of therapy during the 

assessment period, he or she is categorized into a low therapy RUG, whereas if the 

beneficiary received 720 minutes, he or she is categorized into an ultra high therapy RUG. 

Beneficiaries in a Part A stay can receive three different types of therapy:

• individual, in which the therapist works with only one beneficiary; 

• concurrent, in which the therapist works with two beneficiaries at the same time 

using different treatments; and

• group, in which the therapist works with two to four beneficiaries at the same 

time using similar treatments. 

Beginning in FY 2011, SNFs were required to divide concurrent therapy minutes among 

beneficiaries when determining each beneficiary’s RUG.8

 

6 OIG analysis of FYs 2010 and 2011 unadjusted per diem urban rates. There is an urban and a rural payment rate for 

each RUG. The urban payment rates are generally lower than the rural rates for therapy RUGs. See 

74 Fed. Reg. 40288, 40298–40300 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895, 42897–42899 

(Jul. 22, 2010). 

 For example, when two 

7 CMS, RAI Manual 3.0, § 6.6. In addition to the minutes of therapy provided, SNFs must use other criteria to 

categorize a beneficiary into a therapy RUG, such as how often certain nursing services are provided.

8 74 Fed. Reg. 40288, 40315–40319 (Aug. 11, 2009) and CMS, RAI Manual 3.0, § 6.6 and ch. 3, § O0400.
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

beneficiaries receive 60 minutes of therapy concurrently, the SNF counts 30 minutes 

when determining each beneficiary’s RUG.9 In contrast, CMS did not require SNFs to 

divide group therapy minutes among beneficiaries.10 For example, when one therapist 

provides group therapy to four beneficiaries for 60 minutes, the SNF counts all 

60 minutes when determining each beneficiary’s RUG. 

As a result of the new requirement to divide concurrent therapy minutes among 

beneficiaries, CMS expected a decrease in SNF billing for higher levels of therapy in 

FY 2011.11 CMS did not intend the changes implemented in FY 2011 to decrease overall 

payments to SNFs.12 As a result, CMS increased the per diem payment rate for each 

level of therapy beginning in FY 2011. For example, CMS increased the average per 

diem rate for ultra high therapy RUGs from $528 in FY 2010 to $699 in FY 2011, a 

32-percent increase. See Table 1 for the average per diem rates for each level of therapy. 

Table 1: Average Amount That Medicare Pays SNFs per Diem for Each Level of 

Therapy, FYs 2010 and 2011

Level of Therapy

Number of Therapy 

Minutes Provided 

During Assessment 

Period 

Average 

per Diem 

Payment 

FY 2010

Average 

per Diem 

Payment

FY 2011

Percentage

Increase From 

FY 2010 to 

FY 2011

Low 45 to 149 $288 $430 49%

Medium 150 to 324 $369 $488 32%

High 325 to 499 $364 $532 46%

Very high 500 to 719 $418 $594 42%

Ultra high 720 or more $528 $699 32%

Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 

40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010).

Medicare Payments for Extensive Services 

Extensive services include tracheostomy care, the use of a ventilator or respirator, and 

infection isolation. Two categories of RUGs include extensive services: Rehabilitation 

Plus Extensive Services, which includes therapy; and Extensive Services, which does not 

include therapy. Beginning in FY 2011, CMS substantially narrowed the definition of 

extensive services.13

 

9 Effective FY 2011, SNFs were also required to report how many minutes of each type of therapy were provided to 

each beneficiary. In contrast, prior to FY 2011, SNFs only reported the total number of therapy minutes provided to 

each beneficiary. Compare CMS, RAI Manual 3.0, ch. 3, § O0400 with CMS, Long-Term Care Facility Resident 

Assessment Instrument User’s Manual 2.0 (RAI Manual 2.0), Dec. 2002, revised Dec. 2008, ch. 3, § P1.b. 

 It made this change because it found that many of the beneficiaries 

10 During both FYs 2010 and 2011, CMS limited group therapy to 25 percent of the total therapy provided to each 

beneficiary. See CMS, RAI Manual 3.0, § 6.6, and RAI Manual 2.0, ch. 3, § P2.b. 11 For example, in FY 2010, if a beneficiary received 320 minutes of individual therapy and 400 minutes of concurrent 

therapy, this beneficiary was categorized into an ultra high therapy RUG (320 + 400 = 720 minutes). In contrast, in 

FY 2011, this same beneficiary is categorized into a very high therapy RUG (320 + 400/2 = 520 minutes). 

12 74 Fed. Reg. 40288, 40338–40339 (Aug. 11, 2009). 13 Compare CMS, RAI Manual 3.0, § 6.6 with RAI Manual 2.0, § 6.6. 
Page 5 – Donald M. Berwick, M.D. 

OEI-02-09-00204 Changes in SNF Billing in FY 2011 

previously classified as needing extensive services required fewer resources than 

expected.14

Medicare Payments for Assistance With ADLs 

RUGs are further divided by the amount of assistance a beneficiary needs with certain 

ADLs.15 As part of the assessment, SNFs assign each beneficiary an ADL score based on 

how much assistance he or she needs with certain ADLs, such as eating. If a beneficiary 

needs high levels of assistance, he or she is categorized into a RUG with high ADL scores, 

whereas a beneficiary who needs less assistance is categorized into a RUG with lower ADL 

scores.16 Medicare pays higher rates for RUGs with high ADL scores than for RUGs with 

lower ADL scores. In FY 2011, CMS changed both how the ADL score was calculated and 

the range of ADL scores associated with each RUG.17 

Other Changes to the SNF Payment System 

CMS made several other changes to the SNF payment system. Prior to FY 2011, during 

a beneficiary’s first assessment, SNFs were allowed to place the beneficiary in a therapy 

RUG based on scheduled (but not yet provided) therapy. Beginning in FY 2011, CMS no 

longer allowed this, explaining that studies indicated that SNFs were often overpaid 

because beneficiaries did not always receive the level of therapy that was scheduled. 

Instead, in FY 2011, CMS introduced an optional start-of-therapy assessment, which 

allows SNFs to recalculate a beneficiary’s RUG if therapy was started later during the 

stay.18 Additionally, prior to FY 2011, CMS allowed SNFs to wait 8 to 10 days to 

conduct an end-of-therapy assessment after all therapy was discontinued. Beginning in

FY 2011, CMS required SNFs to conduct this assessment within 1 to 3 days.19

METHODOLOGY

We based this study on information from: (1) all paid Part A SNF claims from the last 

half of FY 2010 through the first half of FY 2011 and (2) MDS beneficiary assessment 

data from the same period.20 

We first identified the universe of paid Part A SNF claims from the last half of FY 2010 

(April 1 to September 30, 2010) and the first half of FY 2011 (October 1, 2010, to 

 

14 74 Fed. Reg. 22208, 22230–22231 (May 12, 2009). 15 The one exception is the Extensive Services category. The RUGs in this category are not divided by the amount of 

assistance a beneficiary needs with ADLs. 16 Each RUG is associated with a range of ADL scores. Within each category, we refer to the RUGs with the highest 

range of ADL scores as RUGs with high ADL scores. For example, for the Clinically Complex category, we consider 

the two RUGs with ADL scores ranging from 15 to 16 to be RUGs with high ADL scores.

17 Compare CMS, RAI Manual 3.0, § 6.6 with RAI Manual 2.0, § 6.6. 18 74 Fed. Reg. 40288, 40346–40349 (Aug. 11, 2009), 74 Fed. Reg. 22208, 22244–22246 (May 12, 2009), and CMS, 

RAI Manual 3.0, § 2.8. 19 While SNFs are required to recalculate the RUG after all therapy is discontinued, they are not required to recalculate 

the RUG when the beneficiary’s level of therapy changes substantially.

20 The CMS claims data were obtained from the Services Tracking Analysis and Reporting System. These data 

included all claims with processing dates before June 1, 2011. 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

March 31, 2011).21 For each 6-month period, we calculated the total amount billed—both 

for therapy and nontherapy RUGs. 

Next, we compared the distributions of the RUGs for each period.22 Specifically, we 

determined the percentages of RUGs billed for each level of therapy for both periods. For 

this analysis, we combined the data from the two therapy 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. 

Next, for first half of FY 2011, we used MDS data to determine the extent to which SNFs 

billed for each type of therapy: concurrent, group, and individual.23 Because SNFs did not 

have to report this information prior to FY 2011, we compared these data to CMS’s 

expected use of each type of therapy. CMS based its expectations on the Staff Time and 

Resource Intensity Verification (STRIVE) study, which found that about three-quarters of 

therapy was provided individually, one-quarter was provided concurrently, and less than 

1 percent was provided in a group setting.24 

Lastly, we determined the percentage of RUGs billed for extensive services. We did this 

analysis separately for extensive services with and without therapy. We also analyzed how 

often SNFs billed for RUGs with high ADL scores. We compared this information for the 

two periods to determine whether there were any differences. 

This study was conducted in accordance with the Quality Standards for Inspection and 

Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 

RESULTS

Medicare Payments to SNFs Increased by $2.1 Billion From the Last Half of 

FY 2010 to the First Half of FY 2011 

CMS made several changes to how Medicare paid SNFs for Part A stays in FY 2011. 

While CMS intended these changes to be budget neutral, overall payments to SNFs 

instead increased significantly. As shown in Table 2, payments to SNFs rose from 

$12.7 billion during the last half of FY 2010 to $14.8 billion during the first half of 

FY 2011, an increase of 16 percent. The total increase of $2.1 billion was primarily due 

to payments for therapy RUGs, which rose by $1.8 billion. In contrast, payments for 

nontherapy RUGs increased by $0.2 billion. 

 

21 In this report, we refer to claim line items as claims. 22 We based our analysis on the RUGs that SNFs submitted on the claims. A RUG from a beneficiary’s assessment 

may span two claims. In this report, we count this as one RUG. 

23 For example, to determine the use of concurrent therapy, we summed the minutes of concurrent therapy reported by 

SNFs for all beneficiaries and divided by the total number of minutes reported for all therapy. 

24 The STRIVE study was conducted by the Iowa Foundation for Medical Care under contract with CMS. Data were 

collected in 2006 and 2007. See https://www.qtso.com/strive.html. Accessed on May 2, 2011. 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

Table 2: Change in Medicare Payments From the Last Half of FY 2010 

to the First Half of FY 2011

Type of RUG

Total Medicare Payments

Difference in 

Last Half of FY 2010 First Half of FY 2011 Payments* 

Therapy $12.2 billion $14.0 billion $1.8 billion

Nontherapy $0.6 billion $0.8 billion $0.2 billion

Total* $12.7 billion $14.8 billion $2.1 billion

* Payments may not subtract to the difference and sum to the total because of rounding.

Source: OIG analysis of Part A SNF claims, 2011.

SNF billing for higher-paying therapy RUGs increased, which CMS did not anticipate. 

Medicare pays more for RUGs in which the beneficiary receives higher levels of therapy. 

CMS expected that the changes implemented in FY 2011 would result in a decrease in 

SNF billing for higher levels of therapy. However, contrary to what CMS expected, 

billing for higher levels of therapy actually increased in the first half of FY 2011, 

compared to the last half of FY 2010. 

As shown in Table 3, billing for ultra high therapy increased by almost 2 percentage 

points and billing for high and very high therapy each increased by about 4 percentage 

points. At the same time, billing for medium therapy decreased by nearly 10 percentage 

points. Notably, billing for the three highest levels of therapy increased from the first to 

the second quarter of FY 2011. 

Table 3: Change in Billing For Each Level of Therapy From the Last Half of FY 2010 to 

the First Half of FY 2011

Level of Therapy Last Half of FY 2010 First Half of FY 2011 Percentage Point 

Change* 

Low 0.2% 0.2% 0.1

Medium 20.6% 11.1% -9.5

High 9.2% 13.1% 3.9

Very high 26.2% 30.2% 4.1

Ultra high 43.8% 45.4% 1.5

Total 100% 100%

* Percentage differences do not subtract to percentage point change because of rounding. 

Source: OIG analysis of Part A SNF claims, 2011.

SNFs billed for less concurrent therapy than CMS expected. CMS changed how SNFs 

must account for therapy provided concurrently. Beginning in FY 2011, SNFs were 

required to divide concurrent therapy minutes among beneficiaries. As a result of this 

new requirement, CMS expected a decrease in the number of therapy minutes billed per 

beneficiary and a decrease in the levels of therapy billed. Instead, SNFs billed for far less 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

concurrent therapy in FY 2011 than CMS expected and the anticipated shift to lower 

levels of therapy did not occur. 

As shown in Table 4, when CMS determined the reimbursement rates for SNFs during 

FY 2011, it assumed that SNFs’ use of concurrent therapy would be approximately 

25 percent of all therapy. However, during the first half of FY 2011, less than 1 percent 

of all therapy minutes were for concurrent therapy. Furthermore, SNFs’ use of 

concurrent therapy decreased each month, from 1.4 percent in October 2010 to 

0.7 percent in March 2011. 

Table 4: The Use of Each Type of Therapy, as Expected by CMS and as Billed

During the First Half of FY 2011

Type of Therapy Expected by CMS* First Half of FY 2011 Percentage Point 

Difference

Concurrent 25.3% 0.9% -24.4

Group 0.5% 7.7% 7.2

Individual 74.1% 91.4% 17.3

Total 100%** 100%

* CMS’s expectations are based on the STRIVE study. 

** Percentages do not sum to total because of rounding.

Source: OIG analysis of MDS data, 2011.

SNFs billed for more group and individual therapy than CMS expected. While the use of 

concurrent therapy was much lower than expected, the use of both group and individual 

therapy was much higher than expected in the first half of FY 2011. CMS expected 

group therapy to account for less than 1 percent of all therapy. However, during the first 

half of FY 2011, SNF billing for group therapy accounted for nearly 8 percent of all 

therapy. Lastly, CMS expected individual therapy to amount to about three-quarters of 

therapy; however, in the first half of FY 2011, individual therapy was about 91 percent of 

all therapy.

Although Medicare Payments to SNFs Increased Overall, Several of CMS’s 

Changes Reduced Billing for Certain Higher-Paying RUGs 

Overall, billing for therapy RUGs decreased slightly from the last half of FY 2010 to the 

first half of FY 2011. Medicare pays SNFs more than 11⁄2 times as much for therapy 

RUGs, on average, as it does for nontherapy RUGs. Billing for therapy RUGs decreased 

from 89 percent of all RUGs during the last half of FY 2010 to 86 percent during the first 

half of FY 2011. 

Two changes in FY 2011 likely contributed to this shift toward nontherapy RUGs. First, 

in FY 2011, SNFs were no longer allowed to bill for therapy RUGs based on scheduled 

(but not yet provided) therapy. Second, in FY 2011, SNFs were required to recalculate a 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

beneficiary’s RUG within 1 to 3 days after all therapy was discontinued, rather than 

8 to 10 days. As a result, SNFs’ use of these end-of-therapy assessments increased from 

1.7 percent during the last half of FY 2010 to 2.8 percent during the first half of FY 2011. 

Billing for extensive services decreased substantially from the last half of FY 2010 to the 

first half of FY 2011. Medicare pays more for RUGs in which the beneficiary requires 

extensive services than it does for RUGs in which the beneficiary does not require 

extensive services. In FY 2011, CMS substantially narrowed the definition of extensive 

services, which likely decreased billing for these RUGs. 

As shown in Table 5, SNFs significantly reduced their billing for extensive services. 

Billing for therapy RUGs with extensive services decreased from nearly 42 percent of all 

RUGs during the last half of FY 2010 to less than 3 percent of all RUGs during the first 

half of FY 2011. Additionally, billing for nontherapy RUGs with extensive services 

decreased from about 4 percent to less than 1 percent of all RUGs. 

Table 5: Change in Billing for RUGs That Include Extensive 

Services From the Last Half of FY 2010 to the First Half of FY 2011

Type of RUG Last Half of FY 2010 First Half of FY 2011

Therapy RUGs 

With Extensive Services 41.7% 2.7% 

Without Extensive Services 47.3% 83.3% 

Nontherapy RUGs 

With Extensive Services 4.2% 0.7% 

Without Extensive Services 6.9% 13.3% 

Total 100% 100%

Source: OIG analysis of Part A SNF claims, 2011.

Billing for RUGs with high ADL scores decreased from the last half of FY 2010 to the 

first half of FY 2011. In general, Medicare pays more for RUGs with high ADL scores 

than for RUGs with lower ADL scores. In FY 2011, CMS changed how the ADL score 

was calculated and the range of ADL scores associated with each RUG; these changes 

likely contributed to SNFs’ decreased use of RUGs with high ADL scores. 

Billing for therapy RUGs with high ADL scores decreased from 35 percent during the 

last half of FY 2010 to 30 percent during the first half of FY 2011. At the same time, 

beneficiaries’ need for assistance with ADLs did not change, on average. The average 

ADL score was 13 during the last half of FY 2010 and, applying the FY 2010 rules, 

remained 13 during the first half of FY 2011. 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

Current Timeframes for When SNFs May Calculate a Beneficiary’s RUG May Lead 

to Inaccuracies

SNFs must calculate a beneficiary’s RUG on or about the 5th, 14th, 30th, 60th, and 90th day 

of a Part A stay, as well as when changes in the beneficiary’s care needs occur. SNFs 

gather information about the beneficiary during an assessment period to determine the 

beneficiary’s RUG. CMS specifies timeframes for the last day of assessment periods. 

For example, SNFs must set the last day of the assessment period sometime between the 

11th and the 19th day of a stay for the beneficiary’s second assessment. 

Currently, a beneficiary’s assessment periods can overlap substantially. During the first 

half of FY 2011, 43 percent of RUGs had a 7-day assessment period that overlapped with 

another RUG’s assessment period by at least 3 days. This was an increase of 

4 percentage points from the last half of FY 2010. This overlap typically occurred when 

SNFs chose the 8th day of the stay as the end of the beneficiary’s first assessment, and 

then chose the 11th day as the end of the second assessment. In these cases, the two 

assessment periods overlapped by 4 days. When SNFs use overlapping assessment 

periods, the same information is used to calculate two different RUGs. This may lead to 

inaccuracies in the assessment of beneficiaries’ changing needs and the corresponding 

RUGs. 

CONCLUSION

In FY 2011, CMS made a number of changes to the SNF payment system. In particular, 

CMS changed how SNFs bill for concurrent therapy. CMS expected this change to 

decrease billing for higher levels of therapy. Because CMS did not intend to decrease 

overall payments to SNFs, it increased the payment rates for therapy. CMS also changed 

how SNFs bill for extensive services and for assistance with ADLs. 

Although CMS intended the FY 2011 changes to be budget neutral, Medicare payments 

increased by $2.1 billion, or 16 percent, from the last half of FY 2010 to the first half of 

FY 2011. Contrary to CMS’s expectations, in the first half of FY 2011, SNFs billed for 

higher levels of therapy and for very little concurrent therapy. These unanticipated 

billing patterns contributed to the increase in payments. At the same time, several of 

CMS’s changes reduced billing for certain higher-paying RUGs. Between the last half of 

FY 2010 and the first half of FY 2011, billing decreased slightly for therapy overall. 

Billing for extensive services and for RUGs with high ADL scores also decreased.

These data indicate that CMS should adjust payment rates to address the significant 

increases in payments to SNFs. Given the current trends, Medicare will pay over 

$4 billion more to SNFs in FY 2011 than in FY 2010. In addition, the data show that 

CMS should make changes to how SNFs account for group therapy. Currently, SNFs 

have a financial incentive to choose group therapy over individual or concurrent therapy. 

By better aligning Medicare payments to SNFs’ expenditures for each type of therapy, 

SNFs will more likely choose the type of therapy that best meets the beneficiary’s needs. 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

Lastly, the data highlight the need for further changes to make RUGs and Medicare 

payments more consistent with beneficiaries’ care and resource needs. These changes 

could include requiring SNFs to recalculate a beneficiary’s RUG whenever his or her 

level of therapy changes substantially, as well as reducing the overlap that occurs in 

assessment periods. 

We plan to conduct a full review of SNF billing at the end of FY 2011 and may issue 

formal recommendations to CMS at that time. However, based on the data in this report, 

CMS should take immediate action. CMS has proposed a number of changes to the SNF 

payment system and will issue a final rule for FY 2012.25 CMS should use this 

opportunity to address the issues identified in this memorandum report. 

This report is being issued directly in final form because it contains no recommendations. 

If you have comments or questions about this report, please provide them within 60 days. 

Please refer to report number OEI-02-09-00204 in all correspondence. 

 

25 76 Fed. Reg. 26364, 26364–26429 (May 6, 2011). 
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OEI-02-09-00204 Changes in SNF Billing in FY 2011 

APPENDIX A

Therapy RUGs

RUG 

Category 

RUG Code

Therapy Level

Range of ADL 

Scores Per Diem Rate

FY 2010 FY 2011 FY 2010 FY 2011 FY 2010 FY 2011

Rehabilitation 

Plus Extensive 

Services 

RUX RUX Ultra high 16 to 18 11 to 16 $617 $869

RUL RUL Ultra high 7 to 15 2 to 10 $546 $847

RVX RVX Very high 16 to 18 11 to 16 $468 $787

RVL RVL Very high 7 to 15 2 to 10 $437 $698

RHX RHX High 13 to 18 11 to 16 $396 $723

RHL RHL High 7 to 12 2 to 10 $386 $638

RMX RMX Medium 15 to 18 11 to 16 $449 $668

RML RML Medium 7 to 14 2 to 10 $413 $611

RLX RLX Low 7 to 18 2 to 16 $319 $594

Rehabilitation

RUC RUC Ultra high 16 to 18 11 to 16 $529 $634

RUB RUB Ultra high 9 to 15 6 to 10 $485 $634

RUA RUA Ultra high 4 to 8 0 to 5 $463 $513

RVC RVC Very high 16 to 18 11 to 16 $421 $552

RVB RVB Very high 9 to 15 6 to 10 $401 $468

RVA RVA Very high 4 to 8 0 to 5 $364 $466

RHC RHC High 13 to 18 11 to 16 $365 $488

RHB RHB High 8 to 12 6 to 10 $349 $434

RHA RHA High 4 to 7 0 to 5 $326 $376

RMC RMC Medium 15 to 18 11 to 16 $335 $435

RMB RMB Medium 8 to 14 6 to 10 $326 $403

RMA RMA Medium 4 to 7 0 to 5 $320 $324

RLB RLB Low 14 to 18 11 to 16 $294 $431

RLA RLA Low 4 to 13 0 to 10 $252 $264
Page 13 – Donald M. Berwick, M.D. 

OEI-02-09-00204 Changes in SNF Billing in FY 2011 

APPENDIX A (Continued)

Nontherapy RUGs

RUG Category

 

RUG Code Range of ADL 

Scores Per Diem Rate

FY 2010 FY 2011 FY 2010 FY 2011 FY 2010 FY 2011

Extensive Services

SE3 ES3 7 to 18 2 to 16 $361 $661

SE2 ES2 7 to 18 2 to 16 $309 $518

SE1 ES1 7 to 18 2 to 16 $276 $463

Special Care

SSC 17 to 18 $272

SSB 15 to 16 $258

SSA 4 to 14 $253

Special Care High

HE2 15 to 16 $447

HE1 15 to 16 $371

HD2 11 to 14 $418

HD1 11 to 14 $349

HC2 6 to 10 $394

HC1 6 to 10 $330

HB2 2 to 5 $390

HB1 2 to 5 $327

Special Care Low

LE2 15 to 16 $406

LE1 15 to 16 $339

LD2 11 to 14 $390

LD1 11 to 14 $327

LC2 6 to 10 $342

LC1 6 to 10 $289

LB2 2 to 5 $325

LB1 2 to 5 $276

Clinically Complex

CC2 CE2 17 to 18 15 to 16 $270 $361

CC1 CE1 17 to 18 15 to 16 $248 $333

CB2 CD2 12 to 16 11 to 14 $236 $342

CB1 CD1 12 to 16 11 to 14 $225 $314

CA2 CC2 4 to 11 6 to 10 $223 $300

CA1 CC1 4 to 11 6 to 10 $211 $278

CB2 2 to 5 $278

CB1 2 to 5 $257

CA2 0 to 1 $235

CA1 0 to 1 $219
Page 14 – Donald M. Berwick, M.D.

OEI-02-09-00204 Changes in SNF Billing in FY 2011

APPENDIX A (Continued)

Nontherapy RUGs (continued)

RUG Category

RUG Code Range of ADL 

Scores Per Diem Rate

FY 2010 FY 2011 FY 2010 FY 2011 FY 2010 FY 2011

Impaired Cognition

IB2 6 to 10 $202

IB1 6 to 10 $199

IA2 4 to 5 $183

IA1 4 to 5 $177

Behavior Problems 

(RUG-III)

Behavioral Symptoms and 

Cognitive Performance 

(RUG IV)

BB2 BB2 6 to 10 2 to 5 $200 $249

BB1 BB1 6 to 10 2 to 5 $196 $238

BA2 BA2 4 to 5 0 to 1 $182 $207

BA1 BA1 4 to 5 0 to 1 $169 $197

Reduced Physical Function

PE2 PE2 16 to 18 15 to 16 $217 $333

PE1 PE1 16 to 18 15 to 16 $214 $317

PD2 PD2 11 to 15 11 to 14 $206 $314

PD1 PD1 11 to 15 11 to 14 $203 $298

PC2 PC2 9 to 10 6 to 10 $197 $270

PC1 PC1 9 to 10 6 to 10 $196 $257

PB2 PB2 6 to 8 2 to 5 $175 $229

PB1 PB1 6 to 8 2 to 5 $172 $219

PA2 PA2 4 to 5 0 to 1 $171 $189

PA1 PA1 4 to 5 0 to 1 $166 $181

Source: OIG analysis of unadjusted per diem urban rates for FYs 2010 and 2011. See 74 Fed. Reg. 40288, 

40298–40299 (Aug. 11, 2009) and 75 Fed. Reg. 42886, 42894–42895 (Jul. 22, 2010).