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Transcript for audio podcast:
The Medicare Payment System for Skilled Nursing Facilities Needs to Be Reevaluated

From the Office of Inspector General of Department of Health and Human Services

[Jodi Nudelman] I'm Jodi Nudelman, Regional Inspector General for the Office of Evaluation and Inspections, speaking with Rachel Bryan, the lead analyst on a report called "The Medicare Payment System for Skilled Nursing Facilities Needs to Be Reevaluated."

So can you tell me, Rachel, what are skilled nursing facilities?

[Rachel Bryan] Sure. They're nursing homes that provide skilled care to Medicare patients after they've been in the hospital. This care can be nursing, therapy and other services, like assistance with eating or bathing. Last year, nearly 2 million Medicare patients received care in these facilities.

[Jodi Nudelman] So why did you decide to look into the payment system for these facilities?

[Rachel Bryan] We have had longstanding concerns that these facilities were being improperly paid, especially for therapy services.

[Jodi Nudelman] So tell me more about that.

[Rachel Bryan] Well, we have concerns about the payment incentives in the current system and whether skilled nursing facilities are following the rules when they bill. Right now, Medicare pays facilities a daily rate for therapy based on the amount of therapy a patient receives. In earlier work, we found that these facilities were billing as much as 25 percent of their Medicare claims in error.

[Jodi Nudelman] For this report, you compared Medicare payments to the facilities' actual cost reports. What did you find?

[Rachel Bryan] We found that Medicare payments for therapy greatly exceeded facilities' costs for therapy. On average, skilled nursing facilities received $29 more than their costs for every $100 in Medicare payments for therapy. This adds up to a staggering amount of Medicare dollars.

We also found that large differences between payments and costs have existed for the last decade.

[Jodi Nudelman] And why is that significant?

[Rachel Bryan] These large differences between payments and costs create an incentive for facilities to bill for higher levels of therapy than necessary.

So for example, we found that skilled nursing facilities received an average of $66 a day more than their therapy costs when they billed for the highest level of therapy for a beneficiary. But when they billed for the lowest level of therapy, they received an average of $11 more than their costs.

[Jodi Nudelman] So have these facilities been billing for the highest level of therapy?

[Rachel Bryan] Yes, they have increasingly billed for the highest level. And they were doing so even though key beneficiary characteristics, such as age and condition, didn't really change.

[Jodi Nudelman] So what does that mean for Medicare? How much is this costing?

[Rachel Bryan] We found that increases in billing-particularly for the highest level of therapy-resulted in $1.1 billion in Medicare payments in Fiscal Years 2012 and 2013.

[Jodi Nudelman] That is a lot of money!

[Rachel Bryan] Yes, it is. And it's not just money. It also exposes some beneficiaries to therapy services that they don't want, won't help them, and might even hurt them.

[Jodi Nudelman] How can we fix this problem?

[Rachel Bryan] We need to reevaluate Medicare's payment system for skilled nursing facilities. When payment rates greatly exceed costs, it is wasteful to taxpayers and could encourage facilities to provide more therapy than beneficiaries need. We need a payment system that creates incentives to provide the right amount of care.

[Jodi Nudelman] So what are we recommending that the Centers for Medicare and Medicaid Services, or CMS, the agency responsible for Medicare, do?

[Rachel Bryan] First, the structure of the payment system needs to change. Payments rates for therapy should be reduced to lessen the incentive for facilities to bill for higher levels of therapy. Also, as we have previously recommended, CMS should change the way it pays for therapy. Payment should be based on the beneficiary's care needs rather than on the amount of therapy provided.

Second, CMS has to address facilities' billing practices. It has the authority to adjust payment rates if it determines that an increase in overall payments was due to changes in billing that were unrelated to changes in beneficiary characteristics.

[Jodi Nudelman] So you mean that CMS can reduce future payments so that, in essence, Medicare gets back some of the money that it paid to skilled nursing facilities?

[Rachel Bryan] That's correct.

[Jodi Nudelman] Do you recommend anything else?

[Rachel Bryan] Yes. CMS should also strengthen its oversight of facility billing. This includes expanding its reviews of facilities that have increased their billing for therapy in ways that are unrelated to changes in beneficiary characteristics.

[Jodi Nudelman] Did CMS agree with these recommendations?

[Rachel Bryan] Yes. They agreed with these recommendations.

[Jodi Nudelman] This is really important work. Thank you, Rachel, for sharing it with us.

[Rachel Bryan] Thank you


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