Changes in Skilled Nursing Facilities Billing in Fiscal Year 2011

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.

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 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 activities of daily living 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.