Report: Medicare overpays skilled nursing facilities by more than $1B

Because of flawed payment incentives, Medicare paid skilled nursing facilities (SNFs) $1.1 billion more than it needed to in fiscal years 2012 and 2013, according to a new government agency report.

In the report, the Department of Health and Human Services Office of the Inspector General (OIG) found that Medicare payments for therapy "greatly exceeded" SNFs' actual costs for therapy for the past decade.

This 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 report states. Furthermore, these increases in billing were not related to any significant changes in Medicare beneficiaries' characteristics.

The report's findings echo those of a recent Wall Street Journal analysis of Medicare data, which found that SNFs' billing for "ultra-high" levels of rehabilitative therapy--which calls for 720 hours per week of rehab--increased dramatically from 2002 to 2013. Providing such excess care not only can be costly, but can even harm fragile patients, the report noted.

To address the problems it uncovered, the OIG report recommends that the Centers for Medicare & Medicaid Services (CMS): Decide whether and how much Medicare payment rates for therapy should be reduced; change the method by which it pays for therapy; adjust Medicare payments to remove any increases that are unrelated to beneficiary characteristics; and strengthen oversight of SNF billing.

CMS agreed with each of the report's recommendations, noting that it is "working to identify potential alternatives to the existing methodology used to pay for services under the SNF [prospective payments system]."

For more:
- here's the report summary
- read the full report (.pdf)