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The Centers for Medicare & Medicaid Services (CMS) yesterday issued a report that impacts skilled nursing facilities (SNFs). The agency is instructing Medicare auditors to look at SNFs to determine if they are overbilling for therapy services.

“To help ensure that patient need rather than payment incentives are driving provision of therapy services, CMS is providing approval to the Medicare Fee-for-Service Recovery Auditor Contractors (RACs) to investigate this issue,” the report read.

What is Medicare so concerned about? Well, the main driver for Medicare skilled nursing home payments is the resource utilization group (RUG) paid for each submitted claim. The RUG is mainly driven by the number of minutes of therapy service that have been delivered to each patient. The RUG assigned to a claim has three digits. If the first digit has an “R,” then the patient received physical, occupational, or speech therapy services.

The second digit reflects the number of minutes of therapy in a continuum and is rated:

  • “U” for “Ultra High”
  • “V” for “Very High”
  • “M” for “Medium”
  • “L” for “Low”

The third digit of the RUG score shows how much service was given to assist with “activities of daily living” (ADL).” Activities of Daily Living (ADLs) are tasks related to personal care. The ADL score looks at four of these tasks: transfer, bed mobility, toileting and eating. The resident’s self- performance and the amount of staff support provided are evaluated for all of these tasks each of these areas and rated from 0 to 4 and a sum. .

  • “A” for 0 to 5 minutes
  • “B” for 6 to 10 minutes
  • “C” for 11 to 16 minutes
  • “X” resident, receiving complex clinical care and have needs involving tracheostomy care, ventilator/respirator, and/or infection isolation.

The highest possible RUG score then would be an “RUX” claim. Yes, they do get billed.

For years, CMS has seen a steady climb in the ratio of patients that are billed using the highest level of therapy. The agency now clearly suspects that SNFs are overbilling. Included in its release, CMS disclosed a list of the top 10 RUG payment categories. You would think the majority of payments would be for “M” or “medium” levels of therapy; instead it’s “U” or “ultra high” that leads the list. Let’s examine the table:

Table 1. Top Ten RUGs by Total Payment, 2013

You might say, well, it was skewed by using payments. Let’s look at the number of days instead. The story does not get any better:

Table 1. Top Ten RUBs by Number of Days, 2013

You often hear the old real estate adage “location, location, location?” Well, it is true in RUG billing, too. CMS ranked average standard payments per stay by state. I guess I am not proud that my home state is dark red in this graph. Here is CMS’s map of average payment by state, which fairly equates to the average RUG score per patient:

Map 1. Skilled Nursing Facility Average Standardized Payment per Stay, by State, 2013


The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issues a work plan every year outlining what issues it wants to target. This year, one of the things the Office is looking for are skilled nursing homes that overcharge for therapy services. Here is a quote from the plan:

“Prior OIG reviews have found that Medicare payments for therapy greatly exceeded SNFs’ cost for therapy. In addition, we have found that SNFs have increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. We will determine whether SNF claims were paid in accordance with Federal laws and regulations.”

What Do You Do Now?

First, CMS has released data files that have each nursing home’s number of therapy minutes billed and RUG score counts. SNF operators should look at this data to see how they compare in relation to other SNFs.

Next, look at your documentation process and talk to your therapy providers. Determine if you can support billings in an audit. You are also going to want to look at your therapy contract. Does your third-party therapy company indemnify you in case of an audit? You also will want to consider if your therapy provider can afford to pay out large settlements.

Finally, look at the compliance plan you are required to have. If you don’t have a compliance plan, now is a very good time to start devising one.


This story has been corrected to show that the third digit of the RUG score is determined by the ADL score obtained from Section G of the MDS. Also, RUX/RUL, the “X” and the “L” can only be obtained when the resident has received “specific” services. If a resident does has not received 1 of the last three services then they cannot get a RUG score with a third digit of “X” or “L.”

About the Author 

Timothy Powell is a nationally recognized expert on regulatory matters including the False Claims Act, Zone Program Integrity Contractor audits and OIG compliance. He is a member of the RACmonitor editorial board.

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Timothy Powell, CPA

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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