SNF Reimbursement Model Leads to False Claims

by admin on July 6, 2021 No comments

Medical necessity is foundational to payment by government payers (Medicare, Medicaid, Tricare, FEHBP) for health care services.  If services are not medically necessary, any claims filed constitute false claims. In a recent DOJ False Claims Act (FCA) case, a civil settlement of a whistleblower action was reached in resolution of allegations that over a more than six-year period, a rehabilitation therapy contractor violated the FCA by causing the submission by 12 skilled nursing facilities (SNFs) of false claims for “medically unnecessary, unreasonable, and/or unskilled rehabilitation therapy services.”  Under the Settlement Agreement, the rehabilitation therapy provider agreed to pay $8.4 million to resolve the matter.


In order to understand the case, it is important to understand (at least at a basic level) SNF reimbursement.  This case arises during the time period 2010-2016 when SNFs were paid by Medicare under the Resource Utilization Groups (RUGs).  By way of background, RUGs are a prospective payment model which includes a system of grouping a SNF’s residents according to their clinical and functional statuses which information derives from the minimum data set (MDS) assessment for the resident.  Soon after adoption, many SNFs and rehabilitation therapy providers adjusted their model of care delivery to increase the level of reimbursement.  The methodology created an incentive to deliver more therapy than skilled nursing services since those RUGs were reimbursed at a higher rate.

Since the adoption of the RUGs payment model in SNFs, significant concern arose around the disproportionate number of resident assessments being scored in the upper (or higher reimbursement) RUGs.  Ultimately, it became clear that the RUGs payment system wrongfully incentivized the utilization of therapy services and failed to recognize that medically complex residents often need high level/complex care that is not therapy-related and was not adequately captured in the original RUGs model and levels of reimbursement.

Recent changes to the Medicare payment model effective October 1, 2019, updated reimbursement in SNFs to what is referred to as the “Patient Driven Payment Model” (PDMP), intended to better reflect the resident’s condition and skilled care needs.  Payment is driven by the amount of care needed NOT by the amount of care provided.

Given that, the false claims for SNF services in these cases were filed by the SNF provider but were based on documentation submitted to the SNF provider by the therapy provider.  It is not clear why or whether the SNFs involved were also prosecuted, but they are equally culpable under the FCA and certainly could be subject to the same type of prosecution, depending on the underlying facts and circumstances.


The key takeaway from this case is that the SNFs are the Medicare providers who filed the false claims due to the acts of their contracted therapy providers.  While this case does not reference prosecution of those SNF providers, it just as easily could have, especially if there was insufficient oversight and accountability of the rehabilitation therapy provider to the SNFs.  SNFs should not assume therapy provider compliance, and certainly cannot act with deliberate indifference if the therapy provider is not compliant.  Period auditing and validation of the various claim requirements should be conducted, including periodic:

  1. Review of therapy documentation against nursing documentation. Does the nursing status mirror the status documented by the therapists in support of provision of rehabilitation services?
  2. Audit of claims, including determining whether the level of claims being billed suggests overbilling or outlier billing conduct.
  3. Observation of therapies being rendered, including the format (e.g., individualized or group therapies), whether the contractor’s staffing supports what is being billed (i.e., do they have appropriate licensed staff performing or supervising the therapies?). Observations should then be compared to therapists’ documentation to assure consistency between the two.
  4. Attestations of compliance from and adherence to internal code of conduct standards by all therapy contractors.

Medical necessity is foundational to any claim for reimbursement, whether from government payers or other private health care payers.  Health care providers that are not diligent about reviewing evidence of medical necessity risk hefty fines and penalties.  Health care providers that rely on third parties to justify medical necessity of services being billed to payers must exercise diligence to assure their contractors are complying with all legal and regulatory requirements.

If you have any questions about your SNF’s compliance with the myriad of applicable laws and regulations it is best to work with a skilled healthcare attorney to assure your third-party contractors are complying and your contracts are structured in a way to mitigate risk of FCA violations and therefore mitigate the risk of prosecution.

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