OIG Finds $84 Million in Improper Skilled Nursing Facility Payments

The federal government improperly paid skilled nursing facilities more than $84 million for services that did not meet Medicare’s three-day hospital stay requirement, according to a report released Wednesday by the Department of Health and Human Services’ (HHS) Office of the Inspector General (OIG).

Medicare beneficiaries must stay in a hospital for three consecutive calendar days “for a medically necessary stay” for them to qualify for post-acute extended care services, the OIG noted. Crucially, these stays must be classified as inpatient, though patients frequently spend multiple nights in the hospital on an “observation stay” basis — which does not qualify the patient for skilled care under Medicare.

The watchdogs’ review was conducted to determine whether the Centers for Medicare & Medicaid Services (CMS) paid SNF claims when that requirement was not met.


The claims dated from calendar year 2013 to calendar year 2015, and the OIG ultimately selected a sample of 99 SNF claims for review. The watchdog arm found that CMS improperly paid 65 of those claims when the three-day requirement was not met, with the improper reimbursements totaling $481,034.

Based on those results, the OIG estimated that CMS improperly paid $84.2 million for SNF services that did not meet the three-day requirement from 2013 to 2015.

“We attribute the improper payments to the absence of a coordinated notification mechanism among the hospitals, beneficiaries, and SNFs to ensure compliance with the three-day rule,” the OIG said in the report. “We noted that hospitals did not always provide correct inpatient stay information to SNFs, and SNFs knowingly or unknowingly reported erroneous hospital stay information on their Medicare claims to meet the three-day rule. We determined that the SNFs used a combination of inpatient and non-inpatient hospital days to determine whether the three-day rule was met.”


Though all of the 65 non-compliant SNFs reported qualifying inpatient hospital stays that lasted three or more calendar days on the Medicare claims, it was not clear whether they did so knowingly or unknowingly, the OIG noted. Hospitals provided incomplete or inaccurate information in 18 cases, which affected the SNFs’ ability to determine whether the services met the three-day rule.

OIG made several recommendations to CMS that would have saved the lost millions in the time period, at least according to the watchdog. Those recommendations included:

  • Requiring hospitals to provide a written notification to Medicare beneficiaries that clearly states how many inpatient days of care were provided and whether the three-day rule for Medicare coverage of SNF stays was met.
  • Requiring SNFs to give beneficiaries written notice if Medicare is expected to deny payment for the SNF stay.
  • Educating hospitals and SNFs on the importance of, respectively, communicating the number of inpatient days to beneficiaries and the responsibility to submit accurate, valid and documented claims for payment.

CMS agreed with some of the recommendations by the OIG, but did not concur with those related to a coordinated notification mechanism between hospitals, SNFs, and beneficiaries regarding written notice of inpatient days.

Hospitals already provide beneficiaries who receive observation services as outpatients for more than 24 hours with an oral explanation and a written notification about how their status could affect eligibility for Medicare SNF coverage, CMS argued.

The agency also pushed back on other parts of the recomendations, but the OIG maintained that its findings and recommendations were valid.

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