Crackdown on Improper Medicare SNF Payments May Cost More Than It Saves

The Department of Health and Human Services (HHS) made a splash last month when it claimed that skilled nursing facilities received $84 million in Medicare payments for treatments that didn’t qualify — but now a group of doctors claims that the proposed cures might be worse than the disease.

Writing in a blog post for the journal Health Affairs, three physician researchers — Ann M. Sheehy, Charles F.S. Locke, and Bradley Flansbaum — argued that attempts to bolster Medicare integrity at SNFs might end up costing the system more money in the long run.

The HHS Office of the Inspector General (OIG), the department’s top internal watchdog, focused on confusion over the three-day stay rule for Medicare Part A coverage of skilled nursing care between 2013 and 2015. In order to qualify for Medicare payments, a beneficiary must have spent three days in the hospital on an inpatient basis — a threshold that was not met in many cases, according to the OIG.


“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,” the OIG wrote in its report. “We determined that the SNFs used a combination of inpatient and non-inpatient hospital days to determine whether the three-day rule was met.”

To rectify the problem, the OIG recommended that SNFs provide written documentation of the three-day-stay rule to beneficiaries, as well as printed warnings if a Medicare rejection looks likely.

But because these changes would only save the federal government about $28 million, the researchers argued that the paperwork burdens to hospitals would soon outstrip the benefits.


“While every Medicare dollar is important, $84 million in erroneous billings is just 1/1000 of the $86 billion in SNF payments paid over three years,” the group wrote. “It is likely that implementing the OIG’s additional paperwork and notification requirements would cost hospitals far more than the proportionally small $28 million yearly savings.”

CMS rejected the OIG’s recommendation for greater paperwork loads, a move that’s in line with the agency’s overarching “Patients Over Paperwork” initiative adopted under the Trump administration and current CMS administrator Seema Verma, who has frequently railed against what she sees as bureaucratic burdens for providers.

But additional paperwork also wouldn’t solve the inherent confusion among seniors, their families, and providers themselves about the three-day requirement. The difference between “outpatient” and “inpatient” stays is often indistinguishable for the average hospital patient, and the researchers pointed out that up to 68% of hospital stays include some kind of transition between the two statuses.

Even the definition of when hospital care starts can be tricky, the researchers noted: While a senior must spend three midnights in a hospital on an inpatient basis to receive subsequent SNF care under Medicare, doctors at hospitals use the “two-midnight” rule to determine if they should be admitted as an inpatient or outpatient.

If an admitting physician determines that the patient will spend fewer than two midnights at the hospital, CMS generally requires that person be considered an outpatient — though, as the researchers noted, predictions about the lengths of hospital stays are difficult to make accurately, and vulnerable elders’ statuses can change quickly.

To rectify the problem, the HealthAffairs writers called on CMS and lawmakers to adopt a single timeframe for tracking hospital stays to eliminate the need for confusing conversations between doctors and patients about Medicare coverage.

“Not just theoretical, this scenario happens multiple times daily at our hospitals,” they wrote. “Physicians chose their profession to care for patients, not to be the bearer of arcane Medicare rules. “

In addition, the team praises efforts in the House and Senate to abolish the distinction between inpatient and outpatient stays for SNF coverage, simplifying the rule to apply to people who spend three midnights of any kind in the hospital.

“Ultimately, CMS should consider eliminating the oxymoron of ‘outpatient hospitalizations’ in its Patients Over Paperwork initiative so that physicians and other workforce tied up in billing determinations can get back to work taking care of patients,” they concluded.

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