Policy analysts at the nonpartisan agency that advises Congress on Medicare policy are planning to investigate potential coding distortions, payment inaccuracies and whether financial incentives influence patient selection by nursing home providers as part of an assessment of payment accuracy in fee-for-service Medicare’s skilled nursing facility and home health payment systems.
At its October meeting Friday, the Medicare Payment Advisory Commission (MedPAC) discussed a research work plan, with commissioners calling attention to for-profit providers seeking to game the system, with a rising role of hidden private equity influence.
“[B]ased on decades of experience in the provider and payer side working in these spaces, I think it’s fair to say that … most especially nursing facilities, have become increasingly for profit in a variety of Byzantine ownership arrangements – and many of them characterized by private equity injected somewhere in the mix,” said Commissioner Scott Sarran, chief medical officer with the digital health startup, Harmonic Health. “We see more and more that the care responds to the incentives. You can say that’s not necessarily a bad thing, but it’s out there, and that there’s historic and continued concern around variability and coding accuracy.”
However, he noted that medical advances are also increasing the need for rehabilitation and post-acute care and urged researchers to consider barriers to access when assessing payment accuracy.
Sarran, who is also a consultant with Triple Aim Geriatrics in Illinois, suggested analyzing findings separately for Medicare fee-for-service and Medicare Advantage to better understand differences in payment incentives and patient selection, while recommending interviewing hospital discharge planners to assess whether patients with different clinical needs have equitable access to SNF care.
Other MedPAC commissioners also highlighted the possibility of AI use by providers to upcode and gain more profits.
“I worry that many health systems and providers are way ahead of health plans in using AI to augment inappropriate coding intensity or reported patient complexity to optimize revenue cycle management,” said Commissioner Kenny Kan, noting how such practices can be “inflationary for overall cost of healthcare long term.”
That said, Kan urged researchers to recommend ways to improve payment accuracy using existing claims and assessment data rather than adding provider documentation, reporting or compliance burdens.
MedPAC’s work plan aims to determine whether Medicare payments accurately reflect patients’ clinical complexity and care costs.
The analyses will cover 2021–2025, with initial results expected in fall 2027.
As an advisory body, MedPAC’s role is to analyze Medicare payment policies and recommend changes to Congress and the U.S. Department of Health and Human Services (HHS) to improve payment accuracy, access to care, quality, and program sustainability.
Researcher Brian Klein-Qiu stressed that the analysis is intended to identify trends, not establish that payment reforms caused changes in coding, patient selection or provider behavior.
The researchers will examine trends in coding, case mix, payment-to-cost relationships and patient selection to determine whether they appear consistent with payment incentives. They will also consider broader factors, including facility specialization, ownership and workforce pressures.
Patient selection and access to care
Researchers said interviews and other work had raised concerns about SNFs’ reluctance to admit certain high-cost patients. The analysis will examine whether potentially unprofitable cases are distributed across facilities or concentrated in particular providers.
Commissioners cautioned that differences in patient populations do not necessarily indicate inappropriate selection. Facilities may have specialized capabilities that make them better suited to particular patients. For example, SNFs with on-site dialysis services may appropriately admit more dialysis patients, while facilities with bariatric equipment may be better equipped to care for patients with obesity.
The challenge is to distinguish appropriate clinical specialization from admission decisions driven by financial incentives.
Commissioners also called for examining whether payment-to-cost relationships are associated with SNF closures and reductions in available beds. Such findings could help illuminate whether financial pressures are contributing to concerns about access.
Profitability and provider behavior
Commissioner Cheryl Damberg recommended comparing for-profit and nonprofit providers, noting that previous work had identified differences between the two groups and that for-profit entities historically had larger margins. She also emphasized that selection patterns existed before the newer payment models, making it important to account for historical differences in provider behavior and financial performance.
Other commissioners encouraged researchers to examine variation in costs within payment classification groups, rather than relying solely on average costs. They also suggested investigating whether high-cost or potentially unprofitable cases are concentrated in particular facilities.
Researchers acknowledged that such patterns require careful interpretation because facility specialization, local provider arrangements and other factors may explain differences in patient distribution.
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