Medicare Services Provided to Residents of Skilled Nursing

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Medicare Services Provided to Residents of Skilled Nursing

Transcript Of Medicare Services Provided to Residents of Skilled Nursing

Department of Health and Human Services





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JW GIBBS BROWN Inspector General
OCTOBER 1994 0EI-06-92-O0863


The mission of the Office of Inspector General (OIG), as mandated by Public Law 95452, as amended, is to protect the integrity of the Department of Health and Human Services’ (HHS) programs as well as the health and welfare of beneficiaries served by those programs. This statutory mission is carried out through a nationwide network of audits, investigations, and inspections conducted by three OIG operating components: the Office of Audit Services, the Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs the Secretary of HHS of program and management problems and recommends courses to correct them.

The OIG’S Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting audits with its own audit resources or by overseeing audit work done by others. Audits examine the performance of HHS programs and/or its grantees and contractors in carrying out their respective responsibilities and are intended to provide independent assessments of HHS programs and operations in order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the Department.

The OIG’S Office of Investigations (01) conducts criminal, civil, and administrative investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by providers. The investigative efforts of 01 lead to criminal convictions, administrative sanctions, or civil money pemlties, The 01 also oversees State Medicaid fraud control units which investigate and prosecute fraud and patient abuse in the Medicaid program.


The OIG’S OffIce of Evaluation and Inspections (OEI) conducts short-term management and program evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the public. The findings and recommendations contained in these inspection reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. This report was prepared under the direction of Ralph Tunnell, Regional Inspector General (Dallas) and Chester Slaughter, Deputy Regional Inspector General (Dallas). Assisting Dallas staff with this report were staff from OEI Central Office.

Dallas Staff
Leah Bostick Kevin Golladay Pamela Smith

OEI Central Office
Cathaleen Ahem Brian Ritchie
Jennifer Antico

For further information contact: Ralph Tunnell at 214/767-3310 or 1/800-848-8960.

Department of Health and Human Services

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JUNE GIBBS BROWN Inspector General




Thepurpose ofthis study was l)todescribe the Medicare Supplemental Medical Insurance (SMI) services provided to residents in Skilled Nursing Facilities (SNFS) and 2) to identifi and discuss known or potential program Vulnerabilities, as well as issues involving SNF residents requiring further review.


Medicare provides extended care to qualified beneficiaries in a Medicare-participating SNF. The extended care benefit was designed to reduce the length of stay in acute care hospitals and is covered by the Hospital Insurance (HI) program. In addition to receiving services through the HI extended care benefit, residents may receive services covered through the SMI program, such as physician care and outpatient services.

Data presented in this report were obtained from a one-percent sample of all Medicare beneficiaries receiving Medicare extended care benefits during 1991 or 1992. Discussions of program vulnerabilities are drawn from our review of applicable law and regulations and analysis of the services depicted in our sample. Additionally, we reviewed findings from prior Office of Inspector General (OIG) reviews and fraud alerts for evidence illustrating program vulnerabilities,


Charges in excess of $413 million in 1991 and $517 million in 1992 were made for SiWI services provided to Medicare bene$lciam”esreceiving extended care benejiks in !WFS.

These charges represented seven percent of the total charge for medical care for

beneficiaries receiving extended care services in a SNF (total charges for extended

care (including SMI) were $5.9 billion in 1991 and $7.6 billion in 1992).

Total charges for extended care (including SMI) were nearly equally divided

between accommodations (room and board) and ancillary/SMI charges.

Of the ancillary/SMI charges, rehabilitation was the largest cost, with SMI

providing only a very small part (three percent) of the total charges.

Facilities with less than 50 Medicare cerhfied SNF beds accounted for the majority of covered admissions and covered days of care.


Most SNF stays (82 percent) resulted in the use of SW services; yet, few categories of services were predominant.

Evaluation services was the only category of SMI service received by a majority

(68 percent in 1991 and 69 percent in 1992) of SNF residents during their covered

stay .


Although evaluation services were present in more residents’ stays, the category of

medical equipment, supplies, prosthetics, and orthotics accounted for the most

charges ($98 million in 1991 and $112 million in 1992).

� Approximately 24 percent of beneficiaries received outpatient services during their SNF Shy.

As expected, residents with longer stays were more likely to use more SMI-covered services.

States’ utilim”on of SMI van”edconsiderably. This vmidion existed in the percentage of SNF stays having SLW services, the average bed &y cost, and the types of services and providers.


Services covered under the HI extended care benejit may be shifted to the SMI program, creating added beneficiary liabili~.

The SNFS which shift services from the HI program to the SMI program may avoid Medicare limits on SNF payment and, if the shifted services are covered by SMI, increase the costs to residents and, ultimately, the tax payer. Cost shifting may occur for two distinct types of services: 1) routine services (which include the nursing care, bed and board, and certain other labor and supply costs) and 2) certain ancillary services. Examples include:

As much as $44 million in 1991 and $55 million in 1992 were charged to SMI for

rehabilitation therapy. Rather than the SNF providing the ancillary services and

charging them to the HI program, third party providers billed the therapy through

the SMI program.


Over $98 million in 1991 and over $112 million in 1992 were charged to SMI for

supplies and equipment, which is included as either routine or ancillary costs in the

HI program when billed by the SNF. Enteral and parenteral nutrition represent the

bulk of shifted costs, at over half of the total ($60 million in both 1991 and 1992).

One reason SNFS are able to shift some types of ancillary costs to the SMI program is because section 1861(h) of the Social Security Act permits each facility to determine whether certain services are provided as extended care services. Consequently, the


extended care facility is able to determine for itself whether those services are covered by either the HI program or the SMI program.
The different financial costs of an item, depending on whether the item is paid as a cost to the SNF or as a SMI service paid using a fee schedule, result in higher costs to Medicare if the service is not provided under the least expensive method.
The difference between what it costs the SNF to purchase goods or services, which becomes the Medicare cost paid to the SNF, and what is paid by Medicare according to SMI fee schedules may be radically different. Does cost reimbursement to the SNF produce the lowest cost? (The Medicare SNF payment is based upon actual costs of service, irrespective of whether the SNF service is covered by HI or SMI.) Or is the fee-based service of the supplier lower? (For example, the SNF cost for purchasing tape to secure surgical dressings or dietary nutrients may be less than the fee allowed suppliers who provide surgical dressings or nutrients).
SNFS acting as suppliers of drugs, biological, appliances, or equipment may conti”bute to SMI billing motivated by profit.
Medicare’s present rules and practices permit the SNF to be both a cost-based provider of HI and SMI services and a charge-based supplier of SMI services. This flexibility allows the SNF to assess the financial impact of cost versus charge payments, and to choose using whichever avenue is most advantageous. Additionally, a SNF acting as a supplier of SMI to its residents can be a lucrative profit-generating business, with questions as to conflicting interests (nursing home’s profit versus the cost benefit to residents and tax payers).
Some suppliers provide excessive volumes of supplies to nursing homes or misrepresent the supply to obtiu”nreimbursement for a noncovered item or maximize reimbumement.
A review conducted by Arkansas Blue Cross and Blue Shield found that some suppliers were representing the combination of certain supplies (skin barrier, lubricant, gauze pads, etc.) as oral care kits or ostomy care kits. However, when the supplies were later delivered to the nursing home, they were not kits designated for any specific beneficiary; rather, the supplies were provided in bulk quantities. Some nursing homes stated they are turning away suppliers because their supply rooms are already overstocked with unused supplies from previous shipments.
Considerable State-to-State variation in average SMI costs raises questions about the impact of State Medicaid practices on SMI costs and inequities in beneficiary out-ofpocket costs for care.
The 1992 bed day cost for the SMI ranged from as little as $3 in one State to as high as $35 in another. While we cannot explain this variation with certainty, it is suspected the variances stem, in part, from Medicaid payment policies related to how the
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Medicaid nursing facility rate is set. Another factor may be the extent to which the State Medicaid policy forcefully encourages nursing facilities to bill Medicare whenever possible.
An inequity exists in States (or nursing homes) which shift services to the SMI program. [email protected] istramlated into added beneficia~ out-of-pocket costs due to coinsurance and deductibles which might not be required in States (or nursing homes) providing a service under the extended care benefit.
The apparent lack of physician involvement during many beneficiaries’ stays raises questions about the adequacy or quality of pti”ent care.
Nearly one-third (32percentin 1991 and31 percent in1992) ofresidents had no allowed charges for a primary physician encounter (physician visit, evaluation, or consultation) during their stay in the SNF. The primary care physician is critical to the overall management of the resident’s health and plays a pivotal role as gatekeeper, determining and/or providing necessary medical care, equipment, and supplies.
Frm”lextended care residents are pati”cularly susceptible to abusive or unscrupulous providers.
The physical and cognitive limits of some extended care residents provide a unique opportunity for fraud, abuse, and waste. Unless protected by concerned family or friends, or by the policy and practices of the SNF, the extended care resident may be subjected to some of the most egregious practices found in health care, with decisions on care governed by greed, rather than medical need.
Significant payments are being made for extended care resident services through the HI and SMI programs. Consequently, monitoring services provided under these benefits and addressing vulnerabilities raised in this report are important, given Medicare’s potential exposure to abusive practices.
This review of SNF utilization of SMI services suggests further work is needed in at least the following areas:
1. The apparent wide State-to-State variation in extended care bed day costs for particular SMI services.
2. The appropriateness of SMI payment for the millions of dollars paid each year for services normally included in the extended care benefit, and the resulting inequities in resident cost liability.
3. The adequacy of a resident’s knowledge about the cost and frequency of services billed outside of the nursing facility’s bill.

4. The policies and practices of various State Medicaid programs, as they contribute to program vulnerabilities in the Medicare extended care benefit.
5. The monitoring of extended care utilization over time, and review of services experiencing rapid growth without any known reason (e.g., coverage change).
6. The lack of physician involvement in some SNF stays. COMMENTS The HCFA commented on this report. They agreed with our conclusions and suggested a statutory “rebundling” provision for SNFS (similar to that for hospitals) is needed. We agree that this is the direction to take. To assess the impact of rebundling, our office is presently conducting a more exhaustive analysis of services included in the extended care benefit and also covered by the Supplemental Medical Insurance program. We thank HCFA for their comments and look forward to working closely to improve services firnished under the extended care benefit. The full text of their comments is provided in Appendix E.



INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1


PROGRAM VULNERABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


A: Procedure Code Classification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

B: 1992 SMIServices by Category. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
c: State Bed Day Costs and Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-l
D: Provider Specialties by State... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1 E: HCFA Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-l

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..(%SSLW-


Thepurpose ofthis study was l)todescribe the Medicare Supplemental Medical Insurance (SMI) services provided to residents in Skilled Nursing Facilities (SNFS) and 2)[email protected] mddiscuss hownorpotential program wlnerabilities, as well as issues involving SNF residents requiring further review.
Medicare Program
Medicare is a Federal health insurance program, authorized by Title XVIII of the Social Security Act, that covers most people 65 years or older, people with end-stage reml disease, and some disabled people. The program consists of two distinct insurance programs. Hospital Insurance (HI) Benefits for the Aged and Disabled (Part A) covers services furnished by hospitals, home health agencies (HHA), hospices, and skilled nursing facilities. Supplementary Medical Insurance for the Aged and Disabled (Part B) covers a wide range of medical services and supplies, including physician services, outpatient hospital services, and home health services (not covered under Part A), as well as diagnostic laboratory tests, X-rays, ambulance services, and the purchase and rental of durable medical equipment (DME).
In 1992, Medicare provided basic health insurance coverage for more than 34 million people at a cost of approximately $129 billion. The SMI payments have recently been growing faster than HI payments and accounted for about $49 billion of the Medicare expenditures for 1992.1
The Health Care Financing Administration (HCFA), within the Department of Health and Human Services (DHHS), administers Medicare and contracts with private insurance companies (e.g., Blue Cross or Blue Shield plans) to process and pay HI and/or SMI claims. Contractors, called intermediaries, process claims from institutions such as hospitals and nursing homes; other contractors, called carriers, process claims from noninstitutional providers, such as physicians and suppliers. The HCFA provides direction to contractors on payment matters and is, ultimately, responsible for assuring a contractor’s adherence to applicable program policies and procedures.
Extended Care Benefit
While Medicare does not cover expenditures for traditional long-term nursing home care, benefits are provided for extended care to qualified beneficiaries in a Medicareparticipating SNF. The extended care benefit was designed to reduce the length of stay in acute care hospitals, and transition beneficiaries to their homes or to custodial care facilities. In comparison to Medicaid nursing home expenditures, Medicare accounts