Skilled Nursing Facilities:

Approval Process for Certain Services May Result in Higher Medicare Costs

HEHS-97-18: Published: Dec 20, 1996. Publicly Released: Jan 22, 1997.

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Stephen P. Backhus
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Pursuant to a congressional request, GAO reviewed: (1) the growth of skilled nursing facility (SNF) costs and SNF use in relation to hospital use; (2) the characteristics of Medicare SNF patients and the types of services they receive in SNFs being paid higher than normal amounts compared to other SNFs, as well as whether patients in such facilities receive appropriate care; and (3) whether the Health Care Financing Administration's (HCFA) process for assessing requests for higher payments ensures that only SNFs furnishing atypical services are granted exceptions.

GAO found that: (1) SNF use has increased since 1983 when the Medicare hospital prospective payment system (PPS), which pays a predetermined amount per hospital discharge, was introduced and gave hospitals a financial incentive to shorten lengths of stay; (2) the average length of hospital stay for Medicare patients has decreased from 10 days in 1983 to 7.1 days in 1995, indicating that, as expected, some substitution of SNF care for hospital care has occurred; (3) the average length of hospital stay decreased more for those Medicare patients whose diagnoses were more likely to lead to a SNF admission, such as hip fractures, than for Medicare patients as a whole; (4) considering patients with these types of diagnoses, hospitals with SNF units saw larger decreases in the average patient length of stay than did hospitals without SNF units; (5) the increasing number of SNFs granted routine cost limit (RCL) exceptions and the resulting additional payments, almost $100 million in fiscal year 1995, has contributed to the growth in Medicare SNF costs; (6) contrary to expectation, GAO did not find that SNFs with exceptions had a higher proportion of patients requiring complex care than SNFs without exceptions; (7) patients identified as requiring complex care by the medical records GAO reviewed, and who reside in SNFs granted exceptions, were generally provided appropriate care; (8) HCFA's review process for RCL exception requests does not ensure that SNFs actually provide atypical services to their Medicare patients; (9) HCFA's exception screening benchmarks basically take into account only whether requesting SNFs treat a higher than average proportion of Medicare patients; and (10) the patient-specific information obtained from requesting SNFs is generally not used to assess whether the Medicare beneficiaries need or receive atypical services.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: HHS stated that the requirement in the Balanced Budget Act of 1997 to pay SNFs on the basis of a case-mix adjusted prospective payment system will eliminate the need for an exception process for the routine cost limits. Therefore, additional work on the cost limit process is probably not warranted.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to revise the SNF exception to the RCL review process so that it can differentiate between SNFs that furnish atypical routine services to Medicare patients and SNFs that merely have higher than normal costs. Looking at factors that reflect Medicare patients rather than all SNF patients occupying Medicare-certified beds might be one way to do so. Using patient-specific data, some of which are currently submitted but not used, might be another way.

    Agency Affected: Department of Health and Human Services


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