Medicare Nursing Homes

How Medicare payment policy affects SNF incentives to hospitalize patients

Under Medicare Part A, beneficiaries can receive coverage for care provided by skilled nursing facilities (SNFs), also known as nursing homes.  Between 2000 and 2007, however, the rate of potentially avoidable re-hospitalizations for five key conditions (congestive heart failure, respiratory infection, urinary tract infection, sepsis, and electrolyte imbalance) increased from 13.7% to 18.5%. One potential explanation for this increase is that Medicare reimbursement policy may incentivize SNFs to transfer patients to acute impatient care.  Today, I examine a Kaiser Family Foundation brief which examines these SNF incentives.


A SNF is a long-term care facility  providing skilled care. This is different from general nursing facilities (NF) who provide custodial rather than skilled care. Medicare pays for most SNF care whereas Medicaid is the primary payor for most NF care.  All SNF Part A inpatient services  are paid under a prospective payment system (PPS). In the PPS, providers receive a daily base rate which is adjusted for case mix. “Assignment to a RUG is based on a number of considerations, such as the patient’s need for certain services, the presence of certain conditions, and an index based on the patient’s ability to perform independently four activities of daily living.”  SNFs can earn extra revenue through bed holds and reserved bed arrangements.   In the bed hold scenario, residents transferred to an inpatient facility pay the SNF to keep the same bed. States regulate bed holds.  For instance, California mandates that a bed must be held for 7 days while Wisconsin mandates a minimum bed-hold of 15 days.  Additionally, impatient facilities may reserve beds.  This way, the hospital will guarantee placement of their discharged patients.

Care is provided by a number of different provider types, but Medicare mandates that “each resident must be seen by a physician at least once every 30 days for the first 90 days after admission, and at least once every 60 days thereafter.”

There are two types of models for SNFs and NF. In a closed staffing model, the facility directly employs the physician and pays them a salary. In an open staffing model, community physicians care for residents.

The remainder of this post will examine how certain Medicare payment policies may or may not encourage SNFs to send residents to acute care facilities unnecessarily.

Physician Payment Differentials

Do physicians providing care in the SNF setting receive less generous reimbursement that if they provided the same care in a hospital? While Medicare does pay physicians more for evaluation and management (E&M) visits in a hospital, the diferentials are not very large. Further, they are based on the RVU system and it is assumed that an E&M hospital visit will take more time than an E&M SNF visist. Thus, KFF concludes that “it seems unlikely that Medicare payment differentials alone would provide very strong incentives for physicians to prefer caring for their SNF, NF or ALF patients in a hospital setting rather than in a long-term care facility setting.”

Medicare Oversight

To prevent unnecessary billing, the Medicare Office of the Inspector General (OIG) reviews claims to identify suspicious billing practices. The likelihod Medicare bureaucrats investigate frequent daily visits to patients is much lower in the hospital setting than in a SNF setting. It is assumed that hospitalized patients are sicker and thus need more frequent care whereas SNF patients likely do not need care as frequently. For instance, the OIG noticed that physicians began conducting “gang visits” in SNFs where physicians would visit a large number of residents in a single day. This may be a case for fraud, but also may simple indicate that these physicians want to make a single trip to a SNF to evaluate all their residents.

Conflict of Interest

About two-thirds of medical directors serve as the attending physician for some residents in a facility. The medical director’s role is to ensure that high quality care is provided efficiently. As an attending, however, the physician may have an incentive to provide additional services since they are the ones who directly benefit.

Bundled Payment

SNFs receive a consolidated, prospective payment for the services they provide. This means that the SNF is responsible for all Part A medical benefits for the resident. If the patient is transferred to a acute care hospital, however, the SNF is no longer responsible for the care. Thus, SNFs have a strong incentive to transfer patients with acute conditions to hospitals to avoid treating them in the NF setting.


“One OIG report found that nursing home hospice patients received 46 percent fewer nursing and aide services from hospice staff than hospice patients living at home. Another found that almost all hospices reviewed pay nursing homes the same or more than what Medicaid would have paid for nursing home care if the patient had not elected hospice. These findings suggest that both hospices and nursing homes may inappropriately benefit when nursing home residents receive hospice care.”


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