Review heightens concerns over Medicare billing at nursing homes

By Scott Higham and Dan Keating
Washington Post Staff Writers
Monday, March 29, 2010; A03

More than a decade ago, Congress set out to squeeze the fraud out of Medicare billing at nursing homes, requiring more precise justifications for costs. It created new "ultra-high" billing categories intended to be used for only 5 percent of the patients needing highly specialized care and rehabilitation.

But within a few years, nursing homes flooded the ultra-high categories with patients, contributing to $542 million a year in potential overpayments, federal analysts found.

Since then, the numbers in the ultra-high categories have quadrupled, and the amount of waste and abuse could reach billions of dollars a year, according to nursing home experts and a Washington Post examination of the program. The billing program is specifically targeted in President Obama's health-care legislation passed last week by Congress, changing two rules that experts said have been exploited by nursing homes to inflate bills.

"Facilities have been able to bill the way they want, and they are billing for more services than they are providing to people," said Toby S. Edelman, a senior attorney for the Center for Medicare Advocacy, a watchdog group in Washington. "There's been a lot of abuse."

Federal analysts assigned to the inspector general's office for the Department of Health and Human Services are examining the billing program.

"There is a lot of vulnerability in the system, and we are concerned by what we've seen," said Jodi Nudelman, regional inspector general for the HHS New York field office, which is conducting the examination.

A separate division of the HHS inspector general's office is investigating North American Health Care, which operates 35 facilities, most of them in California.

Across the chain, 64 percent of NAHC patients are billed in the highest category; the national average is 9 percent. The category covers the most extensive medical care combined with the most intensive rehabilitation.

The pattern was discovered last year by the Service Employees International Union, which has been feuding with NAHC over efforts to organize the homes' employees. The Post independently analyzed an updated version of the data and confirmed the pattern. The Post also found that NAHC operated 21 of the top 30 facilities nationally with the highest percentage of residents billed in the most expensive category.

In the Washington area, two nursing homes owned by HCR ManorCare put their residents in the most expensive billing category at nearly five times the national average, according to the Post analysis. The ManorCare home in Silver Spring put 45 percent into that category, and the ManorCare home in Wheaton put 43 percent.

A spokesman for ManorCare, whose headquarters is in Toledo, said residents are coded into billing categories based on their medical and rehabilitative needs.

"There is really nothing else we can add as to why patients fall into any particular category," said the spokesman, Rick Rump.

Allegations of 'upcoding'

The SEIU gave results of its NAHC examination to Rep. Pete Stark (D-Calif.), who chairs a House Ways and Means subcommittee that oversees Medicare. In September, Stark asked the HHS inspector general to investigate, alleging that NAHC "may have overbilled Medicare more than $180 million through a system-wide pattern of 'upcoding.' "

John L. Sorensen, NAHC's president and chief executive, said residents in the highest category are recovering from major surgeries and need specialized care. He said doctors favor his chain because it provides high levels of care.

But NAHC's residents were no sicker or in greater need of therapy than other nursing home residents, the union's analysis of medical records says. The Post does not have access to the records and could not confirm the analysis.

Sorenson said he was unaware of any anomalies. He said that his facilities have received high-quality ratings from Medicare and that he is cooperating with the HHS inspector general's investigation.

"They have not told me about any upcoding or wrongdoing at all," Sorensen said. "We have honest and forthright business practices in place. . . . We don't have any need or reason to be doing any kind of upcoding. That would be completely wrong."

To capitalize on the aging baby boomers, nursing homes have been providing high-end services once reserved for hospitals and large rehabilitation centers.

Homes that provide the highest level of care are known as skilled nursing facilities and have become a big business. There are about 15,000 nationwide, and they rely heavily on Medicare to turn a profit. Last year, Medicare spent more than $25 billion on them.

Federal analysts detected billing anomalies in these homes a decade ago, after a new Medicare payment system went into effect.

"Upcoding, billing for services not rendered, and billing for worthless services have been significant problems for years, costing taxpayers many millions, if not billions, of dollars," said Marie-Therese Connolly, who headed the Justice Department's Elder Justice and Nursing Home Initiative from 1999 to 2007.

'Audit trail' rejected

In 1999, the HHS inspector general examined medical charts of nursing home residents and discovered that 46 percent had been incorrectly placed into the higher-billing categories. Analysts said the miscoding could have been the result of widespread confusion over how to assess patients.

They urged the establishment of an "audit trail," but the agency overseeing Medicare at the time rejected the recommendation.

In 2002, the General Accounting Office (now the Government Accountability Office), the investigative arm of Congress, said it appeared that nursing homes were capitalizing on the confusion by coding more residents into lucrative billing groups.

Four years later, the HHS inspector general found that 26 percent of the Medicare claims sampled in the highest billing groups could not be supported by medical records.

The analysts estimated in a 2006 report that potential overpayments amounted to $542 million based on a review of bills from 2001 and 2002. Since then, the proportion of patients being billed at the highest rates has increased fourfold, according to a report by MedPac, an independent agency that monitors Medicare payments for Congress.

MedPac noted that changes in the medical condition of the nursing home population could not account for the increase.

"Facilities are paid for providing therapy even when a patient's need for and benefit from it has not been demonstrated," MedPac wrote to Congress last year.

Despite the warnings, the problem persisted. HHS auditors scrutinized bills and medical records at five nursing homes throughout the country from 2002 and 2003 and found that the homes had overcharged the federal government by $2.4 million.

In one instance, a 76-year-old man with Parkinson's and Alzheimer's diseases had been coded into a high-priced rehabilitation category at the Regent Care Center in Laredo, Tex. But auditors determined that because the man was so sick, his rehabilitation was a waste of time and money.

The auditors found a similar pattern with a 75-year-old woman with dementia at the same nursing home. "Given her deteriorated mental and physical status, she could not participate meaningfully or obtain any long-term benefit from skilled rehabilitation therapy," the auditors wrote.

In response, Regent officials said they set up internal controls.

The agency that now oversees Medicare, the Centers for Medicare and Medicaid Services, has been tightening rules during the past decade.

In 2006, the agency tried to limit unjustified billing in the ultra-high categories. But the effort backfired when nursing home operators found a loophole that made it easier to put residents in those categories. The new health-care legislation implements closer monitoring of nursing changes and requires skilled-nursing facilities to detail their patient-care staffing and spending. It postpones some proposed reforms but explicitly changes two rules that had been described as "vulnerabilities" that enabled nursing homes to bill excessively for patients.

"We have to be watching the broad scope of what's happening in the industry and where the gaming is taking place," said Sheila Lambowitz, a supervisor at the Centers for Medicare and Medicaid Services.

Washington Post researcher Meg Smith contributed to this article.

View all comments that have been posted about this article.

© 2010 The Washington Post Company