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Recovery audits: SNF psychiatric conditions

January 2, 2014
by Paula G. Sanders, Esq.
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Are you at risk of a huge repayment to Medicare for treating residents with a psychiatric condition and who came to your facility after a three-day qualifying stay in a psychiatric hospital or unit? Depending on your location,[i] you may find yourself the subject of one of the latest Medicare recovery audit initiatives. Medicare recovery auditors (RAs), who are incentivized by contingency fees, are targeting skilled nursing facility (SNF) claims for residents admitted with a psychiatric diagnosis from psychiatric hospitals or units. Facilities that have received additional documentation requests (ADRs) for complex medical review of these claims are finding that many of their claims are subsequently and perfunctorily denied.

These reviews, which the Centers for Medicare & Medicaid Services (CMS) approved, appear on the RA approved-issue list of at least two of the four RAs[ii] under the topic heading of “SNF Psychiatric Condition.”[i] CMS’ interest in reducing inappropriate payments to LTC facilities is well-documented, but the focus of this particular audit issue appears to be at odds with other CMS initiatives including, for example, the National Partnership to Improve Dementia Care in Nursing Homes. The RA focus on nursing home patients who have a psychiatric diagnosis is also troubling given the profound difficulty that hospitals are having with arranging appropriate discharges for psychiatric patients.

A recent article reported that in 2010 the per capita available state psychiatric beds population had plummeted to the level that existed in 1850, and that the psychiatric bed complement is expected to continue to decrease. The article also observed that hospitals’ emergency departments are overwhelmed with the needs of the psychiatric population, and are trying to devise innovative systems to avoid “boarding”[ii] psychiatric patients in hallways and locked rooms, sometimes for weeks at a time.


Nursing homes often serve as a safety valve for their local hospitals by admitting these difficult-to-place patients when the admission is appropriate and medically necessary. These admissions also help to foster good relationships with the local hospitals which are frequently unable to get paid for keeping a patient on a psych unit when acute care is no longer needed. The new recoupment audits create financial insecurity about the viability of these admissions.

Performant Recovery, the RA for Region A, explains the complex SNF Psychiatric reviews (Issue A00090213) as follows:

Patients with only a psychiatric condition who are transferred from a psychiatric hospital to a participating SNF are likely to receive only non-covered care. Also, patients whose primary condition/needs are psychiatric in nature often require considerably more specialized, sophisticated nursing techniques and physician attention than is available in most participating SNFs. (SNFs primarily engaged in treating psychiatric disorders are precluded by law from participating in Medicare.)1

A close reading reveals two contradictory positions. First, there is the assumption that patients who transfer to NFs from acute psychiatric stays do not need skilled care. Indeed, the RAs refer to the Medicare Benefit Policy Manual (MBPM) for the proposition that “[i]n the SNF, the term ‘non-covered care’ refers to any level of care which is less intensive than the SNF level of care, which is covered under the program.”

Second, however, the RAs suggest that such patients have complex needs that exceed a nursing home’s ability to provide appropriate care. The bias against NFs’ ability to care for these residents is expressed succinctly by National Government Services Inc.: “It is expected that SNF placement for psychiatric patients would rarely be reasonable and necessary.”

The presumptions at the root of this recoupment initiative seemingly ignore the fact that almost every resident who is admitted to a nursing facility is first evaluated by his or her state Medicaid agency for the appropriateness of NF placement under the Preadmission Screening and Resident Review (PASRR) program. Importantly, under federal law, a “nursing facility” is broadly defined to encompass an institution which provides (a)skilled nursing care and related services for residents who require medical or nursing care; (b)rehabilitation services for the rehabilitation of injured, disabled or sick persons; or (c) on a regular basis, health-related care and services to individuals who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities, and is not primarily for the care and treatment of mental diseases.[iii]

Almost all nursing facilities that are certified in the Medicaid program are also Medicare-certified.


While admittedly PASRR is administered under the Medicaid program, the evaluations are performed on almost all individuals, regardless of payer source, including Medicare beneficiaries. Significantly, PASRR requires that (1) all applicants to a Medicaid-certified nursing facility be evaluated for mental illness (MI) and/or intellectual disability (ID); (2) be offered the most appropriate setting for their needs and (3) receive the services they need in those settings.