A recent audit by the Office of the Inspector General (OIG) revealed that certain skilled nursing facilities (SNFs) did not comply with Medicare requirements for reporting related-party costs. These cost reports, which are filed by SNFs, are crucial for maintaining transparency in how taxpayer money is spent in providing care to residents. The Centers for Medicare & Medicaid Services (CMS) uses this data to determine appropriate reimbursement rates.
There are approximately 15,000 Medicare-certified nursing homes in the US, with about 1.2 million residents as of 2023. SNFs are required to report any services, facilities, or supplies they receive from related parties—companies or individuals with a financial interest in the facility. This includes services such as therapy provided by affiliated organizations. Accurate reporting of these costs ensures that SNFs do not report inflated or unallowable expenses, safeguarding Medicare funds.
The OIG’s audit focused on SNFs that filed cost reports for the fiscal years 2015 to 2020. It found that, out of a sample of 14 SNFs, 3 failed to disclose related parties correctly, and 7 others did not adjust their related-party costs to meet Medicare standards. This oversight resulted in over $1.7 million in overstated costs. The audit also revealed that Medicare Administrative Contractors (MACs) did not regularly review related-party disclosures, and CMS did not provide adequate guidance on determining which related-party costs were allowable under Medicare rules.
In response, the OIG made several recommendations to improve oversight and compliance. The OIG suggested that CMS require MACs to review related-party costs as part of their regular audits and develop clearer guidelines for SNFs to determine allowable related-party costs. Additionally, it recommended that CMS re-educate MACs about the importance of reviewing cost-reporting exceptions. While CMS agreed with two of these recommendations, it disagreed with the suggestion to include related-party reviews in MACs’ routine audits.
You can view the OIG’s report here.
Compliance Perspective
Issue
SNFs must be fully compliant with Medicare’s requirements for reporting related-party costs, which include services and supplies provided by affiliated parties. Failure to accurately disclose and report these costs can result in inflated or improper Medicare reimbursements, undermining the transparency and integrity of the Medicare program. Accurate reporting is essential to ensure taxpayer funds are used appropriately and that Medicare payment rates for SNFs are based on reliable cost data. Noncompliance can lead to financial mismanagement and significant penalties.
Discussion Points
- Review policies and procedures related to Medicare cost reporting, specifically for the accurate disclosure of related-party costs. Ensure they are up to date with Medicare’s requirements and include clear guidelines for reporting and adjusting related-party costs as necessary.
- Train and educate staff on the correct procedures for identifying related parties and properly reporting related-party costs. Ensure staff are aware of the regulations governing allowable costs and document that training has occurred, with signed confirmation in each employee’s education file.
- Conduct regular audits to verify compliance with related-party cost reporting requirements. Ensure that related-party costs are properly disclosed and adjusted according to Medicare guidelines. Investigate and correct any discrepancies, ensuring that audits are thorough and any noncompliance is addressed.
*This news alert has been prepared by Med-Net Concepts, Inc. for informational purposes only and is not intended to provide legal advice.*
