‘Byzantine Ownership Arrangements’: Calls To Scrutinize Coding And Profit Incentives In Nursing Home Medicare Payments

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MedPAC commissioners have called for research into whether coding, provider incentives and patient selection affect payment accuracy in Medicare’s skilled nursing facility and home health systems. The analysis will cover 2021–2025, with initial results expected in fall 2027; researchers say it will identify trends, not prove that payment rules caused provider behavior.

The Medicare Payment Advisory Commission is planning an analysis of whether Medicare payments for skilled nursing facility and home health care accurately reflect patients’ clinical needs and providers’ costs, after commissioners urged scrutiny of coding, financial incentives and patient selection. The review will examine data from 2021 through 2025, with initial findings expected in fall 2027.

At its October meeting, the commission discussed a research work plan focused on payment accuracy in fee-for-service Medicare. Researchers will examine trends in coding, case mix, payment-to-cost relationships and patient selection, and consider whether those patterns appear consistent with payment incentives. The work will also account for factors such as facility specialization, ownership and workforce pressures.

Commissioners raised concerns that financial incentives may affect how providers code patient needs or which patients they admit. Scott Sarran, a MedPAC commissioner and chief medical officer at Harmonic Health, pointed to the growth of for-profit nursing facilities and complex ownership structures, including private equity involvement. He also cautioned that research should consider barriers to access and the role of medical advances in increasing demand for post-acute rehabilitation.

Researchers said the study is intended to identify trends, not establish that payment reforms caused changes in coding, patient selection or provider conduct. They will assess whether higher-cost or potentially unprofitable cases are spread across facilities or concentrated in particular providers. Commissioners also called for examining variation within payment groups and whether payment-to-cost patterns are associated with nursing home closures or fewer available beds.

How Payment Incentives May Affect Access

The findings could inform how Medicare pays for care after a hospital stay and whether its payment methods reflect the clinical complexity and cost of patients’ needs. If some providers disproportionately avoid costly cases, the pattern could affect where patients can obtain skilled nursing care. If payment pressures are linked with facility closures or bed reductions, that could also matter for local access.

Those possibilities are not established by the planned analysis. Patient populations can differ for legitimate clinical reasons: a facility with on-site dialysis, for example, may be better equipped to care for dialysis patients. The policy challenge is to distinguish appropriate specialization from choices shaped by financial incentives, without mistaking differences in patient mix for evidence of improper conduct.

Commissioner Kenny Kan also warned that providers may use artificial intelligence to increase coding intensity in ways that could raise costs. He asked researchers to look for ways to improve accuracy using existing claims and assessment data, rather than adding documentation or reporting burdens for providers.

What MedPAC Plans to Examine

MedPAC is a nonpartisan advisory body that analyzes Medicare payment policies and recommends changes to Congress and the U.S. Department of Health and Human Services. Its work addresses payment accuracy, access to care, quality and the program’s long-term sustainability. The current project focuses on fee-for-service payments for skilled nursing facilities and home health services.

The study’s scope includes payment and cost trends over 2021–2025, as well as provider ownership and patient selection. Commissioner Cheryl Damberg recommended comparing for-profit and nonprofit providers, while noting that differences in selection patterns predate newer payment models. The work will need to account for that history when evaluating any relationship between incentives and provider behavior.

Researchers and commissioners also discussed comparing fee-for-service Medicare with Medicare Advantage, which may have different payment incentives. Sarran proposed interviewing hospital discharge planners to understand whether patients with different clinical needs have equitable access to skilled nursing facilities.

““Most especially nursing facilities, have become increasingly for profit in a variety of Byzantine ownership arrangements – and many of them characterized by private equity injected somewhere in the mix.””

— Scott Sarran, MedPAC commissioner and chief medical officer at Harmonic Health

Where the Evidence May Fall Short

The planned review has not yet produced findings, so it is not known whether payment incentives are associated with coding changes, patient selection, facility finances or access. Even if researchers identify patterns, they have said the analysis is designed to track trends rather than prove that payment reforms caused them.

Differences in admissions or costs may reflect clinical specialization, local arrangements, staffing pressures or other factors—not necessarily financial selection. The source material also does not specify how MedPAC will measure possible AI-related coding changes or what evidence would distinguish inappropriate coding from accurate reporting of patient complexity.

Initial Findings Expected in 2027

Researchers are expected to continue developing the analysis of 2021–2025 claims and assessment data, including coding, case mix, costs and patient selection. Initial results are expected in fall 2027. The commission may then use its findings when considering recommendations to Congress and HHS, but no specific payment changes have been announced.

The work plan also leaves room to examine provider ownership, facility-level cost variation, potential access effects and differences between fee-for-service Medicare and Medicare Advantage. Any conclusions about causes, or proposals for policy changes, will depend on what the analysis finds and how researchers account for legitimate differences in patient needs and facility capabilities.

Key Questions

What is MedPAC studying?

MedPAC plans to study whether Medicare payments for skilled nursing facility and home health services reflect patients’ clinical complexity and providers’ costs. Researchers will examine coding, case mix, payment-to-cost relationships and patient selection.

What period will the analysis cover?

The planned analysis covers data from 2021 through 2025. Initial results are expected in fall 2027.

Has MedPAC found that providers are manipulating coding?

No such finding was reported. Commissioners raised concerns about coding incentives, including possible AI use, but the research has not yet produced results. Researchers say the project is designed to identify trends, not establish that payment rules caused provider behavior.

Could differences in patient admissions have other explanations?

Yes. Facilities may have specialized equipment or services that make them better suited to particular patients. Researchers will need to distinguish clinical specialization and other local factors from selection driven by financial incentives.

Will the study compare Medicare Advantage with fee-for-service Medicare?

Sarran urged researchers to analyze the two separately to better understand possible differences in payment incentives and patient selection. The source material does not confirm the final scope of that comparison.

Source: rss