Recovery audits: SNF psychiatric conditions

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.

The two levels of PASRR review are intended to identify individuals with serious mental illness or intellectual disability prior to admission to a nursing facility and to ensure that they have all necessary services in the least restrictive setting. Federal regulations at 42 C.F.R. § 483.126 explain an “appropriate placement” of an individual with MI in a nursing home as follows:

Placement of an individual with MI or MR in a NF may be considered appropriate only when the individual's needs are such that he or she meets the minimum standards for admission and the individual's needs for treatment do not exceed the level of services which can be delivered in the NF to which the individual is admitted either through NF services alone or, where necessary, through NF services supplemented by specialized services provided by or arranged for by the State.

Additionally, the PASRR requirements are such that the determination made by the state mental health or mental retardation authorities cannot be countermanded by the state Medicaid agency, either in the claims process or through other utilization control/review processes or by the state survey and certification agency. Only appeals determinations made through the PASRR-related appeals system can overturn a PASRR determination.3

The recent RA audits seem to be conducted without regard to PASRR determinations. Although some may argue that this is justified because the PASRR program has been generally ineffective, a recent study of the national PASRR system prepared for CMS and released in September 2013, found that states have improved significantly in data capture related to the MI assessments. For 2013, the need for nursing facility placement was comprehensively captured in 94 percent of states’ Level II MI tools.3

Understandably, some LTC providers are starting to ask whether it is worth risking a payment denial by admitting patients following a psychiatric hospitalization. Rather than panic, however, providers should treat the advent of these audits as an opportunity to evaluate and improve their documentation practices to prevail in a SNF Psychiatric RA audit review.


Many claims seem to be targeted because they contain only the psychiatric diagnosis. According to the MBPM, Chapter 8, Section 20.1, “the applicable hospital condition need not have been the principal diagnosis that actually precipitated the beneficiary’s admission to the hospital, but could be any one of the conditions present during the qualifying hospital stay.” Accordingly, providers should make sure that all applicable diagnosis codes are identified. If the underlying claim submission only listed the psychiatric diagnosis, providers should identify that in the cover letter to the ADR submission and highlight all other co-morbidities in the medical record.

In addition to identifying all co-morbidities, providers should also specifically identify all skilled services that the resident received. Indeed, Section of the MBPM provides as follows:

Skilled observation and assessment may also be required for patients whose primary condition and needs are psychiatric in nature or for patients who, in addition to their physical problems, have a secondary psychiatric diagnosis. These patients may exhibit acute psychological symptoms such as depression, anxiety or agitation, which require skilled observation and assessment such as observing for indications of suicidal or hostile behavior. However, these conditions often require considerably more specialized, sophisticated nursing techniques and physician attention than is available in most participating SNFs. (SNFs that are primarily engaged in treating psychiatric disorders are precluded by law from participating in Medicare.) Therefore, these cases must be carefully documented [emphasis added].

Likewise, it is important that the Minimum Data Set (MDS) accurately reflects the resident’s psychiatric condition and care provided. The local coverage article for National Government Services Inc. (“NGS”) discussing their medical policy for SNF services for psychiatric patients states:

The care provided during a covered SNF stay must be associated with the condition for which the beneficiary was admitted to the hospital or for a condition that arose during the qualifying stay, or for a condition which arose while in the SNF. In the case of beneficiaries admitted to SNF care from a psychiatric hospital or psychiatric unit within a general hospital, associated SNF care would need to be related to comorbid medical conditions that require skilled nursing and therapy services. In these cases the beneficiary must require skilled nursing and/or therapy services on a daily basis and the SNF must additionally provide the psychiatric services by appropriately qualified personnel and follow acceptable psychiatric practice in the establishment and delivery of the treatment plan. It is expected that SNF placement for psychiatric patients would rarely be reasonable and necessary. (See CMS Publication 100-02, Medicare Benefit Policy Manual, Chapter 8, Sections 20.1 and An example would be upon transfer from an acute inpatient psychiatric service for a patient whose psychiatric condition has resolved but the medical co-morbidity requires continuous skilled care.

Finally, facilities should include a copy of the resident’s PASRR approval for nursing facility care with all ADR submissions. For SNFs that find themselves at risk for significant repayments to Medicare from these Psychiatric Conditions Audits, the good news is that in risk there is opportunity. By quickly identifying all comorbidities and all skilled services received by a resident, and using careful documentation, SNFs can ensure they are properly prepared for possible audit, ensure overall compliance and avoid significant penalty.


1. Performant Recovery.  Issues under review. Available at

2. Kutscher B. Bedding, not boarding: Psychiatric patients boarded in hospital EDs create crisis for patient care and hospital finances. Available at

3. Kako E, Smith M. Review of state Preadmission Screening and Resident Review (PASRR) Policies and Procedures: PASRR Technical Assistance Center. Available at:


[i] Affected states include RA Region A (Performant Recovery, Inc.)—Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont; and RA Region B (CGI)—Illinois, Minnesota. Wisconsin, Michigan, Indiana, Ohio and Kentucky.

[ii] This review was also posted on the approved issue list of a third RA, Connolly (Region C), in May 2013, but has since been revised to remove any ostensible reference to psychiatric conditions.


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