Medicare’s Advisers Are Digging Into Nursing Home Payments — and the ‘Byzantine’ Ownership Arrangements Behind Them

Federal advisers who shape Medicare policy are zeroing in on a question that has quietly nagged the skilled nursing sector for years: does the payment system reward facilities for coding sicker patients — and for picking the ones that make financial sense?

At its October meeting Friday, the Medicare Payment Advisory Commission laid out a research plan to test whether Medicare payments to skilled nursing facilities and home health agencies accurately reflect patients’ real clinical complexity and care costs. The analysis will cover 2021 through 2025, with initial results expected in fall 2027.

“Care responds to the incentives”

The discussion got blunt fast. Commissioner Scott Sarran, a chief medical officer at digital health startup Harmonic Health, said 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.”

“We see more and more that the care responds to the incentives,” he said, adding that concern over coding accuracy is both historic and ongoing.

Other commissioners flagged a newer wrinkle: artificial intelligence. Commissioner Kenny Kan said he worries providers are “way ahead of health plans in using AI to augment inappropriate coding intensity” to optimize revenue cycle management — a practice he called inflationary for health care costs over time. Still, Kan pushed researchers to fix payment accuracy using data Medicare already collects, not by piling new reporting duties on providers.

Who gets a bed — and who doesn’t

The work plan also takes on patient selection. Interviews have raised concerns that some facilities are reluctant to admit high-cost residents who may lose the facility money. Researchers will look at whether unprofitable cases are spread across providers or concentrated in a few.

Commissioners were careful to note that an unusual patient mix doesn’t prove gaming. A facility with on-site dialysis will naturally treat more dialysis patients; one with bariatric equipment is better equipped for residents with obesity. The challenge is separating legitimate specialization from admission decisions driven by financial incentives.

What’s next

Researchers will also compare for-profit and nonprofit operators — Commissioner Cheryl Damberg noted for-profits have historically posted larger margins — and examine whether payment-to-cost gaps line up with facility closures and shrinking bed counts. That last piece matters for access: if margins keep thinning, commissioners want to know whether vulnerable patients are the ones who lose out.

MedPAC doesn’t set policy. It advises Congress and the Department of Health and Human Services, and its findings tend to frame the debate over Medicare payment updates. With coding scrutiny already intensifying — CMS recently handed nursing homes a win on MDS coding disputes even as it warned facilities about respiratory billing — the 2027 results will land in an environment that isn’t getting any quieter.