OIG's PDPM Skilled Nursing Audit Series: Lessons From the Findings and How to Audit Your Own Claims

Since October 2019, Medicare has paid skilled nursing facilities (SNFs) under the Patient Driven Payment Model (PDPM), which ties payment to patient characteristics recorded on the Minimum Data Set (MDS) rather than to therapy minutes. PDPM made MDS coding accuracy, diagnosis coding, and clinical documentation the foundation of SNF payment.

The HHS Office of Inspector General (OIG) has launched an audit series focused on SNF reimbursement under PDPM. The first report, issued in November 2025, found that a large New York SNF did not comply with Medicare requirements for 99 of 100 sampled claims and estimated overpayments of at least $31.2 million. OIG's Work Plan shows seven more projects in the series as active, announced between June 2025 and July 2026.

This article explains PDPM basics, the OIG audit series, what the first report found, the most common PDPM compliance risks, and how SNFs can audit their own claims before OIG does. It is educational and does not replace legal or professional advice.

PDPM Basics

How PDPM Classifies Patients

Under PDPM, each Medicare Part A SNF stay is classified into case-mix groups for five components:

• Physical therapy.

• Occupational therapy.

• Speech-language pathology.

• Nursing.

• Non-therapy ancillaries (NTA).

A non-case-mix component also applies. The combination of case-mix groups produces a Health Insurance Prospective Payment System (HIPPS) code that determines payment.

What Drives Classification

• The primary diagnosis, reported on the MDS, which maps to a clinical category.

• Section GG functional scores.

• Cognitive status and swallowing or mechanically altered diet indicators for speech-language pathology.

• Nursing indicators, such as extensive services, clinical conditions, depression, and restorative nursing.

• Comorbidities and services that determine the NTA score.

Assessments

PDPM relies primarily on the 5-day assessment, with an optional Interim Payment Assessment when a patient's condition changes significantly. The Long-Term Care Facility Resident Assessment Instrument (RAI) User's Manual provides item-by-item coding instructions.

The Variable Per Diem

Physical therapy, occupational therapy, and NTA components are subject to variable per diem adjustments that change payment over the course of a stay.

Medicare SNF Coverage Requirements

PDPM coding is only part of compliance. SNF claims must also meet coverage requirements, including:

• A qualifying inpatient hospital stay of at least three consecutive days, under 42 CFR 409.30, unless a waiver applies.

• Daily skilled services that, as a practical matter, can only be provided in a SNF on an inpatient basis, under 42 CFR 409.31 through 409.35.

• Physician certification and recertification of the need for SNF care, under 42 CFR 424.20.

• Documentation supporting the services billed.

The OIG Audit Series

Series Overview

OIG's Work Plan lists a Skilled Nursing Facility Reimbursement series, number SRS-A-25-010. As of OIG's Work Plan page, the series includes eight projects: one completed and seven active, announced on June 12, 2025; July 31, 2025; August 26, 2025; March 16, 2026; April 15, 2026; June 17, 2026; and July 15, 2026. OIG keeps titles of active projects unpublished until they are complete.

Why OIG Is Auditing PDPM

In its first report, OIG explained that prior audits found skilled nursing services susceptible to noncompliance with Medicare requirements, and that data analytics showed the audited facility had a significant increase in Medicare Part A reimbursement under PDPM compared with the prior payment model.

The First Report: Pinnacle Multicare

Findings

OIG's November 2025 report on Pinnacle Multicare Nursing and Rehabilitation Center found that the facility did not comply with Medicare requirements for 99 of 100 sampled claims for services in 2020 and 2021. The errors fell into three categories:

• Medical records did not support the HIPPS code billed.

• Services were provided to individuals who did not require skilled nursing services.

• Claims did not meet Medicare documentation requirements.

The sampled claims had overpayments of $1.1 million, and OIG estimated total overpayments of at least $31.2 million.

Recommendations

OIG recommended that the facility:

• Refund the estimated overpayment.

• Conduct internal audits or investigations of claims before and after the audit period to identify and return similar overpayments.

• Provide additional training to clinical and billing personnel on procedures for coding, skilled nursing necessity, and documentation.

According to OIG's Work Plan page, the refund recommendation remained open, while the internal audit and training recommendations were marked implemented in March 2026.

The Facility's Response

The facility did not concur with the recommendations. It argued that OIG's medical reviewer misapplied MDS and PDPM coding guidelines and did not account for waivers in effect during the COVID-19 public health emergency. OIG's recommendations are not final determinations; CMS and its contractors decide whether overpayments exist, subject to appeal.

Lessons From the Findings

HIPPS Codes Must Be Supported by the Medical Record

Every MDS item that affects PDPM classification must be supported by documentation in the medical record. OIG's first report indicates that problems in conducting the MDS assessment itself can lead to incorrect HIPPS codes.

Skilled Need Must Be Documented

Coding a high-paying classification does not establish that the patient needed daily skilled services. Records must show why the patient required skilled nursing or therapy that could only be provided in a SNF.

Technical Documentation Matters

Certifications, signatures, and other technical requirements can lead to findings independent of clinical issues.

Public Health Emergency Waivers

For services during the COVID-19 public health emergency, CMS waived certain requirements, such as the three-day qualifying stay in some circumstances. Facilities should document when and how waivers applied.

Look-Back Exposure

OIG's recommendation to audit claims before and after the audit period means findings can extend well beyond the sample. Facilities should consider their obligations under the 60-day overpayment rule at 42 CFR 401.305.

Common PDPM Compliance Risks

Primary Diagnosis and Clinical Category

• Primary diagnosis not supported by physician documentation.

• Primary diagnosis that does not reflect the reason for the SNF stay.

• Codes that map to higher-paying clinical categories without support.

Section GG Functional Scores

• Scores that do not reflect the patient's usual performance during the assessment period.

• Scores not supported by nursing and therapy documentation.

• Inconsistency between Section GG and other documentation.

NTA Comorbidities

• Comorbidities coded without an active diagnosis.

• Conditions coded that are resolved or not affecting care.

• Lack of physician documentation for coded conditions.

Speech-Language Pathology Indicators

• Cognitive impairment, swallowing disorders, or mechanically altered diets coded without support.

• SLP-related comorbidities coded without documentation.

Nursing Classification

• Extensive services, clinical conditions, or depression coded without support.

• Restorative nursing coded without meeting RAI Manual requirements.

Interim Payment Assessments

• Failure to complete an Interim Payment Assessment when appropriate, or completing one without support.

Skilled Need

• Patients who required only custodial care.

• Therapy or nursing services not reasonable and necessary.

• Documentation that does not show daily skilled services.

Technical Requirements

• Missing or late physician certifications and recertifications.

• Missing signatures.

• MDS completed or submitted outside required timeframes.

A Closer Look at High-Risk PDPM Items

Primary Diagnosis (MDS Item I0020B)

The primary diagnosis drives the clinical category for physical therapy, occupational therapy, and speech-language pathology. Reviewers check whether it reflects the primary reason for the SNF stay and is supported by physician documentation. Common errors include coding a condition treated during the hospital stay that is not the focus of SNF care, or using codes that map to higher-paying categories without support.

Section GG

Section GG captures self-care and mobility performance during the assessment period. Under the RAI Manual, coding should reflect the patient's usual performance. Reviewers compare GG scores with nursing and therapy notes. Scores that show more impairment than the notes describe may be found unsupported.

NTA Comorbidities

Many NTA conditions carry significant points. Each must be an active diagnosis documented by a physician or other authorized practitioner and meet RAI Manual criteria. Conditions documented only in history, resolved, or not affecting care should not be coded.

Depression and Nursing Indicators

Depression coding based on the PHQ assessment, and nursing indicators such as extensive services or clinical conditions, must follow RAI Manual instructions and be supported by documentation.

Restorative Nursing

Restorative nursing programs must meet RAI Manual requirements, including specific timeframes and documentation, to be counted.

Swallowing and Mechanically Altered Diet

Speech-language pathology classification indicators must be supported by documented assessments and orders.

The Role of the Interdisciplinary Team

Accurate PDPM coding depends on input from nursing, therapy, dietary, social services, and physicians. Facilities should:

• Hold interdisciplinary MDS meetings before the assessment reference date.

• Make sure each discipline documents observations during the assessment period.

• Resolve inconsistencies before coding.

• Document the basis for each high-impact item.

Physician Documentation

Physicians and other practitioners must document diagnoses that affect PDPM classification. Facilities should:

• Request complete hospital records at admission.

• Ask physicians to document active diagnoses and their treatment.

• Use compliant, non-leading queries when documentation is unclear.

• Avoid coding diagnoses from medication lists or nursing notes alone.

Data Patterns That May Draw Attention

• Large increases in reimbursement after PDPM implementation compared with peers.

• High NTA scores or high shares of patients in high-paying clinical categories.

• Functional scores at admission that show high impairment followed by rapid improvement.

• High use of Interim Payment Assessments, or none at all.

• Long lengths of stay with little documented change in skilled need.

How to Audit Your Own PDPM Claims

Step 1: Analyze Data

• Compare PDPM reimbursement and case-mix distribution with the prior payment model and with peers.

• Review PEPPER for SNFs.

• Identify outliers in NTA scores, functional scores, clinical categories, and nursing classifications.

Step 2: Select a Sample

Use a probe sample for discovery. If findings may be used to estimate overpayments, use a statistically valid random sample designed with a statistician, consistent with principles in the Medicare Program Integrity Manual, Chapter 8, Section 8.4.

Step 3: Recode the MDS Independently

Have a qualified MDS coordinator or reviewer recode PDPM-related items from the medical record, without seeing the original coding, using the RAI Manual in effect for the assessment date.

Step 4: Recalculate the HIPPS Code

Determine whether independent coding changes the HIPPS code and payment.

Step 5: Review Skilled Need

For each claim, determine whether the record supports daily skilled services that required a SNF.

Step 6: Review Technical Requirements

Check the qualifying stay, physician certification and recertification, signatures, and MDS timing.

Step 7: Analyze Root Causes

Look for causes such as training gaps, documentation workflows, pressure to code for payment, or EHR issues.

Step 8: Correct and Educate

Provide training, revise workflows, and implement pre-submission MDS review.

Step 9: Address Overpayments

Work with counsel to evaluate and return overpayments under the 60-day rule.

Pre-Submission MDS Review

A second review before MDS submission can catch many errors. A strong review:

• Confirms the primary diagnosis and clinical category.

• Verifies Section GG scores against nursing and therapy documentation.

• Confirms each NTA comorbidity is active and documented.

• Confirms nursing and speech-language pathology indicators.

• Checks assessment timing.

• Documents the review.

The reviewer should correct errors in both directions and should not push coding toward higher-paying classifications.

Training Topics

• RAI Manual updates and PDPM coding instructions.

• Section GG usual performance coding.

• Active diagnosis requirements.

• Skilled need documentation for nursing and therapy.

• Physician query processes.

• Technical requirements such as certifications.

• The 60-day overpayment rule.

Questions Leadership Should Ask

• How did our reimbursement change after PDPM compared with peers?

• What share of our NTA comorbidities are supported by physician documentation?

• Do our Section GG scores match our clinical notes?

• Do we review skilled need weekly?

• When did we last conduct an independent PDPM audit?

Lessons From Facility Responses

The facility in OIG's first report argued that reviewers misapplied coding guidelines and did not account for public health emergency waivers. Whether or not those arguments succeed on appeal, they highlight the value of:

• Contemporaneous documentation that clearly supports each coded item.

• Records showing which waivers applied and when.

• Internal coding guidelines that track the RAI Manual closely.

• Clinical rebuttals prepared by qualified reviewers.

Building a Compliant PDPM Program

• MDS coordinators with current RAI Manual training.

• Interdisciplinary input into MDS coding.

• Physician documentation of diagnoses that affect classification.

• Section GG coding supported by nursing and therapy documentation across the assessment period.

• Documentation that shows daily skilled need.

• Pre-billing review of high-impact PDPM items.

• Regular internal audits.

• Separation of coding decisions from financial pressure.

OIG's 2024 Nursing Facility Industry Segment-Specific Compliance Program Guidance emphasizes compliance with SNF prospective payment system requirements, including accurate assessments and billing.

Responding to an OIG Audit

• Engage counsel early.

• Designate a single point of contact.

• Produce complete, organized records for every sampled claim.

• Review OIG's preliminary findings with qualified MDS and clinical reviewers.

• Submit detailed written comments on the draft report, including clinical rebuttals.

• After the final report, prepare to appeal overpayment determinations, including challenges to the statistical methodology.

A Hypothetical Example

A SNF notices that its NTA scores rose sharply after PDPM implementation and are well above peers. A counsel-directed audit of 50 claims finds that many coded NTA comorbidities lacked physician documentation of an active diagnosis, and that Section GG scores at admission were consistently lower than therapy notes described. The facility retrains MDS staff and clinicians, implements physician query processes, adds a second review before MDS submission, and works with counsel to estimate and return overpayments. Its NTA and functional scoring patterns move closer to peers over the next year.

A PDPM Self-Audit Checklist

• Primary diagnosis supported and reflects the reason for the SNF stay.

• Section GG scores reflect usual performance and match clinical notes.

• NTA comorbidities are active, documented, and affect care.

• Nursing and speech-language pathology indicators follow RAI Manual instructions.

• Interim Payment Assessments completed when appropriate.

• Daily skilled need documented.

• Qualifying stay and certification requirements met.

• MDS timing correct.

• HIPPS code recalculated and confirmed.

• Overpayments identified and returned.

Responding to Data-Driven Selection

If a facility's data looks like an outlier, it should not assume it is wrong, but it should be able to explain why. Facilities serving complex populations, such as patients with ventilators, wounds, or multiple comorbidities, should document case-mix factors that explain higher classifications.

Using PEPPER for SNFs

PEPPER for SNFs compares facility data with state and national benchmarks in target areas. Facilities should review PEPPER results along with internal data to choose audit topics and to identify patterns that may draw attention.

Watching for New Reports

OIG keeps titles of active projects unpublished until reports are released. Facilities should monitor OIG's reports page and the SNF Reimbursement series page for new findings and apply lessons to their own audits.

Staying Focused

PDPM pays for patient complexity. Accurate assessments and honest documentation of that complexity protect both patients and the facility.

Common Myths

• "PDPM eliminated audit risk because therapy minutes no longer drive payment." It shifted risk to MDS coding and documentation.

• "A coded diagnosis is enough." Diagnoses must be active, documented, and relevant to care.

Remember Appeal Rights

Facilities keep full Medicare appeal rights on any overpayment determinations that follow an OIG audit.

Final Tip

Keep a record of each internal PDPM audit, its findings, and corrective actions as evidence of an active compliance program.

Key Takeaways

• OIG's SNF Reimbursement series has one completed PDPM report and seven active projects as of mid-2026.

• The first report found 99 of 100 claims noncompliant and estimated at least $31.2 million in overpayments.

• Common issues include unsupported HIPPS codes, lack of skilled need, and documentation failures.

• Independent MDS recoding, skilled need reviews, and data analysis are the best self-audit tools.

• Expect OIG to recommend look-back reviews under the 60-day rule.

Frequently Asked Questions

What is OIG's PDPM audit series?

A Skilled Nursing Facility Reimbursement audit series under OIG's Work Plan, with one completed report and seven active projects as of mid-2026.

What did the first audit find?

That 99 of 100 sampled claims did not comply with Medicare requirements, with estimated overpayments of at least $31.2 million.

What errors did OIG find?

Unsupported HIPPS codes, services for individuals who did not need skilled nursing care, and documentation failures.

Are OIG's findings final?

No. CMS and its contractors determine overpayments, and facilities can appeal.

How should SNFs prepare?

Analyze data, audit MDS coding and skilled need, strengthen documentation, and address overpayments.

Conclusion

OIG's PDPM audit series signals sustained scrutiny of SNF billing under PDPM. The first report's findings, unsupported HIPPS codes, lack of skilled need, and documentation problems, point directly to the areas SNFs should audit now. Facilities that recode MDS items independently, review skilled need, check technical requirements, address root causes, and return overpayments will be better prepared if OIG selects them for review.

How HealthBridge Can Help

HealthBridge is a healthcare management consulting firm that helps SNFs audit PDPM claims through independent MDS recoding, skilled need reviews, data analysis, root cause analysis, and staff training, working with counsel when privilege is important. If you want to audit your PDPM claims before OIG does, please get in touch with us. We will be happy to help you with this topic.

References

• U.S. Department of Health and Human Services, Office of Inspector General. Skilled Nursing Facility Reimbursement Series (SRS-A-25-010). https://oig.hhs.gov/reports/work-plan/browse-work-plan-projects/srs-a-25-010/

• U.S. Department of Health and Human Services, Office of Inspector General. Nearly All Skilled Nursing Services Provided by Pinnacle Multicare Nursing and Rehabilitation Center Did Not Meet Medicare Payment Requirements (A-02-22-01017), November 2025. https://oig.hhs.gov/reports/all/2025/nearly-all-skilled-nursing-services-provided-by-pinnacle-multicare-nursing-and-rehabilitation-center-did-not-meet-medicare-payment-requirements

• U.S. Department of Health and Human Services, Office of Inspector General. Nursing Facility Industry Segment-Specific Compliance Program Guidance. https://oig.hhs.gov/compliance/compliance-guidance/

• Centers for Medicare & Medicaid Services. Patient Driven Payment Model. https://www.cms.gov/medicare/payment/prospective-payment-systems/skilled-nursing-facility-snf/patient-driven-payment-model

• Centers for Medicare & Medicaid Services. Minimum Data Set 3.0 Resident Assessment Instrument Manual. https://www.cms.gov/medicare/quality/nursing-home-improvement/resident-assessment-instrument-manual

• Centers for Medicare & Medicaid Services. Medicare Benefit Policy Manual, Chapter 8, Coverage of Extended Care (SNF) Services Under Hospital Insurance. https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c08.pdf

• Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual, Chapter 8, Section 8.4, Statistical Sampling for Overpayment Estimation. https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/pim83c08.pdf

• Electronic Code of Federal Regulations. 42 CFR Part 409, Subpart D, Requirements for Coverage of Posthospital SNF Care. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-409/subpart-D

• Electronic Code of Federal Regulations. 42 CFR 424.20, Requirements for Posthospital SNF Care. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-B/part-424/subpart-B/section-424.20

• Electronic Code of Federal Regulations. 42 CFR 401.305, Requirements for Reporting and Returning of Overpayments. https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-A/part-401/subpart-D/section-401.305