Find a
Nursing Home
Residential Care
/ Assisted Living
CCRCs Medi-Cal for
Long Term Care
Elder Abuse
/ Financial Abuse
Find Elder Abuse Attorneys in CA

How to Make a Killing in MDS Fraud

by Peter Lomhoff, Esq.

The real money in the nursing home business is in Medicare. In one recent case our poor nursing home resident client was dying from dehydration caused by understaffing. She could hardly move, but Medicare was paying about $800 per day for her care, mostly for physical therapy which she could not possibly do. How did that happen?

There are several steps in making a lot of money from Medicare in a nursing home.

First, it is important to maximize the census of Medicare patients and minimize the number of Medi-Cal (Medicaid) patients, because Medicare pays substantially more per patient per day than Medi-Cal. The idea is to recruit patients being transferred from acute care hospitals who are eligible for Medicare, instead of patients from other sources who are likely to be paying for their care through Medi-Cal. By maintaining staffing at absolutely minimum levels, the nursing home can get paid by Medicare for caring for these relatively acute patients, who need a lot of care, while not paying for the staff needed to provide that care by maintaining minimum staffing.

The next steps are to maximize the length of Medicare eligibility, by showing progress in ADL’s, and then to somehow discharge the Medicare patients when their Medicare coverage is about to end and they threaten to turn into low paying Medi-Cal patients.

Once the census of Medicare patients is relatively high, then the trick is how to maximize the Medicare payments even within the relatively high paying Medicare payment range. As Captain Ahab said to Starbuck in Moby Dick, “Hark ye yet again- the little lower layer. All visible objects, man, are but as pasteboard masks. . . . Strike though the mask!” In other words this is where it gets more subtle and we have to seek a deeper understanding.

Our pasteboard mask, the key to the Medicare money game, is the Minimum Data Set, commonly called the MDS. The MDS is the computer generated form that every nursing home periodically transmits to Medicare for every patient. It contains a great variety of standardized information about the patient and is used by Medicare to determine the amount of reimbursement to the nursing home for that patient’s care.

The key item in the MDS is the Resource Utilization Group, or RUG, score, in Section Z of the MDS. The RUG score indicates the level of the patient’s care requirements. The most important factors in the RUG score are the levels of physical, occupational, and speech rehabilitation therapy the patient receives, and the complexity of the nursing care the patient requires. The higher the RUG score, the higher the Medicare reimbursement to the nursing home.

The MDS data are prepared by an MDS Coordinator who is a nurse. MDS coordinators are trained at private seminars on how to enter data on the MDS form so as to maximize the RUG score and so maximize revenue. For an example training syllabus go to

Our dying dehydrated patient consistently had a RUG score at the highest level, called “ultra high intensity.” That means she was able to do, and to benefit from, and the nursing home was paid for, 720 minutes of individual active (not group or passive) therapy per week, even though, in fact, she could not possibly do that, let alone benefit from it. How could that be?

The RUG score is based on various factors, but to get the RUG score into the highest possible category, there are several important steps. The therapists must certify that they are providing the highest possible amount of therapy that the patient is able to benefit from, and that the patient will benefit from that therapy. A second key step is how the patient’s activities of daily living (ADL’s) are coded in Section G of the MDS. The ADL’s must show that the patient is making progress and that she is in fact able to do the therapy. (The RUG score goes up some when higher levels of help are needed with ADL’s, but the RUG score goes up a lot when the patient will benefit from a high level of therapy, even though patient needs less help with ADL’s). And in addition, if the patient needs complex nursing care, such as respiratory care or communicable disease isolation, that, too, increases the RUG score significantly. The RUG score really matters. Under the current version of the RUG payment scale for urban SNF’s the daily payments per Medicare patient range from $761.39 to $190.73. (Federal Register/Vol. 78, No. 87/ Monday, May 6, 2013/Proposed Rules, 26437-26480.)

The ADL’s reported on the MDS are based, or supposed to be based, on the ADL’s recorded by the nurses aides in the ADL section of the patient’s chart at the SNF. The ADL’s on the MDS for our dying dehydrated patient were close to the ADL’s in the patient’s chart when she first arrived at the SNF, but as she declined due to dehydration, and her ADL’s in her chart deteriorated accordingly, the ADL’s reported to Medicare in the MDS remained the same or in some cases improved. As a result the periodic MDS updates continued to show that she was capable of continued ultra high intensity therapy, and the SNF continued to be paid at the highest rate for the maximum amount of therapy, even though the patient’s ability to do any of that therapy, let alone to benefit from it, was declining rapidly to nonexistent.

In our case the MDS Coordinator nurse proudly explained the MDS process in great detail in her deposition, but she did not know that we had already compared her MDS ADL entries with the very different ADL entries in the patient’s chart.

How could the therapists justify maximum therapy with our dying patient? They explained in deposition that they did put in the time and tried because they thought it might help her some, but they also understood that she was declining despite their sincere efforts. They also understood that they were employed by an independent contractor therapy company that was paid according to the number of hours of therapy it provided. The therapists knew nothing, however, about how their therapy records related to the MDS or to Medicare reimbursement to the nursing home.

So, while there is good money to be made by submitting fraudulent MDS forms to Medicare, how does that show elder abuse of the patient? The MDS is used not just for Medicare reimbursement, but also as a standardized quick shorthand overview of the patient’s condition. Any nurse who ever looks at a false MDS for an overview of a patient will get wrong information, and will misunderstand what care the patient actually requires. When that happens the neglect of the patient is done with fraud and with willful and conscious disregard of the rights and safety of the patient, which is elder abuse. (Welfare and Institutions Code 15657; Civil Code 3294.) If the resources of the SNF are used to defraud Medicare, or the excessive profits go into the owners’ pockets instead of being used for patient care, then the SNF has failed to use its resources to attain or maintain the highest practicable physical, mental, and psychosocial well-being of its residents. That is intentional violation of 42 C.F.R. 483.25 by managing agents of the SNF, or elder abuse. And if you ever find a good relator, you have a great qui tam case.

After the therapists could no longer certify that our client was making progress in therapy, she was discharged home on hospice and died a week later. The nursing home is one of the most profitable in the area, with recent profits of over $50.00 per patient day, or more than six times the area average.

The California Attorney General’s Office has expressed interest in prosecuting SNF fraud cases, but so far as I know it has never done a case based on fraud in MDS reporting. Working with the AG when this type of fraud shows up in our individual cases might do some worthwhile justice for California SNF residents as well as for all of us taxpayers.

For more on this interesting subject see Department of Health and Human Services, Office of Inspector General, “Questionable Billing by Skilled Nursing Facilities,” Daniel R. Levinson, Inspector General, December 2010, OEI-02-09-00202; also Chapter 6 of the CMS Manual, RAI Version 3.0, October 2011, “Medicare Skilled Nursing Facility Prospective Payment System (SNF PPS).”

I didn’t figure any of this out myself. A big thank you to the friends who explained it to me!

(Peter Lomhoff, Esq., is an attorney in private practice in Berkeley, CA)