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How to Use PEPPER to Audit for Accurate Coding and Billing for Medicare Part A

By Liz Barlow, RN, CRRN, RAC-CT, DNS-CT – April 20, 2021

The federal government focuses intently on preventing fraud, waste, and abuse within the Medicare system. As a part of those efforts, the Program for Evaluating Payment Patterns Electronic Report (PEPPER), initially released as a result of the Affordable Care Act, gathers data on billing patterns of skilled nursing facilities (SNFs) across the nation. In addition to their role helping the Centers for Medicare & Medicaid Services (CMS) identify improper payments, PEPPER reports can also guide facilities’ audits and compliance efforts.

By proactively validating their care and billing patterns, SNFs can not only forestall many CMS enforcement actions, but verify that the care they provide their Medicare Part A residents is consistent with that at similar facilities. When a SNF knows its data and understands how that data compares to facilities across the nation, it can review and confirm its billing patterns and assure that processes are in place for payment accuracy. The report can also highlight potential risk areas that may forewarn the facility that it is at risk for improper payment.

Below are some tips for nurse assessment coordinators (NACs) on how to best utilize PEPPER:

Compare Your Facility to Those in Your State, Region, and Jurisdiction

PEPPER shares results as both a percentage and a percentile. The target area percentage allows a provider to see its own billing pattern. Similar to a CASPER report, a percentile allows comparison to other facilities. For example, if your facility is at the 70th percentile, then 70% of other providers’ target area percentages were lower than yours.

The report also identifies two outliers in the data: those above the 80th percentile and those below the 20th percentile. Those areas are called out on the report to draw attention to providers whose performance falls above or below what is considered to be the control limit. The PEPPER User’s Guide also provides guidance to providers for each metric regarding being flagged as either a high or low outlier.

Be Alert for New, PDPM-Prompted Categories

Prior to 2021, the focus within PEPPER was on RUG-based items, such as high therapy utilization, percentage of change of therapy (COT) assessments, and high activities of daily living (ADLs). Several areas on the previous report have been carried over to the new report, such as 90-day length of stay, 20-day length of stay, and rehospitalization rates. Yet the report also has new metrics tracked, necessitated by the implementation of the Patient-Driven Payment Model (PDPM) in October 2019. 

This is the first full year of data that we have been able to view through PEPPER. The target areas that were released in April 2021 are noted in the chart below:

  • PDPM High Utilization Codes* (new April 2021)
  • 20-Day Episodes of Care
  • 90+ Day Episodes of Care
  • 3- to 5- Day Readmissions* (new July 2020)

Understand the SNF PEPPER Target Areas

CMS has identified certain areas as particularly at risk for improper Medicare payments. These “target areas” are tailored to each type of provider. For SNFs, the current target areas are:

(CMS, 2020, p. 6)

Although these categories are current, the SNF PEPPER User’s Guide notes, “The SNF PEPPER target areas and supplemental reports will be changing over time to provide information related to potential vulnerabilities of the PDPM” (CMS, 2020, p. 4). Therefore, it is key for NACs to both understand CMS’s active priority areas and be alert for changes as they evolve.

Category descriptions:

PDPM High Utilization Codes

The report reviews the Physical Therapy (PT) and Occupational Therapy (OT) components of the PDPM, which are represented by the following codes: C, D, G, H, K, L, O, or P. In reviewing these codes, the metric reflects each of the four PT and OT PDPM Clinical Categories, with a GG function score in the range of 10-23 and 24.

Clinical CategoryHIPPS codeFunction Score
Major Joint Replacement or Spinal SurgeryC10-23
Other OrthopedicG10-23
Medical ManagementK10-23
Non-Orthopedic Surgery and Acute NeuroO10-23

20-Day Episodes of Care

The SNF Medicare Part A benefit provides 20 days of 100% Medicare coverage, after which the coverage drops to 80%. SNFs therefore have a financial incentive to keep patients for 20 days, even though beneficiaries may no longer require skilled care. SNFs that have high proportions of 20-day episodes should ensure that beneficiaries require a skilled level of care for the entire duration of their SNF stay (CMS, 2020, p. 7).

In addition to the financial incentive that CMS notes, there would also be an incentive to discharge on day 20 due to the variable per diem for the PT and OT components. Beginning on day 21, there is an adjustment factor applied to these components that decreases the daily rate by 2% every seven days under PDPM.

 (CMS, 2019b, p. 2)

90+ Day Episodes of Care

Medicare reimburses up to 100 days of skilled care per the beneficiary’s spell of illness. SNFs that have a high proportion of episodes of care with 90 or more days should ensure that beneficiaries are receiving services that are necessary. The SNF should also ensure that beneficiaries receive skilled care the entire duration of their SNF stay (CMS, 2020).

3- to 5-Day Readmissions

Under PDPM, there is a potential incentive for providers to discharge SNF patients from a covered Part A stay and then readmit the patient to reset the variable per diem schedule. To mitigate this potential incentive, PDPM includes an interrupted stay policy, which combines multiple SNF stays into a single stay in cases where the patient’s discharge and readmission occurs within a prescribed window. If a patient is discharged from a SNF and readmitted to the same SNF no more than three consecutive calendar days after discharge, then the subsequent stay is considered a continuation of the previous stay, and the variable per diem schedule continues from the point just prior to discharge. If the patient is discharged from a SNF and then readmitted more than three consecutive calendar days after discharge or admitted to a different SNF, then the subsequent stay is considered a new stay, and the variable per diem schedule resets to day one (CMS, 2019a).

Use PEPPER to Audit Target Areas

It is important that facilities understand the data that their billing generates. Payers, including CMS, often review billing data first as they identify facilities that may be prone to improper payments. No facility or company is immune to audits or ADRs, but by having documentation that supports what is billed and demonstrates that the skilled services are medically necessary, facilities can be prepared to withstand scrutiny. Taking a proactive approach by testing target areas can help to assure a facility of the integrity of its compliance program and processes.

Get Started

To begin, pull your PEPPER. Go to the PEPPER Portal to obtain your report and review your data. Is your facility an outlier? If so, don’t panic! Remember that this report only identifies the potential for improper payments; it doesn’t mean your facility is doing anything wrong. This is the first step in understanding your billing patterns. Categories will be highlighted in red if at or above the 80th percentile, and they will be in green if at or below the 20th percentile.

The SNF PEPPER User’s Guide has a good summary on ways to review your data to assure billing integrity. Also, utilize the following categories as part of your compliance program.

PDPM High Utilization Codes: High or Low percentile

Review your medical records to ensure appropriate diagnosis coding for I0020B. This will assure that you have the correct category for billing. In addition, review your facility’s process for accurately coding Section GG Usual Performance for 5-Day assessments.

If therapy is the main reason for admission to the SNF, the teams should have an audit plan to assure that medical necessity is supported through the therapist’s and clinical documentation. The documentation must support that not only does this resident need therapy services, but also that it is appropriate for these services to be provided at the SNF and not at a more independent care setting.

20-Day Episodes of Care: High percentile

If a high percentile triggered under this category, review processes for appropriate discharge planning and rationale. Is there a trend to continue services to capture Medicare payment through day 20? Documentation should reflect necessary skilled services through the day of discharge and also a team approach to discharge planning.

It is also important to consider that the discharge may also be patient-driven due to the financial hardship of the co-pay which begins on day 21. Documentation that memorializes risk/benefit conversations, especially when the facility believes the discharge to be premature, can more accurately depict such circumstances.

90+ Day Episodes of Care: High percentile

A high percentile here could indicate that the facility is treating residents under Medicare Part A longer than it should. Documentation must support the reasonableness and necessity of all skilled services provided through the day of discharge or exhaustion of benefits. What process is in place to discuss skilled patients on a daily, weekly, and monthly basis?

3- to 5-Day Readmissions: High percentile

A high percentile in this category could indicate several issues. Are residents being discharged too soon and then quickly readmitted? Is there a follow-up to those residents who are going home to ensure they are stable and having needs met?

In addition, it could suggest that the facility is readmitting after the Interrupted Stay Window to capture a new admission under PDPM with the full non-therapy ancillaries (NTA) variable for the first three days of the stay. It is key to have documentation supporting discharge planning, education provided in cases of potentially premature patient-driven discharges, and ensuring adequate support is in place post-discharge. Was a home visit completed? Did the resident have needed devices (e.g., shower chair, railing) installed prior to discharge? If ordered, have home health visits been set up?


It is always pertinent to understand the data that CMS and other payers are examining as outcomes from your facility’s billing patterns. By reviewing your PEPPER and understanding the information shared, you can develop a proactive audit plan for your facility to assure payment accuracy.


Centers for Medicare and Medicaid Services. (2019a). Interrupted stay [fact sheet] https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/PDPM_Fact_Sheet_InterruptedStay_Final_v4.zip

Centers for Medicare and Medicaid Services. (2019b). Variable per diem adjustment [fact sheet] https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/PDPM_Fact_Sheet_VPD_v3_508.pdf

Centers for Medicare and Medicaid Services. (2020). PEPPER: Skilled nursing facility Program for Evaluating Payment Patterns Electronic Report User’s Guide (9th ed.). https://pepper.cbrpepper.org/Portals/0/Documents/PEPPER/SNF/SNFPEPPERUsersGuide_Edition9_508.pdf

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