Rehabilitation Levers to Pull: Therapy Contract Benchmarking for Skilled Nursing and Senior Living
Why therapy contract benchmarking matters now
Rehabilitation is both a clinical program at the center of resident recovery and, for organizations with skilled nursing, one of the larger purchased-service categories tied directly to Medicare revenue. When the Centers for Medicare & Medicaid Services (CMS) replaced the RUG-IV system with the Patient Driven Payment Model (PDPM) on October 1, 2019, the basis for that revenue changed. PDPM pays through five case-mix adjusted components (physical therapy, occupational therapy, speech-language pathology, nursing, and non-therapy ancillaries), and it uses patient characteristics, rather than the amount of therapy delivered, to set payment.[1]
Delivery patterns followed the change in payment. A study published in the Journal of the American Medical Directors Association (JAMDA) found that therapy staffing minutes per patient-day in skilled nursing facilities fell 5.5% immediately after PDPM took effect, reaching a 14.7% total decline by the end of March 2020. Contract therapy staffing saw the largest immediate drop, at 8.4%.[2] The Medicare Payment Advisory Commission (MedPAC) reports that therapy minutes per covered day fell a further 3% from 2023 to 2024.[3] At the same time, Medicare rates continue to rise: the fiscal year 2027 final rule increases skilled nursing facility (SNF) payment rates by 2.4%.[4] The payer mix inside “Medicare” days continues to shift as well, with 55% of eligible Medicare beneficiaries enrolled in Medicare Advantage in 2026.[5]
14.7% decline in therapy minutes per patient-day after PDPM
2.4% FY 2027 SNF payment rate increase
55% of eligible beneficiaries in medicare advantage
Sources: JAMDA, 2021 [2]; CMS FY 2027 SNF final rule [4]; KFF, 2026 [5]
A therapy agreement priced at one point in time reflects the market of that moment. With payment, delivery, and payer mix each changing, rehabilitation is well suited to a periodic, market-informed review carried out together with the organization’s therapy partner. Five areas of opportunity follow.
A therapy agreement priced at one point in time reflects the market of that moment.
Five areas of opportunity
1. Bring the inpatient contract rate to the current market
Contract therapy agreements in skilled nursing are commonly priced in one of three ways: a percentage of the PDPM therapy component, a percentage of the full Medicare daily rate, or a flat per-diem amount.[6][7] Each is legitimate; the key question is whether the rate still reflects the current regional market.
When a contract is priced as a percentage of the Medicare per diem, its dollar cost rises whenever Medicare rates rise (2.4% for fiscal year 2027[4]) even if the percentage never changes, so the percentage should be checked against current comparables at each renewal. Because Medicare Advantage now covers more than half of eligible beneficiaries,[5] the agreement should state clearly how managed Medicare Part A days are priced alongside traditional Medicare days.
A useful review looks past invoice totals. Industry guidance on evaluating therapy partners under PDPM notes that a lower invoice does not necessarily mean a lower cost, and recommends comparing the price per minute of therapy actually delivered and reviewing billing by payer group.[7] When the review shows room to move, the conversation with an incumbent can be collaborative.
2. Match the contract structure to how PDPM pays
There is no single correct structure; the right one balances budget predictability, a sustainable partner margin, and a focus on resident outcomes. The agreement works best when it also sets shared expectations for therapy delivery. CMS limits combined concurrent and group therapy to no more than 25% of the therapy each SNF patient receives, for each discipline.[1] Guidance on partner evaluation adds that the decision to deliver therapy in group or concurrent modes “should be driven by patient interests,” and recommends comparing utilization and outcomes against prior periods.[7] Joint, transparent reporting on minutes, outcomes, and payer mix protects both parties.
Fees by Payer
Under SNF consolidated billing, an outside therapy provider looks to the SNF, rather than to Medicare, for payment.[8] CMS expects the SNF and its supplier to reach a mutual understanding on how the supplier is paid, and leaves the specific amount and timing of payment to direct negotiation between the parties.[9] Consolidated billing applies only to traditional Medicare fee-for-service beneficiaries;[9] Medicare Advantage plans, state Medicaid programs, and other payers pay the organization under their own terms. Because each payer pays the organization differently, a well-built agreement states how the therapy fee is determined for each payer the organization bills.
Therapy fees by payer: what the agreement should define
Medicare Part A (traditional).
How the organization is paid: PDPM per diem with separate PT, OT, and SLP components;[1] rates updated annually (2.4% for FY 2027)[4]
What the agreement should define: Fee basis (percentage of the therapy component, percentage of the full per diem, or flat per diem),[6][7] benchmarked to the regional market
Medicare Advantage (managed Part A).
How the organization is paid: Rates negotiated with each plan; in 2023, MedPAC estimated MA per diem rates at about 25% below traditional Medicare; plans may use prior authorization[10]
What the agreement should define: Fee for MA days tied to the rate actually received from each plan; responsibility for authorizations
Medicare Part B (SNF residents and outpatients).
How the organization is paid: SNF bills Part B therapy for its residents;[9] payment under the fee schedule, with the multiple procedure payment reduction and 85% assistant rate[11]
What the agreement should define: Whether the fee is based on billed amounts or payments received, and how payment reductions and denials are shared
Medicaid
How the organization is paid: Typically paid as a per diem;[12] Medicaid paid for 64% of facility days in the median freestanding facility in 2024[3]
What the agreement should define: Fee consistent with the state’s coverage and payment method for therapy
Private pay and commercial insurance
How the organization is paid: Rates set by the organization or negotiated with each insurer
What the agreement should define: Fee basis for each, stated explicitly
Two practical points follow. First, a single flat fee applied to every payer’s days consumes a different share of revenue for each payer, so a fee that is market-sound for traditional Medicare Part A days may not be for Medicare Advantage days paid at lower rates. Second, each fee should stand on its own at fair market value; the HHS Office of Inspector General (OIG) cautions against accepting a low price on Part A services in exchange for Part B or other federal program business (see Considerations and Limits).[13]
Value-added services within legal limits
Therapy partners may offer services beyond direct treatment. One contract therapy provider, for example, describes periodic in-services for facility staff, a nurse specialist who supports Minimum Data Set (MDS) completion, survey preparation, and restorative nursing programming, and clinical support aimed at Quality Measure performance.[14] Under PDPM, these supports carry real financial and quality value. The PT and OT components are classified using a function score calculated from ten Section GG items on the MDS, and the nursing component also uses a Section GG function score.[1] Beginning with fiscal year 2027, the SNF Value-Based Purchasing Program includes the MDS-based Discharge Function Score, along with Discharge to Community and Falls with Major Injury (Long-Stay).[15][16]
That value is also why structure matters. OIG’s nursing facility guidance identifies free or below-fair-market-value goods and services, including “chart review, or other services offered by … other suppliers or providers,” as an anti-kickback risk area, because services with independent value to the facility can be used to disguise payment for referrals.[13] The same guidance stresses “the critical importance of integrity and accuracy” in MDS data, and recommends that arrangements with outside providers, including rehabilitation companies, reflect a legitimate need, be actually provided, be compensated at fair market value, not relate to the volume or value of federal program business, and be documented contemporaneously.[13] CMS has also requested information on addressing case-mix upcoding under PDPM.[4] MDS support and chart review are therefore best aimed squarely at accuracy.
The practical conclusion: value-added services are a legitimate and valuable part of a therapy partnership when they are written into the agreement, scoped by content, frequency, and staffing, reflected in fair market value compensation, and documented as delivered.
Services to define include:
Staff education and in-services for nursing and care staff, with topics, frequency, and attendance records
Chart audit and documentation review focused on medical necessity, documentation that reflects services as rendered, and periodic review of therapy adequacy so that therapy management does not result in underutilization[13]
MDS and Section GG coding support aimed at accurate, interdisciplinary functional assessment[1][13]
Restorative nursing program design and support[14]
Quality measure and outcomes reporting, including functional outcomes and discharge to community[15]
Survey readiness support[14]
Fees and value-added services are best evaluated together. A lower fee paired with fewer contracted services is not necessarily a lower cost, and a service described as free is not necessarily without cost or compliance risk.
3. Align space and lease terms with fair market value
Where a therapy partner leases campus space for an outpatient clinic, that lease is a separate arrangement and deserves its own market review. To qualify for the anti-kickback statute’s space rental safe harbor, aggregate rental must be set in advance, be consistent with fair market value in an arm’s-length transaction, and not take into account the volume or value of referrals or other federal program business. The regulation defines fair market value as the value of the property for general commercial purposes, not adjusted for any added value from proximity or convenience to referral sources.[17] OIG’s 2024 compliance guidance for nursing facilities lists the space rental safe harbor among the relevant protections and recommends that compensation in arrangements with outside providers be at fair market value in an arm’s-length transaction.[13]
The practical conclusion: benchmark clinic leases periodically against local commercial and medical office comparables and update them at renewal. Doing so returns fair value to the organization and gives both parties clean, well-documented terms.
4. Evaluate who should bill outpatient therapy
Who bills for campus outpatient Part B revenue, and who bears the cost of billing, depends on regulation and contract structure. Under SNF consolidated billing, the SNF itself must bill Medicare for physical, occupational, and speech-language therapy furnished to its residents, whether or not the resident is in a covered Part A stay.[8] For patients who are not SNF residents, an outpatient clinic may be operated under different arrangements, including a lease to a therapy partner that bills under its own enrollment or a structure in which the organization bills directly and pays a partner for services (similar to how a third-party partner may provide inpatient services).
Any model of direct billing should reflect the Part B payment rules that shape net revenue. Medicare pays the therapy service with the highest practice expense value at 100% and reduces the practice expense of second and subsequent services on the same day by 50% (the multiple procedure payment reduction, or MPPR). Services furnished in whole or in part by a physical therapist assistant or occupational therapy assistant are paid at 85% of the otherwise applicable fee schedule amount.[11]
Direct billing also requires authorization management (particularly for Medicare Advantage plans) and billing infrastructure. Where in-house resources are not available or cost-effective to build, these functions can often be secured through a third party.
When weighing whether to self-operate an outpatient program, outsource the services while remaining the biller of record, or outsource the program entirely, a sound approach is a side-by-side comparison of projected costs and revenue streams.
5. Choose the operating model that fits the organization
Each operating model has a time and place. One national rehabilitation provider describes full-service outsourcing as converting fixed cost to variable cost, providing flexibility for census shifts, and shifting performance and compliance risk to the partner. In the same provider’s in-house managed model, the organization retains its own staff while the partner provides management, with shared responsibility and risk.[18] Regulatory compliance, however, can never be fully shifted away from the billing entity.
Workforce conditions matter in this choice as well. The U.S. Bureau of Labor Statistics reports a May 2025 median annual wage of $110,460 for physical therapists working in nursing and residential care facilities, projects employment of physical therapists to grow 12% from 2025 to 2035, and projects about 13,400 openings each year.[19] Employing an organization’s own therapy staff requires sustained recruiting capacity and ongoing management support, along with organizational commitment to experienced leadership, continuing education, the necessary IT infrastructure, and related resources.
Past practice alone should not determine the operating model for today’s rehabilitation program, given the continuing evolution of reimbursement structures and quality measures (which often drive census, especially for sought-after short-term rehabilitation patients). The decision should rest on a pro forma built from actual Medicare and managed Medicare days, minutes by discipline, payer mix, and staffing models in line with the organization’s care philosophy.
Rehabilitation operating models at a glance
Full-service outsourced.
Who employs therapists: Therapy partner
Program management: Therapy partner
Cost structure: Largely variable
Performance and compliance risk: Largely partner; billing compliance stays with organization
In-house, managed.
Who employs therapists: Organization
Program management: Management partner
Cost structure: Largely fixed
Performance and compliance risk: Shared
In-house, self-managed.
Who employs therapists: Organization
Program management: Organization
Cost structure: Largely fixed
Performance and compliance risk: Retained by organization
Source: model descriptions adapted from HealthPRO Heritage partnership models.[18] Self-managed column describes the organization operating the program without a management partner.
Considerations and limits
Partner sustainability. An advisor who helped operators renegotiate therapy agreements at PDPM’s launch cautioned that he had seen some operators “try to squeeze too hard.”[6] The goal is a market-sound rate that sustains quality staffing.
Each arrangement stands on its own. OIG guidance states that a nursing facility should not accept a low price on items or services covered by its Part A per diem in exchange for referral of other federal program business, such as Part B business excluded from consolidated billing, and that such “swapping” arrangements are not protected by the discount safe harbor regardless of the size of the discount.[13] Each arrangement should be set at fair market value independently, with counsel review.
Clinical quality comes first. Pair any contract change with joint monitoring of therapy delivery and resident outcomes.[2]
Data determines precision. Structural options require a pro forma built from detailed data.
Billing rules apply. SNF consolidated billing[8] and Part B payment rules[11] shape what is possible for outpatient services. State practice rules also vary.
Conclusion
The rules governing rehabilitation have changed substantially since 2019. Organizations best positioned to capture value benchmark their therapy agreements against the current regional market, align contract structure with how PDPM actually pays, keep leases and other arrangements at documented fair market value, and evaluate structural options only with the data to support them. Done collaboratively, that review keeps valued partnerships strong and returns dollars to residents, staff, and mission.
How does your therapy agreement compare to today's market? We'll walk through it with you.
References
Centers for Medicare & Medicaid Services, “SNF PPS: Patient Driven Payment Model,” MLN Connects National Provider Call presentation, December 11, 2018. cms.gov/Outreach-and-Education/Outreach/NPC/Downloads/2018-12-11-SNF-PPS-PDPM.pdf
Prusynski RA, Leland NE, Frogner BK, Leibbrand C, Mroz TM, “Therapy Staffing in Skilled Nursing Facilities Declined After Implementation of the Patient Driven Payment Model,” Journal of the American Medical Directors Association 22(10):2201 to 2206, 2021. doi:10.1016/j.jamda.2021.04.005
Medicare Payment Advisory Commission, “Skilled nursing facility services,” Chapter 7 in Report to the Congress: Medicare Payment Policy, March 2026. medpac.gov/wp-content/uploads/2026/03/Mar26_Ch7_MedPAC_Report_To_Congress_SEC.pdf
Centers for Medicare & Medicaid Services, “Fiscal Year 2027 Skilled Nursing Facility Prospective Payment System Final Rule (CMS-1843-F),” fact sheet, July 29, 2026. cms.gov/newsroom/fact-sheets/fiscal-year-2027-skilled-nursing-facility-prospective-payment-system-final-rule-cms-1843-f
KFF (Meredith Freed, Jeannie Fuglesten Biniek, Anthony Damico, Nancy Ochieng, Tricia Neuman), “Medicare Advantage in 2026: Enrollment Update and Key Trends,” June 5, 2026 (updated July 1, 2026). kff.org/medicare/medicare-advantage-enrollment-update-and-key-trends/
Skilled Nursing News (Alex Spanko), “Unpacking the New Skilled Nursing Therapy Contract Math Under PDPM,” August 27, 2019. skillednursingnews.com/2019/08/unpacking-the-new-skilled-nursing-therapy-contract-math-under-pdpm/
Skilled Nursing News (Jack Silverstein), “PDPM Year 2: How to Evaluate Contract Therapy Providers,” sponsored content with Axis Healthcare, June 15, 2021. skillednursingnews.com/2021/06/pdpm-year-2-how-to-evaluate-contract-therapy-providers/
Centers for Medicare & Medicaid Services, “Consolidated Billing,” Skilled Nursing Facility Prospective Payment System. cms.gov/medicare/payment/prospective-payment-systems/skilled-nursing-facility-snf/consolidated-billing
Centers for Medicare & Medicaid Services, Medicare Claims Processing Manual, Chapter 6, “SNF Inpatient Part A Billing and SNF Consolidated Billing,” §§10.1, 10.4.1, 20.5 (Rev. 13089, February 21, 2025). cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c06.pdf
Penn Leonard Davis Institute of Health Economics (Sam Schotland, Rachel M. Werner, Janet Weiner), “Medicare Payment Policy for Post-Acute Care in Nursing Homes,” Issue Brief, September 2023, citing MedPAC estimates. ldi.upenn.edu/wp-content/uploads/2023/09/Penn-LDI-Issue-Brief-September-2023_FINAL.pdf
Centers for Medicare & Medicaid Services, “Therapy Services” (CY 2026 updates), page last modified March 10, 2026; CMS MLN Matters MM14315, “Medicare Physician Fee Schedule Final Rule Summary: CY 2026,” December 9, 2025. cms.gov/TherapyServices/
Medicaid and CHIP Payment and Access Commission (MACPAC), “Nursing Facility Payment Policy: Payment Methods and Recent Developments,” September 2019. macpac.gov/publication/nursing-facility-payment-policy-payment-methods-and-recent-developments
U.S. Department of Health and Human Services, Office of Inspector General, “Industry Segment-Specific Compliance Program Guidance for Skilled Nursing Facilities and Nursing Facilities,” November 2024. oig.hhs.gov/documents/compliance/10038/nursing-facility-icpg.pdf
RehabVisions, “Skilled Nursing Facility Contract Therapy Services,” accessed October 2026. rehabvisions.com/contract-services/skilled-nursing/
Centers for Medicare & Medicaid Services, “Skilled Nursing Facility Value-Based Purchasing Program: Measures,” accessed October 2026. cms.gov/medicare/quality/nursing-home-improvement/value-based-purchasing/measures
Centers for Medicare & Medicaid Services, “Skilled Nursing Facility Quality Reporting Program Measures and Technical Information,” accessed October 2026. cms.gov/medicare/quality/snf-quality-reporting-program/measures-and-technical-information
Electronic Code of Federal Regulations, 42 CFR § 1001.952(b), “Space rental” (anti-kickback statute safe harbors). ecfr.gov/current/title-42/chapter-V/subchapter-B/part-1001/subpart-C/section-1001.952
HealthPRO Heritage, “Partnership Models” (full-service outsourced therapy management and in-house therapy management), accessed October 2026. healthpro-heritage.com/services/partnership-models
U.S. Bureau of Labor Statistics, “Physical Therapists,” Occupational Outlook Handbook, page last modified August 27, 2026. bls.gov/ooh/healthcare/physical-therapists.htm
This paper is for general information and is not legal, tax, or reimbursement advice.
© 2026 Expense Consulting. All rights reserved. Distribution permitted with attribution. This document is published for informational purposes and does not constitute professional advice for any specific engagement.
Comments