SNF Billing Challenges Under PDPM: What CMS Is Auditing in 2026
Skilled Nursing Facilities enter 2026 facing increased regulatory oversight and financial pressure. CMS approved a 3.3 percent market basket update for FY 2026, leading to an estimated $1.16 billion increase in overall SNF payments.
This increase is partly offset by $208 million in projected SNF Value-Based Purchasing Program reductions. At the same time, CMS is launching structured data validation audits for about 10 percent of SNFs. Selected facilities must submit up to 10 MDS assessments for medical record review.
Additionally, 34 ICD-10 mapping revisions under PDPM became effective October 1, 2025, with many diagnoses reclassified to Return to Provider status. All this significantly affects the selection of primary diagnoses and the accuracy of reimbursement.
This blog will explore the most pressing SNF billing challenges under PDPM and explain exactly what CMS is auditing in 2026 so facilities can strengthen compliance and protect reimbursement.
SNF Billing Challenges Under PDPM
The Patient-Driven Payment Model has transformed how Skilled Nursing Facilities are reimbursed by focusing on patient characteristics rather than therapy volume. However, billing has become increasingly complex as regulations evolve in 2026. As a result, facilities must now balance coding precision, documentation accuracy, staffing transparency, and compliance with quality reporting requirements.
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ICD-10 Coding and PDPM Mapping Updates
Effective October 1, 2025, CMS implemented multiple revisions to PDPM ICD-10 mappings, which significantly affect reimbursement categories. As a result, many diagnoses are no longer valid as primary drivers of payment. Therefore, facilities must ensure that coders select highly specific, clinically appropriate diagnoses, as vague coding may result in claim rejections or Return to Provider notices.
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Primary Diagnosis Accuracy
Under PDPM, the primary diagnosis must clearly show why a resident needs skilled care. Documentation must connect the condition to daily skilled interventions. If the diagnosis does not match the medical record, payment risk rises. Interdisciplinary teamwork among physicians, nurses, and coders is essential for billing.
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MDS Documentation and Case-Mix Errors
The Minimum Data Set directly determines case-mix classification and reimbursement levels. However, inconsistencies between the MDS and supporting medical records frequently create compliance concerns. For example, inaccurate functional scoring in Section GG can alter payment categories. Therefore, facilities must review assessments carefully to ensure that chart notes, therapy documentation, and care plans align completely.
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High-Acuity Nursing and NTA Reporting
PDPM assigns significant weight to nursing and Non-Therapy Ancillary components. Consequently, incomplete documentation for IV medications, infections, or complex care services can jeopardize reimbursement. Facilities must clearly document the intensity and frequency of clinical services provided. Without solid evidence, higher-paying categories may appear inflated, which increases the likelihood of external review.
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Short-Stay Skilled Care Justification
Although therapy minutes no longer drive payment, CMS still expects clear proof that residents require skilled daily services. Therefore, short-stay admissions must demonstrate medical necessity beyond maintenance care. Physician certifications, progress notes, and treatment plans should consistently reflect skilled interventions, as facilities may face questions regarding the appropriateness of the stay.
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Payroll-Based Journal and Staffing Data
Staffing transparency has become increasingly important under Value-Based Purchasing. Facilities must accurately report nurse staffing hours and turnover data through the Payroll-Based Journal system. Even minor discrepancies between payroll records and submitted data may affect performance scores. As a result, consistent monitoring of staffing submissions is critical to protect reimbursement stability.
What CMS Is Auditing in 2026
In 2026, CMS is expanding oversight efforts to verify the accuracy of clinical data, coding practices, and quality reporting. In fact, the agency is reviewing whether submitted information matches actual medical records through structured data validation audits. This approach emphasizes accountability and payment integrity. Facilities that fail to provide complete documentation may face financial consequences.
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MDS Data Validation Audits
Beginning in January 2026, CMS will select approximately 10% of SNFs for structured data validation reviews. Each selected facility must submit medical records supporting up to ten MDS assessments. Thereafter, auditors compare submitted documentation with reported data. Therefore, timely and organized record submission is essential to demonstrate compliance.
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Primary Diagnosis and PDPM Classification Reviews
CMS is carefully reviewing whether primary diagnoses accurately reflect the skilled reason for admission. In particular, diagnoses that were recently moved to Return to Provider status receive additional attention. If the documentation fails to justify the selected clinical category, payment adjustments may be required. Thus, coding teams must validate clinical accuracy before claim submission.
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NTA and Nursing Component Verification
Auditors are examining whether high-acuity nursing categories and comorbidity scores are fully supported by the medical record. This includes reviewing medication administration records, treatment logs, and physician documentation. When documentation does not confirm the reported services, concerns about overstatement may arise. Therefore, precise and consistent charting remains fundamental.
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Section GG Functional Scoring Accuracy
Functional assessment data reported in Section GG play a major role in payment calculation and quality reporting. Consequently, CMS is validating whether functional scores match therapy and nursing documentation. If discrepancies are identified, payment classifications may be questioned. Therefore, facilities should ensure that assessment findings are supported by detailed clinical notes.
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Payroll-Based Journal Data Review
CMS is analyzing staffing submissions to verify reported nurse hours and turnover rates. As these metrics influence Value-Based Purchasing performance scores, inaccuracies may result in payment reductions. Auditors may compare payroll records with PBJ submissions to confirm consistency. Therefore, maintaining accurate staffing documentation is a financial safeguard.
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Quality Reporting and APU Compliance
CMS continues to monitor compliance with the Skilled Nursing Facility Quality Reporting Program. Facilities that fail to submit complete or accurate data risk a reduction in their Annual Payment Update. Additionally, documentation must be provided within strict deadlines during audits. Therefore, proactive compliance monitoring is essential to avoid penalties.
Conclusion
As regulatory expectations continue to evolve, SNFs must approach PDPM billing with greater structure and accountability. Instead of reacting to audits, healthcare organizations should build proactive compliance frameworks that include routine internal reviews, interdisciplinary communication, and continuous staff education. Additionally, medical teams must ensure that clinical documentation practices reflect the true complexity of resident care while maintaining consistency across all reporting systems.
At the same time, outsourcing SNF billing and coding services to an experienced expert such as 24/7 Medical Billing Services can provide an added layer of operational security. In fact, outsourcing allows facilities to benefit from specialized coding knowledge, real-time regulatory updates, and dedicated audit support without overburdening internal teams. Therefore, SNFs can strengthen revenue protection strategies by leveraging external expertise.
FAQs
How often can an SNF be selected for CMS data validation audits?
Facilities may be selected periodically as part of CMS’s ongoing annual audit cycle.
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