The in-house versus contract therapy decision is usually framed as an operating question — margin, staffing burden, flexibility. It is actually a liability question, and too many SNF operators make the choice without fully pricing that in. Contract therapy can look like a clean way to offload a difficult labor market. It is not a clean way to offload the legal exposure that comes with billing Medicare for that therapy. That exposure stays with the facility, in full, regardless of who is holding the gait belt. In-house or contracted therapy? The trade-offs – McKnight’s Long-Term Care News
The Case for In-House Therapy
There are real, durable reasons operators build and keep therapy in-house:
- Financial margin retention. The facility keeps 100% of therapy revenue instead of splitting margin or paying a markup to an outside vendor.
- Unified team culture. Employees are dedicated to the facility’s mission, and their daily habits, communication, and patient goals align with the rest of the permanent staff — not a corporate parent three states away.
- Clinical and program control. Leadership directs training, care-delivery style, and specialized treatment focus directly, without negotiating around a contractor’s corporate policy.
- Staff stability. Long-term, familiar relationships form between therapists, facility staff, and residents — the kind of continuity that shows up in outcomes, not just in culture.
Why Contract Therapy Is Tempting Anyway
The counter-arguments are not imaginary, and I don’t dismiss them. Contract therapy offers real administrative relief — nationwide recruiting, background checks, payroll tax handling, and sick-leave coverage all move off the facility’s desk. It offers risk and compliance handling on paper, with documentation, billing audits, and denial appeals shifted to a specialized third party. And it offers scaling flexibility, letting a facility flex staffing up or down with census without hiring or laying off direct employees.
All true. None of it changes who is legally on the hook when something goes wrong.
The Liability Does Not Transfer — Full Stop
This is the point I have made on this site for over a decade, and it remains as true today as it was in 2015: the SNF submits the claim, not the contractor. The therapy company delivers the care. The SNF’s provider number goes on the bill sent to Medicare. Under the False Claims Act, a provider can be held liable not just for deliberate fraud but for “reckless disregard” or “deliberate ignorance” of the truth — and failing to actively oversee a contractor’s billing practices is exactly the kind of thing that gets interpreted as reckless disregard.
I wrote about this same dynamic in SNFs, Therapy Contracts and Fraud: Redux and again in SNFs, Therapy Companies and Billing Risk. The pattern hasn’t changed because the underlying legal structure hasn’t changed: under Medicare, the SNF is the provider. The therapy contractor is not. Any claim submitted is submitted by the SNF, and if that claim is fraudulent, the SNF answers for it — not the vendor who actually provided the service.
Contractor indemnification clauses do not fix this. Standard indemnity language typically limits the vendor’s exposure to the charges it passed through to the facility for that specific claim. It does not cover the fines, penalties, or Medicare recoupment that follow. In practice, the SNF absorbs the loss even when the contractor’s staff and decisions caused the problem.
How Contract Therapy Can Actually Increase Risk
Outsourcing is supposed to reduce administrative burden. Left unmonitored, it can increase compliance exposure instead:
- Corporate volume pressure. Some contractors run on top-down productivity quotas or software defaults that push local therapists toward over-scheduling or grouping patients together while billing for individual care.
- Anti-Kickback Statute exposure. Contracts structured around a percentage of collections, or built around discounts tied to non-Medicare patients, can trigger AKS violations — an arrangement the OIG actively scrutinizes.
The history here is not theoretical. The Department of Justice has repeatedly pursued joint civil and criminal penalties against both the therapy vendor and the SNF operator. Select Medical Rehabilitation Services paid $8.4 million to resolve allegations that its corporate policies caused twelve different SNFs to submit false claims for unnecessary therapy. A group of four Chicago-area SNFs and their shared contract therapy provider settled a False Claims Act suit for $9.7 million over inflated therapy tiers, with both the facilities and the contractor paying portions of the settlement. Years earlier, a group of SNFs using RehabCare as their contract provider settled similar claims, with the government making clear in each case that the facility — not the contractor — held the provider number and the liability.
Bottom-line: if the therapy contractor over-bills, miscodes, or delivers unnecessary care, that is legally the SNF’s act, not the contractor’s.
Where PDPM Makes the Exposure Sharper
PDPM raises the stakes further, because reimbursement is driven by diagnosis coding rather than therapy minutes. That shifts the audit target from “how much therapy was delivered” to “was the coding accurate” — and the traps are numerous enough that a facility relying entirely on a contractor’s documentation has real exposure it may not see until an audit letter arrives:
- Unspecified primary diagnoses. Generic codes filed because specific documentation wasn’t obtained at admission trigger automatic flags or “Return to Provider” holds that freeze payment.
- Surgical code disconnects. Inpatient surgical history has to match the SNF’s MDS coding precisely; discrepancies read to auditors as intentional upcoding.
- Unsupported high-risk diagnoses. Conditions like acute stroke, sepsis, or advanced pressure ulcers draw direct OIG attention when the clinical documentation doesn’t actively support them.
- NTA checkbox mismatches. A condition noted only in a free-text field, without the corresponding Section I checkbox, creates a validation conflict that auditors catch.
- Missed SLP triggers. Speech therapy carries the highest PDPM audit error rate — roughly 38% — largely from poor communication between nursing and therapy on conditions like dysphagia or cognitive impairment.
Every one of these traps depends on tight coordination between nursing, MDS, and therapy. That coordination is harder to enforce, and easier to lose visibility into, when the therapists involved report to an outside company’s regional director instead of the facility’s own Director of Rehab.
What Mitigation Actually Looks Like
Total insulation from this risk is not achievable, in-house or contracted. But operators who use contract therapy responsibly build real safeguards rather than relying on the vendor relationship itself:
- Independent auditing. Do not let the contractor self-police. Use a neutral third-party clinical consultant to audit a random sample of the contractor’s MDS assessments and therapy logs every quarter.
- Active internal oversight. The Director of Nursing and Compliance Officer must actively monitor PDPM codes and therapy utilization to confirm they match actual clinical diagnoses — not assume the contractor has it covered.
- A cross-departmental “Triple Check” process before any claim is dropped: nursing confirms orders and daily charting match the MDS; the Director of Rehab confirms therapy minutes match billed days and stay under the 25% concurrent/group threshold per discipline; the business office cross-references PDPM classification against room-and-board and ancillary logs. Discrepancies get corrective owners, and the billing period locks only after DON, DOR, MDS Coordinator, and BOM sign off.
This is achievable with either staffing model. But it is materially easier to enforce when the therapists in the room report into the same chain of command as the nursing and MDS staff checking their work — which is, again, the practical case for keeping therapy in-house.
The Bottom Line
Contract therapy is not reckless by definition, and plenty of facilities run it well. But operators need to stop treating the contract as a liability shield, because it isn’t one. The government has been consistent for over a decade: the SNF holds the provider number, the SNF submits the claim, and the SNF answers for what’s on it — regardless of whose badge the therapist was wearing. If a facility can staff and manage therapy in-house, it removes an entire layer of oversight risk rather than managing around it. If it can’t, the contract relationship needs the same active, ongoing scrutiny a facility would apply to its own department — not less.
Here is a great resource in terms of a hybrid model – managing in-house programs. I know this company personally and what they do is pretty awesome. Click the links to check out the videos.
