What CMS’s Improper Payment Data Says About IRF Coding Risk

By: Tonya Bachmeier, RHIA, CDIP, CCS

Rehab/IRF Coding Consultant

CMS publishes Medicare Fee-for-Service improper payment data every year, broken down by care setting. The most recent reporting period offers a clear, sobering picture of where IRF coding and documentation stand — and it’s worth facilities paying closer attention than they might assume.

The Numbers

For the 2024 reporting period, CMS reported an improper payment rate of 29.4% for inpatient rehabilitation hospitals, with a projected improper payment amount of $1.4 billion. Inpatient rehabilitation units — IRF units operating within larger acute-care hospitals — came in at 22.1%, with $659.1 million in projected improper payments. Combined across both settings, the overall IRF improper payment rate was 26.5%, on $2.0 billion in projected improper payments.

What’s Actually Driving These Numbers

It’s worth being precise here, because the headline rate alone can be misleading about the cause. CMS attributes the large majority of these improper payments to medical necessity issues, not coding or documentation errors alone — 93.8% of improper payments for IRF hospitals and 86% for IRF units were tied to medical necessity determinations. Insufficient documentation was a secondary driver, accounting for a smaller share in each setting (6.2% for hospitals, roughly 14% for units).

How This Compares to Other Post-Acute Settings

Context helps here: CMS’s same reporting cycle shows skilled nursing facilities with an 11.8% improper payment rate, driven primarily by insufficient documentation rather than medical necessity — a different failure pattern entirely. IRF’s rate is notably higher and driven by a different root cause, which means solutions built for other post-acute settings’ documentation problems won’t necessarily address what’s actually happening in IRF claims.

Why This Still Matters for Coding Teams

Medical necessity determinations and coding aren’t separate concerns in practice — they’re connected by the same underlying documentation. A claim that fails on medical necessity often reflects gaps in exactly the kind of clinical documentation that also supports accurate CMG and tier assignment: was the patient’s condition and functional status clearly enough documented to justify the intensive, interdisciplinary rehabilitation an IRF stay represents? A coding and auditing process built specifically for IRF’s documentation requirements — not generic acute-care documentation standards — is one of the more direct ways a facility can reduce its exposure on both fronts at once.

The Practical Implication

An improper payment rate in the high 20s isn’t a rounding error — it’s a meaningful share of IRF claims nationally that CMS considers improperly paid, for reasons directly tied to documentation and clinical support. Facilities that treat IRF coding and documentation review as a standing practice, not a one-time project, are in a materially better position when CMS’s next report comes out.

CBS’s IRF auditing services are built to review both coding accuracy and the documentation gaps most likely to trigger medical necessity denials.

Frequently Asked Questions

What is the current IRF improper payment rate?

For the 2024 CMS reporting period, the combined IRF improper payment rate was 26.5%, with IRF hospitals at 29.4% and IRF units at 22.1%.

Is the high improper payment rate mainly a coding problem?

CMS attributes the majority of IRF improper payments to medical necessity determinations rather than coding or documentation errors alone, though the two are closely connected in practice since both depend on clinical documentation quality.

How does IRF’s improper payment rate compare to skilled nursing facilities?

IRF’s combined rate (26.5%) is notably higher than the skilled nursing facility rate (11.8%) for the same reporting period, and the two settings’ improper payments are driven by different root causes — medical necessity for IRF, insufficient documentation for SNF.

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Sources & Further Reading

• CMS: Inpatient Rehabilitation Hospitals & Units Compliance Tip
• CMS: FY 2025 IRF PPS Final Rule (CMS-1804-F)