Medicare
Little Progress Made in Targeting Outpatient Therapy Payments to Beneficiaries' Needs Gao ID: GAO-06-59 November 10, 2005For years, Congress has wrestled with rising Medicare costs and improper payments for outpatient therapy services--physical therapy, occupational therapy, and speech-language pathology. In 1997 Congress established per-person spending limits, or "therapy caps," for nonhospital outpatient therapy but, responding to concerns that some beneficiaries need extensive services, has since placed temporary moratoriums on the caps. The current moratorium is set to expire at the end of 2005. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required GAO to report on whether available information justifies waiving the caps for particular conditions or diseases. As agreed with the committees of jurisdiction, GAO also assessed the status of the Department of Health and Human Services' (HHS) efforts to develop a needs-based payment policy and whether circumstances leading to the caps have changed.
Data and research available are, for three reasons, insufficient to identify particular conditions or diseases to justify waiving Medicare's outpatient therapy caps. First, Medicare claims data--the most comprehensive data for beneficiaries whose payments would exceed the caps--often do not capture the clinical diagnosis for which therapy is received. Nor do they show particular conditions or diseases as more likely than others to be associated with payments exceeding the caps. Second, even for diagnoses clearly linked to a condition or disease, such as stroke, the length of treatment for patients with the same diagnosis varies widely. Third, because of the complexity of patient factors involved, most studies do not define the amount or mix of therapy services needed for Medicare beneficiaries with specific conditions or diseases. Provider groups remain concerned about adverse effects on beneficiaries needing extensive therapy if the caps are enforced. HHS does not, however, have the authority to provide exceptions to the therapy caps. Despite several related statutory requirements, HHS has made little progress toward developing a payment system for outpatient therapy that considers individual beneficiaries' needs. In particular, HHS has not determined how to standardize and collect information on the health and functioning of patients receiving outpatient therapy services--a key part of developing a system based on individual needs for therapy. The circumstances that led to the therapy caps remain a concern. Medicare payments for outpatient therapy are still rising significantly, and increases in improper payments for outpatient therapy continue. HHS could reduce improper payments and Medicare costs by improving its system of automated processes for rejecting claims likely to be improper.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-59, Medicare: Little Progress Made in Targeting Outpatient Therapy Payments to Beneficiaries' Needs
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entitled 'Medicare: Little Progress Made in Targeting Outpatient
Therapy Payments to Beneficiaries' Needs' which was released on
November 10, 2005.
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
November 2005:
Medicare:
Little Progress Made in Targeting Outpatient Therapy Payments to
Beneficiaries' Needs:
GAO-06-59:
GAO Highlights:
Highlights of GAO-06-59, a report to congressional committees:
Why GAO Did This Study:
For years, Congress has wrestled with rising Medicare costs and
improper payments for outpatient therapy services”physical therapy,
occupational therapy, and speech-language pathology. In 1997 Congress
established per-person spending limits, or ’therapy caps,“ for
nonhospital outpatient therapy but, responding to concerns that some
beneficiaries need extensive services, has since placed temporary
moratoriums on the caps. The current moratorium is set to expire at the
end of 2005.
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 required GAO to report on whether available information justifies
waiving the caps for particular conditions or diseases. As agreed with
the committees of jurisdiction, GAO also assessed the status of the
Department of Health and Human Services‘ (HHS) efforts to develop a
needs-based payment policy and whether circumstances leading to the
caps have changed.
What GAO Found:
Data and research available are, for three reasons, insufficient to
identify particular conditions or diseases to justify waiving
Medicare‘s outpatient therapy caps. First, Medicare claims data”the
most comprehensive data for beneficiaries whose payments would exceed
the caps”often do not capture the clinical diagnosis for which therapy
is received. Nor do they show particular conditions or diseases as more
likely than others to be associated with payments exceeding the caps.
Second, even for diagnoses clearly linked to a condition or disease,
such as stroke, the length of treatment for patients with the same
diagnosis varies widely. Third, because of the complexity of patient
factors involved, most studies do not define the amount or mix of
therapy services needed for Medicare beneficiaries with specific
conditions or diseases. Provider groups remain concerned about adverse
effects on beneficiaries needing extensive therapy if the caps are
enforced. HHS does not, however, have the authority to provide
exceptions to the therapy caps.
Despite several related statutory requirements, HHS has made little
progress toward developing a payment system for outpatient therapy that
considers individual beneficiaries‘ needs. In particular, HHS has not
determined how to standardize and collect information on the health and
functioning of patients receiving outpatient therapy services”a key
part of developing a system based on individual needs for therapy.
The circumstances that led to the therapy caps remain a concern.
Medicare payments for outpatient therapy are still rising
significantly, and increases in improper payments for outpatient
therapy continue. HHS could reduce improper payments and Medicare costs
by improving its system of automated processes for rejecting claims
likely to be improper.
Beneficiaries for Whom 2002 Medicare Payments for Outpatient Therapy
Services Would Have Exceeded Therapy Caps, Had They Been in Place, and
by How Much:
[See Table 2]
What GAO Recommends:
GAO suggests that Congress give HHS interim authority to allow, under
certain conditions, payments exceeding the caps after the moratorium
expires. GAO recommends that HHS expedite developing a means to assess
beneficiaries‘ therapy needs, and HHS concurs. GAO also recommends that
HHS improve its system for identifying improper therapy claims beyond
initiatives already under way.
www.gao.gov/cgi-bin/getrpt?GAO-06-59.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact A. Bruce Steinwald at
(202) 512-7119 or steinwalda@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Insufficient Information Exists to Justify Waiving Therapy Caps for
Particular Conditions or Diseases:
HHS Has Made Little Progress toward a Payment System Based on Patients'
Needs:
Circumstances That Led to Therapy Caps Remain:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Comments from the Department of Health and Human Services:
Appendix II: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: The Five Most Reported Diagnosis Codes Related to Outpatient
Therapy, Ranked by Frequency under Each Therapy Type, 2002:
Table 2: Beneficiaries for Whom 2002 Medicare Payments for Outpatient
Therapy Services Would Have Exceeded Therapy Caps and by How Much:
Table 3: Legislation Affecting Medicare Spending on Outpatient Therapy
Services, 1997-2003, and HHS Actions:
Table 4: CMS-Contracted Studies of Outpatient Therapy Services, 2000-
2004:
Figures:
Figure 1: Top 99 Most Reported Diagnosis Codes and Associated
Percentage of Medicare Beneficiaries for Whom Payments Would Have
Exceeded the Combined Cap for Physical Therapy and Speech-Language
Pathology, 2002:
Figure 2: Variation in Length of Treatment per Episode among Medicare
Beneficiaries Diagnosed with Stroke, 2002:
Abbreviations:
BBA: Balanced Budget Act of 1997:
BBRA: Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999:
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000:
CMS: Centers for Medicare & Medicaid Services:
HHS: Department of Health and Human Services:
MedPAC: Medicare Payment Advisory Commission:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
United States Government Accountability Office:
Washington, DC 20548:
November 10, 2005:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Joe Barton:
Chairman:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
Medicare, the federal health program insuring more than 40 million
beneficiaries aged 65 and older or disabled, covers three outpatient
therapy services: physical therapy, occupational therapy, and speech-
language pathology. Medicare covers these services only if they are
needed to improve a patient's condition (for example, to aid stroke
recovery or combat the effects of Parkinson's disease) and are
reasonable in amount, frequency, and duration. In 2002, the most recent
year for which complete data are available, an estimated 3.7 million,
or about 9 percent, of Medicare beneficiaries received one or more of
these types of outpatient therapy.[Footnote 1]
For many years, Congress has wrestled with rising Medicare costs of
providing outpatient therapy services.[Footnote 2] From 1990 through
1996, spending on these services grew at nearly double the rate of
Medicare spending overall. Some of the growth was attributed to
financial incentives in Medicare payment methods, which encouraged use
of services, and to the lack of program oversight to prevent
inappropriate payments. For example, in 1995 we reported widespread
examples of overcharging Medicare for therapy services delivered to
nursing home residents, including markups resulting from providers'
exploiting regulatory ambiguity and weaknesses in Medicare's payment
rules.[Footnote 3] In 1997, as a means to control the spending growth,
Congress established new caps on the amount that Medicare would pay for
outpatient therapy services for a beneficiary in any given year. These
therapy caps raised concern, however, that patients with extensive need
for outpatient therapy services would be adversely affected--
particularly patients who lacked access to hospital outpatient
departments, which are exempt from the caps.[Footnote 4] Since 1997,
the caps were actually in effect only in 1999 and part of 2003; in
other years, Congress placed temporary moratoriums on them. The current
moratorium on the therapy caps is due to expire at the end of December
2005.[Footnote 5]
As part of the 1997 legislation that established the therapy caps,
Congress also required the Department of Health and Human Services
(HHS) to report by 2001 on its recommendations for an alternative,
"needs-based" payment system for outpatient therapy services. We have
reported that, in contrast to less-targeted control over service use
afforded by spending limits, such a payment system could help target
payments to beneficiaries who genuinely require more services than
could be paid for under the therapy caps.[Footnote 6] A needs-based
payment system could take into account the type and extent of therapy
warranted by a beneficiary's health and functional status (that is, the
person's ability to perform activities of daily living, such as
bathing, dressing, eating, or moving from one location to another). In
several laws enacted starting in 1997, Congress has directed HHS to
take certain actions related to the development of such a system,
including considering beneficiaries' functional status in the design of
a new outpatient therapy policy and reporting on the development of
standard instruments for assessing the health and functional status of
patients receiving Medicare services, including outpatient
therapy.[Footnote 7] Within HHS, the Centers for Medicare & Medicaid
Services (CMS), which administers Medicare, has major responsibilities
for this effort.
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA), which put in place the most recent moratorium on therapy
caps, directed us to report on the conditions or diseases that may
justify waiving application of the caps.[Footnote 8] To provide a
greater range of information about these issues, as agreed with the
committees of jurisdiction, we also examined HHS's efforts to date in
developing a needs-based payment system. This report assesses (1)
available information that could be used to justify waiving outpatient
therapy caps for particular conditions or diseases, (2) the status of
HHS's efforts to base Medicare payment policy on outpatient therapy on
beneficiaries' needs, and (3) whether the circumstances initially
leading to the caps have changed.
To assess whether available information could be used to justify
waiving outpatient therapy caps for particular conditions or diseases,
we reviewed data and research including analyses of Medicare claims
data by CMS contractors. We generally relied on the published results
of CMS's contracted analyses performed on Medicare 2002 claims
data.[Footnote 9],[Footnote 10] The claims data used by CMS contractors
and other health care researchers are the most comprehensive data
available for assessing Medicare outpatient therapy and the conditions
and diseases of Medicare beneficiaries for whom payments would have
exceeded the therapy caps had a moratorium on the caps not been in
place. We also reviewed the literature on therapy treatment protocols
and on the efficacy of outpatient therapy for Medicare beneficiaries
with selected conditions and diseases, and we reviewed a related report
by the Medicare Payment Advisory Commission (MedPAC), an independent
group of health care experts that advises Congress on Medicare payment
issues. To assess HHS's response to requirements for developing
instruments to ensure that Medicare payments for outpatient therapy are
targeted to beneficiaries' needs, we reviewed the legislative history
of Medicare's outpatient therapy caps, related requirements for HHS,
and studies by CMS contractors. We examined HHS's actions in response
to the legislative requirements and studies' proposals and reviewed
administrative options for ensuring that medically necessary therapy is
available to beneficiaries over the short and long terms under
Medicare's payment system. To determine whether the circumstances
leading to therapy caps--specifically, significant growth in outpatient
therapy payments and a high rate of improper payments--have changed, we
reviewed preliminary CMS estimates of overall Medicare part B
expenditures,[Footnote 11] which include spending on outpatient therapy
services, and CMS reports on improper payments for outpatient therapy
services. Finally, we obtained the opinions of four national
organizations representing the views of key providers of outpatient
therapy services.[Footnote 12] We conducted our work in accordance with
generally accepted government auditing standards from January through
October 2005.
Results in Brief:
We found the data and research available to date insufficient for three
reasons to identify particular conditions or diseases that would
justify waiving Medicare's outpatient therapy caps:
* Medicare claims data are limited in the extent to which they identify
the actual conditions or diseases for which beneficiaries receive
therapy because the data often do not capture the clinical diagnosis
for which therapy is received. Further, a CMS-contracted analysis of
claims data for 2002 does not show any particular conditions or
diseases as more likely than others to be associated with payments
exceeding the therapy caps.
* Even for diagnoses that are clearly linked to a condition or disease,
such as stroke, the CMS-contracted analysis of 2002 claims data shows
that the length of treatment for patients with the same diagnosis
varied widely.
* Because of the complexity of patient factors involved, most studies
we reviewed do not define the amount or mix of therapy services needed
for Medicare beneficiaries with specific conditions or diseases.
It is uncertain how many beneficiaries would be adversely affected
because they have medical needs for therapy costing more than the caps
and yet are unable to obtain needed care because they lack sufficient
financial resources or access to a hospital outpatient therapy
department. The CMS-contracted analysis of 2002 claims data shows that
more than a half million Medicare beneficiaries in 2002 received
therapy for which payments would have exceeded the caps had a
moratorium not been in place. Provider groups also told us that a
sizable number of beneficiaries would be adversely affected if the caps
were enforced.
Although congressional mandates starting in 1997 have required HHS to
take certain actions toward developing an outpatient therapy payment
system that considers patients' individual needs for therapy, the
department has made little progress toward such a system, except to
contract for a series of studies of outpatient therapy use by Medicare
beneficiaries. Two of these contracted studies have reported that
functional assessments of patients--standard evaluations that would
help determine a person's ability to perform the functions of daily
life and specific needs for therapy--would be required to develop a
needs-based payment system. CMS officials also said that developing a
standard patient assessment instrument could take 3 years or longer. In
response to a 2000 statutory requirement for HHS to report to Congress
no later than January 1, 2005, on the development of standard patient
assessment instruments for patients receiving a variety of services,
including outpatient therapy, HHS and CMS have work in progress, but
this work does not include outpatient therapy. Officials attribute this
exclusion to the complexity of the project and to limited resources.
Circumstances that led to therapy caps do not appear to have changed
since the caps were established. CMS assessments of Medicare claims
data show that Medicare payments for outpatient therapy are still
rising rapidly and that the rate of improper payments has increased
substantially in recent years. Over a 4-year period from 1999 through
2002, for example, Medicare spending for outpatient therapy more than
doubled, from an estimated $1.5 billion to $3.4 billion. CMS's
assessment of the error rate for outpatient therapy claims found that
improper payments--mainly due to insufficient documentation to support
the services claimed--grew from about 11 percent in 1998 to more than
20 percent in 2000. CMS could reduce improper payments and the costs to
Medicare by implementing the proposal in its contracted study of
Medicare outpatient therapy claims to strengthen the agency's system
for identifying and denying payment of improper outpatient therapy
claims. Provider groups we spoke with agreed that such improvements in
CMS's automated payment system could help ensure that Medicare does not
pay for unneeded services. Furthermore, an exception process based on a
medical review could help determine the appropriateness of payment for
therapy services. At present, however, HHS does not have the authority
to implement such a process or to conduct a demonstration or pilot
project to provide exceptions to the therapy caps.
To provide a means by which some Medicare beneficiaries could have
access to appropriate outpatient therapy services and to obtain better
data on the conditions and diseases of beneficiaries who have extensive
outpatient therapy needs, we suggest that Congress consider giving HHS
the authority to implement an interim process or demonstration project
whereby individual beneficiaries could be granted an exception from the
therapy caps under certain conditions determined by CMS. In addition,
to expedite development of a patient assessment instrument for
outpatient therapy services, we recommend that the Secretary of HHS
include these services in the effort already under way to standardize
the terminology for existing patient assessment instruments. To reduce
payment for improper claims, we recommend that the Secretary of HHS
implement improvements to CMS's system for identifying outpatient
therapy claims that are likely to be improper.
In commenting on a draft of this report, HHS did not address our
suggestion that Congress give the department interim authority to
allow, under certain circumstances, payments exceeding the caps. HHS
agreed with our recommendation to include outpatient therapy services
in its effort under way to standardize the terminology for patient
assessment. With regard to our recommendation to implement improvements
to CMS's automated payment system, HHS referred to a current initiative
to improve the coding on Medicare claims and noted that the department
is exploring methods for improving the automated evaluation of claims.
We believe, however, that HHS could improve the payment system beyond
the initiative already under way.
Background:
Outpatient therapy services--covered under part B of the Medicare
program--comprise physical therapy, occupational therapy, and speech-
language pathology to improve patients' mobility and
functioning.[Footnote 13] Medicare regulations and coverage rules
require that beneficiaries be referred for outpatient therapy services
by a physician or nonphysician practitioner and that a written plan of
care be reviewed and certified by the providers at least once every 30
days. Beneficiaries receiving therapy are expected to improve
significantly in a reasonable time and to need therapy for
rehabilitation rather than maintenance.[Footnote 14] Medicare-covered
outpatient therapy services are provided in a variety of settings by
institutional providers (such as hospital outpatient departments,
skilled nursing facilities, comprehensive outpatient rehabilitation
facilities, outpatient rehabilitation facilities, and home health
agencies) and by noninstitutional providers (such as physicians,
nonphysician practitioners, and physical and occupational therapists in
private practice).[Footnote 15] Both institutional and noninstitutional
providers--with the exception of hospital outpatient departments--are
subject to the therapy caps.
For more than a decade, Medicare's costs for outpatient therapy
services have been rising, and widespread examples of inappropriate
billing practices, resulting from regulatory ambiguity and weaknesses
in Medicare's payment rules, have been reported by us and others. In
1995 we reported, for example, that while state averages for physical,
occupational, and speech therapists' salaries in hospitals and skilled
nursing facilities ranged from about $12 to $25 per hour, Medicare had
been charged $600 per hour or more.[Footnote 16] HHS's Office of
Inspector General reported in 1999 that Medicare reimbursed skilled
nursing facilities almost $1 billion for physical and occupational
therapy that was claimed improperly, because the therapy was not
medically necessary or was provided by staff who did not have the
appropriate skills for the patients' medical conditions.[Footnote 17]
To control rising costs and improper payments, Congress established
therapy caps for all nonhospital providers in the Balanced Budget Act
of 1997.[Footnote 18] The Medicare, Medicaid, and SCHIP Balanced Budget
Refinement Act of 1999 later imposed a moratorium on the caps for 2000
and 2001.[Footnote 19] The Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 then extended the moratorium
through 2002.[Footnote 20] Although no moratorium was in effect as of
January 1, 2003, CMS delayed enforcing the therapy caps through August
31, 2003. In December 2003, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003[Footnote 21] placed the most
recent moratorium on the caps, extending from December 8, 2003, through
December 31, 2005.[Footnote 22] The legislation establishing the caps
provided for two caps per beneficiary: one for occupational therapy and
one for physical therapy and speech-language pathology combined. The
legislation set the caps at $1,500 each and provided that these limits
be indexed by the Medicare Economic Index each year beginning in 2002.
When last in place in 2003, the two caps were set at $1,590 each.
To process and pay claims and to monitor health care providers'
compliance with Medicare program requirements, CMS relies on claims
administration contractors, who use a variety of review mechanisms to
ensure appropriate payments to providers. A system of automated checks
(a process CMS terms "edits") flags potential billing errors and
questionable claims. The automated system can, for example, identify
procedures that are unlikely to be performed on the same patient on the
same day or pairs of procedure codes that should not be billed together
because one service inherently includes the other or the services are
clinically incompatible.
In certain cases, automated checks performed by CMS claims
administration contractors may lead to additional claim reviews or to
educating providers about Medicare coverage or billing issues. The
contractors' clinically trained personnel may perform a medical review,
examining the claim along with the patient's medical record, submitted
by the physician. Medical review is generally done before a claim is
paid, although medical review may also be done after payment to
determine if a claim was paid in error and funds may need to be
returned to Medicare.
Insufficient Information Exists to Justify Waiving Therapy Caps for
Particular Conditions or Diseases:
The data and research available to date are insufficient to determine
whether any particular conditions or diseases may justify a waiver of
Medicare's outpatient therapy caps. Medicare claims data are limited in
the extent to which they can be used to identify the actual conditions
or diseases for which beneficiaries are receiving therapies because the
claims often lack specific diagnostic information. In addition,
analyses of the claims data show no particular conditions or diseases
as more likely than others to be associated with payments exceeding the
therapy caps. The data also show that treatment for a single condition
or disease, such as stroke, may vary greatly from patient to patient.
Finally, available research on the amount and mix of outpatient therapy
for people aged 65 and older with specific conditions and diseases also
appears insufficient to justify a waiver of the therapy caps for
particular conditions or diseases. It is uncertain how many
beneficiaries would have medical needs for therapy costing more than
the caps and yet be unable to obtain the needed care because they have
either insufficient financial resources or no access to a hospital
outpatient therapy department.
Medicare Claims Data Do Not Always Capture Clinical Diagnoses or Show
Consistent Patterns That Would Justify Waiving Therapy Caps:
Although Medicare claims data constitute the most comprehensive
available information for Medicare beneficiaries who have received
outpatient therapy, they do not always capture the clinical diagnosis
for which beneficiaries receive therapy. As such, they are insufficient
for identifying particular diseases and conditions that should be
exempted from the caps. Patients' conditions or diseases are expressed
in claims data through diagnosis codes, and the coding system allows
providers to use nonspecific diagnosis codes that are unrelated to a
specific clinical condition or disease.[Footnote 23] A CMS-contracted
analysis of 2002 Medicare outpatient therapy claims data,[Footnote 24]
for example, found generic codes, such as "other physical therapy," to
be among the most often used diagnosis codes on claim forms (see table
1). Moreover, current Medicare guidelines for processing claims permit
institutional providers, such as outpatient rehabilitation facilities
and skilled nursing facilities, to submit services from all three
therapy types on the same claim form, with one principal diagnosis for
the claim; a claim seeking payment for occupational therapy and for
speech-language pathology might therefore be filed under "other
physical therapy."
Table 1: The Five Most Reported Diagnosis Codes Related to Outpatient
Therapy, Ranked by Frequency under Each Therapy Type, 2002:
Physical therapy: Other physical therapy;
Occupational therapy: Acute but ill-defined cerebrovascular disease;
Speech-language pathology[A]: Dysphagia[B].
Physical therapy: Lumbago[C];
Occupational therapy: Other physical therapy;
Speech-language pathology[A]: Acute but ill- defined cerebrovascular
disease.
Physical therapy: Abnormality of gait;
Occupational therapy: Occupational therapy encounter;
Speech-language pathology[A]: Speech therapy.
Physical therapy: Pain in joint, shoulder region;
Occupational therapy: Abnormality of gait;
Speech-language pathology[A]: Abnormality of gait.
Physical therapy: Cervicalgia[D];
Occupational therapy: Other general symptoms;
Speech-language pathology[A]: Other physical therapy.
Source: Ciolek and Hwang, Final Project Report (2004).
[A] The majority of outpatient speech-language pathology services are
furnished by hospital and skilled nursing facility providers, and the
claim forms do not contain fields for identification of a therapy-
specific diagnosis. Often, if a beneficiary receives multiple therapies
simultaneously, the physical therapy diagnosis is reported first on the
claim, which may explain why the fifth-most frequent diagnosis code for
speech-language pathology is "other physical therapy."
[B] Difficulty in swallowing.
[C] A painful condition of the lower back.
[D] A sharp pain or aching in the neck.
[End of table]
Analysis of 2002 claims data does not show any particular conditions or
diseases that are more likely than others to be associated with
payments exceeding the therapy caps for physical therapy and speech-
language pathology combined or for occupational therapy. Among the top
99 most reported diagnoses for physical therapy and speech-language
pathology, the analysis found no particular diagnoses associated with
large numbers of beneficiaries for whom payments would have exceeded
the combined physical therapy and speech-language pathology cap in 2002
had it been in effect (see fig. 1). A similar pattern existed for
occupational therapy.
Figure 1: Top 99 Most Reported Diagnosis Codes and Associated
Percentage of Medicare Beneficiaries for Whom Payments Would Have
Exceeded the Combined Cap for Physical Therapy and Speech-Language
Pathology, 2002:
[See PDF for image]
Note: Each dot represents the percentage of Medicare beneficiaries,
reported under each of the 99 most reported diagnosis codes (arrayed
from 1 to 99 along the x-axis), for whom payments would have exceeded
the combined cap for physical therapy and speech-language pathology had
it been in effect in 2002.
[End of figure]
Claims Data Do Not Provide Information about Patients' Therapy Needs:
Medicare claims data do not provide information about patients' therapy
needs that could be used to justify waiving the therapy caps. Even in
those cases where particular conditions or diseases, such as stroke or
Alzheimer's disease, are identified in the diagnosis codes, different
individuals with the same diagnosis can need different intensities or
types of therapy. For example, one patient with a stroke might be able
to return home from the hospital a day or two after admission, while
another may suffer a severe loss of functioning and require extensive
therapy of more than one type. The CMS-contracted analysis of 2002
claims found wide variation in the number of treatment days required to
conclude an episode of care[Footnote 25] for beneficiaries who had the
same "diagnosis," such as stroke. For example, the analysis found that
while the median number of days per episode of physical therapy for
stroke patients was 10, episode length ranged from 1 to 80
days.[Footnote 26] Similarly wide ranges in treatment length for stroke
patients appeared for occupational therapy (1 to 68 days per episode,
median 9) and speech-language pathology (1 to 66 days per episode,
median 7). Figure 2 shows the range in length of treatment per episode
for patients with a diagnosis of acute cerebrovascular disease (stroke)
for the three types of therapy.
Figure 2: Variation in Length of Treatment per Episode among Medicare
Beneficiaries Diagnosed with Stroke, 2002:
[See PDF for image]
Note: Illustrated ranges extend only to the 99th percentile to
eliminate extreme outliers.
[A] An "episode" in this study was defined as the date of a
beneficiary's first therapy encounter until the last encounter for the
same type of therapy. If a 60-day break intervened between therapy
services of the same or a different type, the new round of therapy was
considered a new episode.
[End of figure]
Available Research Does Not Define Amount or Mix of Outpatient Therapy
Needed for Medicare Beneficiaries with Specific Diseases or Conditions:
Available research on the efficacy of outpatient therapy for people
aged 65 and older with specific conditions and diseases also appears
insufficient to justify a waiver of particular conditions or diseases
from the therapy caps. Although our literature review found several
studies demonstrating the benefits of therapy for seniors and Medicare-
eligible patients, this research generally did not define the amount or
mix of therapy services needed for Medicare beneficiaries with specific
conditions or diseases. One study, for example, examined the benefits
of extensive therapy for stroke victims at skilled nursing facilities.
The study concluded that high-intensity therapy may have little effect
on beneficiaries' length of time spent in the facility when their short-
term prognosis is good; beneficiaries with poorer prognoses, however,
may benefit substantially from intensive therapy. Further, because of
the complexity of patient factors involved, these studies cannot be
generalized to all patients with similar diseases or conditions. In
addition, MedPAC, the commission that advises Congress on Medicare
issues, suggests that research should be undertaken on when and how
much physical therapy benefits older patients and that evidence
gathered from this research would assist in developing guidelines to
determine when therapy is needed.[Footnote 27]
Payments for More Than a Half Million Beneficiaries Would Have Exceeded
Therapy Caps in 2002, but Adverse Effect Is Unknown:
Medicare claims data suggest that payments for more than a half million
beneficiaries would have exceeded the caps had they been in place in
2002. It is uncertain, however, how many beneficiaries with payments
exceeding the caps would be adversely affected because they have
medical needs for care and no means to obtain it through hospital
outpatient departments. According to the CMS-contracted analysis of
2002 claims data, Medicare paid an estimated $803 million in outpatient
therapy benefits above what would have been permitted had the therapy
caps been enforced that year. Payments for about 17 percent of
occupational therapy users and 15 percent of physical therapy and
speech-language pathology service users would have surpassed the caps
in 2002; these beneficiaries numbered more than a half million (see
table 2).
Table 2: Beneficiaries for Whom 2002 Medicare Payments for Outpatient
Therapy Services Would Have Exceeded Therapy Caps and by How Much:
Cap: Occupational therapy;
Projected number of beneficiaries whose payments would have exceeded
caps: 129,509;
Projected percentage of beneficiaries whose payments would have
exceeded caps: 17.4%;
Average amount above cap (dollars): $1,237;
Estimated total above cap (millions of dollars)[A]: $160.2.
Cap: Physical therapy and speech-language pathology;
Projected number of beneficiaries whose payments would have exceeded
caps: 508,686;
Projected percentage of beneficiaries whose payments would have
exceeded caps: 14.5%;
Average amount above cap (dollars): $1,263;
Estimated total above cap (millions of dollars)[A]: $642.4.
Source: Ciolek and Hwang, Final Project Report (2004).
Note: Because of a moratorium, therapy caps were not in effect in 2002;
use of outpatient therapy services might have been different had the
spending caps been in place. Because hospital outpatient departments
are exempt from the caps, payments for services provided by hospital
outpatient departments were excluded from this analysis.
[A] This study estimated that the totals above the caps represented
23.7 percent of all outpatient therapy expenditures for 2002.
[End of table]
Although the claims data show that payments for more than a half
million beneficiaries would have exceeded the caps in 2002, it is
unknown whether beneficiaries would have been adversely affected had
the caps been in place. The data do not show the extent to which these
beneficiaries were receiving care consistent with Medicare requirements
that therapy improve a beneficiary's condition and be reasonable in
amount, frequency, and duration. Also, it is not clear to what extent
hospital outpatient departments would serve as a "safety valve" for
Medicare beneficiaries needing extensive therapy and unable to pay for
it on their own. Past work by us and others has noted that the therapy
caps were integral to the Balanced Budget Act's spending control
strategy and were unlikely to affect the majority of Medicare's
outpatient therapy users. We reported that the hospital outpatient
department exemption from the cap was a mitigating factor in the mid-
1990s, essentially removing the coverage limits for those users who had
access to hospital outpatient departments.[Footnote 28] CMS-contracted
analyses of claims data for 2002, however, show that nearly all the
Medicare beneficiaries whose payments would have exceeded the caps did
not receive outpatient therapy in hospital outpatient departments.
Specifically, an estimated 92 percent (469,850 beneficiaries) of those
whose payments would have exceeded the combined physical therapy and
speech-language pathology cap--and 98 percent (126,488 beneficiaries)
of those whose payments would have exceeded the occupational therapy
cap--did not receive therapy services in a hospital outpatient
department. These proportions, however, might have been different had
the caps been in effect in 2002.
Provider groups we spoke with were concerned that a sizable number of
beneficiaries with legitimate medical needs whose payments would exceed
the caps could be harmed. One group told us that a cap on outpatient
therapy services would severely limit the opportunity for patients with
the greatest need to receive appropriate care, and another group said
that therapy caps could hurt beneficiaries with chronic illnesses.
According to a third group, payments can quickly exceed the caps for
beneficiaries who suffer from serious conditions such as stroke and
Parkinson's disease or who have multiple medical conditions.
HHS Has Made Little Progress toward a Payment System Based on Patients'
Needs:
Statutory mandates since 1997 have required HHS to take certain actions
toward developing a payment system for outpatient therapy that
considers patients' individual needs for care, but the agency has made
little progress toward such a system. In particular, HHS has not
determined how to standardize and collect information on the health and
functioning of patients receiving outpatient therapy services--a key
part of developing a system based on patients' actual needs for
therapy.
To curb spending growth and ensure that outpatient therapy services are
appropriately targeted to those beneficiaries who need them, Congress
included provisions related to these services in several laws enacted
starting in 1997 (see table 3). These provisions required HHS to report
to Congress in 2001 on a revised coverage policy for outpatient therapy
services that would consider patients' needs. The provisions also
required HHS to report to Congress in 2005 on steps toward developing a
standard instrument for assessing a patient's need for outpatient
therapy services and on a mechanism for applying such an instrument to
the payment process. As of October 2005, HHS had not reported its
specific recommendations on revising the coverage policy based on
patients' needs. HHS had, however, contracted with researchers to
conduct several analyses of Medicare claims data as a means of
responding to the mandates.
Table 3: Legislation Affecting Medicare Spending on Outpatient Therapy
Services, 1997-2003, and HHS Actions:
Law: Balanced Budget Act of 1997 (BBA), Pub. L. No. 105-33, § 4541, 111
Stat. 251, 454;
Key provisions: Required HHS to submit, no later than January 1, 2001,
a report including specific recommendations on a revised coverage
policy for outpatient therapy services under Medicare based on
diagnostic category and prior use of services;
Response: HHS did not submit a report to Congress by January 1, 2001.
HHS, through CMS, contracted with the Urban Institute for a series of
reports that were meant to help meet BBA's requirements[A,B].
Law: Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (BBRA), Pub. L. No. 106-113, app. F, § 221, 113 Stat. 1501A-321,
1501A-351;
Key provisions: Required HHS to compare and report on by June 30, 2001,
the utilization patterns (nationwide and by region, setting, and
diagnosis) of outpatient therapy services in 1998 and 1999 with those
on or after January 1, 2000, including a review of a statistically
significant number of claims for these services; As an amendment to the
BBA reporting requirement, HHS was directed under BBRA to consider
"functional status" and other criteria as the Secretary deemed
appropriate in the design of a new outpatient therapy payment policy
and to discuss methods to help ensure appropriate use of outpatient
therapy;
Response: CMS contracted with the Urban Institute for a series of
reports that were to meant help meet BBRA's requirements, including the
requirement to study utilization of outpatient therapy services[B]; CMS
contracted with AdvanceMed to meet BBRA's requirements for a study and
report on utilization.[C] HHS did not submit a report to Congress by
June 30, 2001, but AdvanceMed's report was completed in September 2002.
No outpatient therapy payment policy designed, therefore, no response
to "functional status" language.
Law: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA), Pub. L. No. 106-554, app. F, § 545, 114 Stat. 2763A-
463, 2763A-551;
Key provisions: Required HHS to report, no later than January 1, 2005,
on the development of standard instruments for assessing the health and
functional status of patients receiving any one of a variety of
services, including speech-language pathology, physical therapy,
occupational therapy, and both inpatient and outpatient settings; this
report is to include a recommendation on the use of such "standard
instruments" for payment purposes;
Response: HHS did not submit a report to Congress by January 1, 2005.
Officials told us in May 2005 that a report related to BIPA's
requirement was in progress. An HHS official anticipated submitting
this report to Congress by the end of 2005, but it will not include
outpatient therapy.
Law: Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA), Pub. L. No. 108-173, § 624, 117 Stat. 2066, 2317;
Key provisions: Required HHS to submit, no later than March 31, 2004,
overdue reports on payment for and utilization of outpatient therapy
services;
Response: In November 2004 HHS issued a report to Congress in response
to the BBA, BBRA, and MMA requirements. This report included a review
of medical claims and a discussion of a planned analysis of
alternatives to current payment practices for outpatient therapy
services. It did not specify a revised outpatient therapy payment
policy.[D] HHS appended to this report seven reports by its
contractors, the Urban Institute and AdvanceMed[E].
Source: GAO.
[A] The HHS agency now known as CMS was called the Health Care
Financing Administration (HCFA) before June 2001.
[B] Maxwell and Baseggio, Outpatient Therapy Services (2000), and
Maxwell et al., Part B Therapy Services (2001).
[C] Olshin et al., Study and Report (2002).
[D] Centers for Medicare & Medicaid Services, Report to Congress,
Medicare Financial Limitations on Outpatient Rehabilitation Services
(Baltimore, Md.: November 2004).
[E] Maxwell and Baseggio, Outpatient Therapy Services (2000); Maxwell
et al., Part B Therapy Services (2001); Olshin et al., Study and Report
(2002); Ciolek and Hwang, Feasibility and Impact Analysis (2004);
Ciolek and Hwang, Development of a Model (2004); Ciolek and Hwang,
Utilization Analysis (2004); and Ciolek and Hwang, Final Project Report
(2004).
[End of table]
HHS's response, implemented through CMS, to the principal legislative
provisions addressing outpatient therapy services has been to contract
for a series of studies, first by the Urban Institute and then by
AdvanceMed (see table 4). In general, these studies have found that
information available from Medicare claims data is insufficient to
develop an alternative payment system based on patients' therapy needs,
and a patient assessment instrument for outpatient therapy services
that collected information on functional status and functional outcomes
would be needed to develop such a system. They have also found that a
needs-based payment system would be key to controlling costs while
ensuring patient access to appropriate therapy.
Table 4: CMS-Contracted Studies of Outpatient Therapy Services, 2000-
2004:
Study: Urban Institute (2000)[A];
Key findings or conclusions: Insufficient research available on
outpatient therapy practice patterns to design and implement a payment
system based on diagnosis and prior use of services; Lack of functional
status data on Medicare outpatient therapy patients impedes the
development of such a system; Options were identified for managing
outpatient therapy, including development of a database of functional
status assessments made during beneficiaries' use of outpatient therapy
services; Selected recommendations: No recommendations.
Study: Urban Institute (2001)[B];
Key findings or conclusions: Application of Medicare's physician fee
schedule to skilled nursing facilities, rehabilitation agencies, and
comprehensive outpatient rehabilitation facility outpatient therapy
reduced spending on services in 1999 and 2000; Selected
recommendations: No recommendations.
Study: AdvanceMed (2002)[C];
Key findings or conclusions: Application of Medicare's physician fee
schedule to institutional outpatient therapy service providers reduced
spending on these services before 2002; Diagnoses on claim forms do not
accurately reflect the medical condition for which a patient received
therapy and thus constrain CMS's ability to develop an alternative
payment system based on patient condition; Selected recommendations: No
recommendations.
Study: AdvanceMed (2004)[D];
Key findings or conclusions: Claims data show no pattern of diagnoses
reflecting specific conditions that consistently result in payments for
outpatient therapy services exceeding the spending limits; Claims data
will not provide sufficient information to develop a needs-based
payment system; Selected recommendations: The final project report[D]
discussed several options and recommended implementing a "global
approach" comprising both short- and long-term strategies for managing
outpatient therapy services, including developing a standardized
outpatient therapy patient assessment instrument to collect clinical
information needed to develop a classification scheme based on patient
condition. The final project report proposed eliminating the therapy
caps, because they may adversely affect some patients, and restraining
outpatient therapy spending through improved program integrity and
limited use through, for example:
* targeted use limits or;
* improved administrative edits to better identify and deny payment of
improper claims.
Source: GAO.
[A] Maxwell and Baseggio, Outpatient Therapy Services (2000).
[B] Maxwell et al., Part B Therapy Services (2001).
[C] Olshin et al., Study and Report (2002).
[D] Ciolek and Hwang, Feasibility and Impact Analysis (2004); Ciolek
and Hwang, Development of a Model (2004); Ciolek and Hwang, Utilization
Analysis (2004); and Ciolek and Hwang, Final Project Report (2004).
[End of table]
As of October 2005, HHS had taken few steps toward developing a patient
assessment instrument for assessing beneficiaries' needs for outpatient
therapy. Some health care settings, including inpatient rehabilitation
facilities, home health agencies, and skilled nursing facilities, do
have patient assessment instruments to collect functional status and
other information on Medicare beneficiaries. Officials from HHS's
Office of the Assistant Secretary for Planning and Evaluation and CMS
told us they were collaborating to examine the consistency of
definitions and terms used in these settings. They expected to report
to Congress by the end of 2005 (in response to the requirement in the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act)
on this effort to standardize patient assessment terminology, although
they have no plans to include outpatient therapy services in the
effort. CMS officials and one of the provider groups we spoke with
estimated that the development of a patient assessment instrument for
outpatient therapy services would take at least 3 to 5 years. HHS
officials said that the complexity of the task and resource constraints
precluded them from including outpatient therapy services in their
effort to standardize other patient assessment terminology. CMS has,
however, funded a demonstration project with a private-sector firm that
has developed a patient assessment instrument that collects functional
status and functional outcomes for patients who receive outpatient
therapy services, primarily physical therapy, in certain
facilities.[Footnote 29] A report from the firm to CMS is expected in
summer 2006.
Circumstances That Led to Therapy Caps Remain:
Recent assessments of Medicare claims data have shown that the
circumstances that initially led to therapy caps--rising Medicare
payments for outpatient therapy and a high rate of improper payments--
remain. CMS, however, has not implemented its contracted researchers'
proposal to strengthen its system of automated checks for denying
payment of improper claims. Provider groups we spoke with agreed that
Medicare was likely paying for some medically unnecessary therapy
services and that improvements could be made to help strengthen the
integrity of the payment system.
According to recent CMS assessments of Medicare claims data, Medicare
payments for outpatient therapy services continue to rise. Over the 4-
year period from 1999 through 2002, Medicare spending for outpatient
therapy more than doubled, from an estimated $1.5 billion to $3.4
billion, according to the CMS-contracted analysis of 2002 claims data
released in 2004.[Footnote 30] Although outpatient therapy spending for
2003 and 2004 has not been fully estimated, overall Medicare part B
expenditures--which include spending on outpatient therapy services--
showed rapid growth (15 percent) from 2003 to 2004, according to CMS
estimates reported in 2005.[Footnote 31] CMS attributed this growth to
five factors, one of which was increased use of minor procedures such
as therapy performed by physicians and physical therapists.[Footnote
32] Payments for certain therapy services, for example, increased by 24
percent or more from 2003 to 2004. CMS officials told us that many
valid reasons may exist for the significant growth in payments for
outpatient therapy. For example, they said, some of the increase in
therapy services could be due to the growth in recent years of elective
services such as knee replacements.
CMS has also recently reported that improper payments made for
outpatient therapy services have increased substantially in recent
years. Specifically, in November 2004, CMS reported that the estimated
error rate for claims rose steadily from 10.9 percent in 1998 to 20.4
percent in 2000.[Footnote 33] CMS reported that most of the errors were
due to insufficient documentation to support the services claimed, such
as lack of evidence of physician review and certification of treatment
plans. In January 2005, CMS reported error rates in a random sample of
more than 160,000 fee-for-service claims, which included therapy
services, from 2003.[Footnote 34] The agency found that claims
submitted for therapy services were among those with the highest rates
of payments made in error because of insufficient documentation or
medically unnecessary services.[Footnote 35] Such services included
procedures frequently provided by therapists, such as therapeutic
exercise,[Footnote 36] therapeutic activities,[Footnote 37]
neuromuscular reeducation, electrical stimulation, manual therapy, and
physical therapy evaluation. For example, 23.5 percent of claims for
therapeutic activities lacked sufficient documentation, resulting in
projected improper payments of more than $34 million.[Footnote 38]
Claims for therapeutic exercises had a "medically unnecessary" error
rate of 3 percent, with projected improper payments of more than $18
million.
Our past work found that CMS needed to do more medical reviews of
beneficiaries receiving outpatient therapy services. We reported in
2004, for example, that in Florida, comprehensive outpatient
rehabilitation facilities were the most expensive class of providers of
outpatient therapy services in the Medicare program in 2002.[Footnote
39] Per-beneficiary payments for outpatient therapy services to
providers in these facilities were two to three times higher than
payments to therapy providers in other facilities. We recommended that
CMS direct the Florida claims administration contractor to medically
review more claims from comprehensive outpatient rehabilitation
facilities.[Footnote 40]
CMS's contracted researcher concluded that CMS could improve its claims
system by identifying and implementing modifications to the agency's
automated claims review system to better target payments to medically
appropriate care.[Footnote 41] In doing their analysis of the 2002
claims, they identified three types of specific edits that they found
to be feasible and that would reject claims likely to be improper:
* Edits to control multiple billings of codes that are meant to be
billed only once per patient per visit. The contracted researchers
estimated that in 2002, the impact of this type of improper billing
amounted to $36.7 million.
* Edits to control the amount of time that can be billed per patient
per visit under a single code, since most conditions do not warrant
treatment times exceeding 1 hour. The contracted researchers estimated
that in 2002, the impact of this type of improper billing amounted to
$24-$100 million, depending on the amount of time per visit billed
under a given code.
* Edits of clinically illogical combinations of therapy procedure
codes. In analyzing 2002 Medicare claims data, the contractor found
limited system protections to prevent outpatient therapy providers from
submitting claims for procedures that are illogical for a given
diagnosis. One example, according to the contractor's report, was
claiming for manual therapy submitted with a diagnosis of an eye
infection. The estimated impact of improper billings based on illogical
combinations of diagnosis and procedure codes in 2002 amounted to $16.7
million.
CMS officials agreed with the contracted researcher that such edits are
worth considering, but the agency had not implemented them as of
October 2005. A CMS official told us, however, that CMS is implementing
the proposed edits to control multiple billings of codes meant to be
billed only once per patient per visit; the agency expects these edits
to be in place in early 2006. As of October 2005, CMS was still
considering whether to implement the other two types of edits. In
addition to the three types of edits identified by the contracted
researcher, the researcher proposed routine data analysis of Medicare
claims to identify other utilization limits that could be applied to
better target Medicare payments. CMS is considering whether and how to
implement this type of analysis.
Provider groups we spoke with agreed that Medicare was likely paying
for some medically unnecessary therapy services and that improved
payment edits could help ensure that Medicare did not pay for such
services. Nevertheless, representatives from these groups stressed the
importance of mechanisms that would allow Medicare to cover payments
for beneficiaries who need extensive care. The representatives noted
that an exception process, based on a medical review, could help
determine the appropriateness of therapy services. Such an exception
process could be invoked to review the medical records of beneficiaries
whose providers seek permission for coverage of Medicare payments in
excess of the caps. CMS officials agreed that an appeal process or
waiver from the caps could be a short-term approach to focus resources
on needy beneficiaries. They added that possible criteria for waiving
the caps could include (1) having multiple conditions; (2) having
certain conditions, levels of severity, or multiple conditions
suggested by research as having greater need for treatment; (3) having
needs for more than one type of service, such as occupational therapy
and speech-language pathology; or (4) having prior use of services or
multiple episodes in the same year. HHS does not, however, currently
have the authority to implement a process, or to conduct a
demonstration or pilot project, to provide exceptions to the therapy
caps.
Conclusions:
Medicare payments for outpatient therapy continue to rise rapidly, and
20 percent or more of claims may be improper. To date, however, HHS has
made little progress toward a payment system for outpatient therapy
services that is based on patients' needs. Furthermore, while CMS is
considering ways to reduce improper payments, it has not implemented
the contractor's proposals for improving its claims-processing system.
HHS has been required for years to take steps toward developing a
payment system based on beneficiaries' needs, which would require
developing a process for collecting better assessment information.
Studies contracted by CMS to respond to requirements under three laws
suggest that the department would need to develop a standard patient
assessment instrument to define a patient's diagnosis and functional
status and thereby determine the patient's medical need for therapy. In
response to a statutory requirement to report on the standardization of
patient assessment instruments in a variety of settings, HHS and CMS
have an effort under way to study and report to Congress on the
development of standard terminology that Medicare providers could use
to assess patients' diagnosis and functional status. Although this
provision requires that outpatient therapy services be included in this
effort, HHS and CMS have not done so.
Concerns remain that when the current moratorium expires and the caps
are reinstated, some beneficiaries who have medical needs for therapy
beyond what can be paid for under the caps may not be able to obtain
the care they need. Some beneficiaries may not be able to afford to pay
for care or may not have access to hospital outpatient departments,
which are not subject to the caps. In the absence of patient assessment
information, therefore, an interim process, demonstration, or pilot
project may be warranted to allow HHS to grant exceptions to the caps.
For example, such a project could allow beneficiaries, under
circumstances that CMS determines, an exception to the cap on the basis
of medical review supported by documentation from providers regarding
their patients' needs for extensive therapy. Such a project could also
provide CMS with valuable information about the conditions, diseases,
and functional status of beneficiaries who have extensive medical needs
for therapy. The information gathered through the project could also
facilitate development of a standardized patient assessment process or
instrument. HHS, however, would need legislative authority to conduct
such a project. Although exceptions could increase Medicare payments
for outpatient therapy, exceptions could provide one avenue for
Medicare coverage above the caps for some beneficiaries who need
extensive therapy. Potentially, payment increases due to exceptions
could be offset by implementation of the contractor-proposed
improvements, such as edits.
Matter for Congressional Consideration:
To provide a mechanism after the moratorium expires whereby certain
Medicare beneficiaries could have access to appropriate outpatient
therapy services and to obtain better data needed to improve the
Medicare outpatient therapy payment policy, including data on the
conditions and diseases of beneficiaries who have extensive outpatient
therapy needs, Congress should consider giving HHS authority to
implement an interim process or demonstration project whereby
individual beneficiaries could be granted an exception from the therapy
caps.
Recommendations for Executive Action:
To expedite development of a process for assessing patients' needs for
outpatient therapy services and to limit improper payments, we
recommend that the Secretary of HHS take the following two actions:
* ensure that outpatient therapy services are added to the effort
already under way to develop standard terminology for existing patient
assessment instruments, with a goal of developing a means by which to
collect such information for outpatient therapy, and:
* implement improvements to CMS's automated system for identifying
outpatient therapy claims that are likely to be improper.
Agency Comments:
We provided a draft of this report to HHS for comment and received a
written response from the department (reproduced in app. I). HHS did
not comment on the matter for congressional consideration, in which we
said that Congress should give HHS authority to implement an interim
process or demonstration project whereby individual beneficiaries could
be granted an exception from the therapy caps. HHS concurred with our
recommendation that it ensure that outpatient therapy services are
added to the effort already under way to develop standard terminology
for existing patient assessment instruments. The department stated that
it is preparing to contract for a 5-month study to develop a policy and
payment guidance report as it explores the feasibility of developing a
post-acute care patient assessment instrument.
In commenting on our recommendation to implement improvements to CMS's
automated system for identifying outpatient therapy claims that are
likely to be improper, HHS discussed a national edit system to promote
correct coding methods and eliminate improper coding. This national
edit system has been applied to some therapy-related claims starting in
1996, and HHS plans to apply it more broadly in 2006. While the
national edit system is complementary to the edits proposed by CMS's
contracted study, CMS can do more by also implementing improvements to
its payment system as suggested by the study's specific findings. HHS
also indicated that it was exploring other methods for automated
evaluation of claims but commented that its claims-processing system
cannot always identify an improper claim from the information that is
available on claim forms. We agree that the current system cannot
always identify an improper claim, given the lack of information on the
claim forms about a patient's actual needs for therapy. It was this
conclusion that led to our recommendation that HHS include outpatient
therapy in its present efforts to improve the collection of patient
assessment information. We believe that CMS can make improvements to
its current automated system to reduce improper claims, irrespective of
its efforts to improve patient assessment information. As we noted in
the draft report, CMS's contracted study found certain edits to be
feasible using information already provided on claim forms, such as
edits of clinically illogical combinations of therapy procedure codes.
We are sending copies of this report to the Secretary of Health and
Human Services, the Administrator of the Centers for Medicare &
Medicaid Services, and other interested parties. We will also make
copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff members have any questions about this report,
please contact me at (202) 512-7119 or at steinwalda@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix II.
Signed by:
A. Bruce Steinwald:
Director, Health Care:
[End of section]
Appendix I: Comments from the Department of Health and Human Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Office of Inspector General:
Washington, D.C. 20201:
OCT 20 2005:
Mr. A. Bruce Steinwald:
Director, Health Care:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Steinwald:
The Department appreciates the opportunity to comment on this draft
report before its publication. Enclosed are the Department's comments
on the U.S. Government Accountability Office's (GAO's) draft report
entitled, "MEDICARE: Little Progress Made in Targeting Outpatient
Therapy Payments to Beneficiaries' Needs" (GAO-05-990). These comments
represent the tentative position of the Department and are subject to
reevaluation when the final version of this report is received.
The Department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Signed for:
Daniel R. Levinson:
Inspector General:
Enclosure:
The Office of Inspector General (OIG) is transmitting the Department's
response to this draft report in our capacity as the Department's
designated focal point and coordinator for U.S. Government
Accountability Office reports. OIG has not conducted an independent
assessment of these comments and therefore expresses no opinion on
them.
HHS COMMENTS ON THE U.S. GOVERNMENT ACCOUNTABILITY OFFICE'S DRAFT
REPORT ENTITLED, "MEDICARE: LITTLE PROGRESS MADE IN TARGETING
OUTPATIENT THERAPY PAYMENTS TO BENEFICIARIES' NEEDS" (GAO-05-990):
The Department of Health and Human Services (HHS) appreciates the
opportunity to comment on the U.S. Government Accountability Office's
(GAO) draft report.
GAO Recommendation #1:
Ensure that outpatient therapy services are added to the effort already
under way to develop standard terminology for existing patient
assessment instruments, with a goal of developing a means by which to
collect such information for outpatient therapy.
HHS Comment:
HHS concurs with the recommendations to ensure that outpatient therapy
services are added to the current effort to develop standard
terminology for existing patient assessment instruments with a goal of
developing a means of collecting outpatient therapy information. HHS is
preparing to contract a 5-month study to develop a policy and payment
guidance report as HHS explores the feasibility of developing a
postacute care patient assessment instrument. The study will facilitate
HHS's plan of a phased approach to the development of this instrument.
The development approach would begin with a tool that can be used as
part of the hospital discharge planning process to assess patients'
status and ensure placement in the appropriate postacute care setting,
with the eventual goal of enhancing the tool to assess and monitor
patients' health and functional status across settings.
GAO Recommendation #2:
Implement improvements to CMS's automated system for identifying
outpatient therapy claims that are likely to be improper.
HHS Comment:
This recommendation stems primarily from a study under contract with
the Centers for Medicare & Medicaid Services (CMS) that identified
improper payments for outpatient therapy based on claims analysis.
Medicare's National Correct Coding Initiative (NCCI) is an edit system
that was developed to promote national correct coding methodologies and
eliminate improper coding. These edits are developed based on coding
conventions defined in the American Medical Association's Current
Procedural Terminology manual, current standards of medical and
surgical coding practice, input from specialty societies, and analysis
of current coding practices.
The NCCI edits were initially applied to carrier claims from physicians
and privately practicing physical therapists and occupational
therapists in 1996. In 2000, the Outpatient Code Editor (OCE) version
of the NCCI edits (including rehabilitative therapy services) was
applied by fiscal intermediaries for services provided in an outpatient
hospital setting. Beginning January 1, 2006, the OCE NCCI version will
be applied to all claims from institutional therapy providers submitted
to intermediaries, including skilled nursing facilities, home health
agencies, comprehensive outpatient rehabilitation facilities, and
rehabilitation agencies.
HHS is developing methods for automated evaluation of claims' technical
compliance with national coverage and claims processing policies. Also,
we are exploring limits to variables such as multiple units of service
and/or visits, consistent with reasonable clinical guidelines.
Ultimately, however, CMS's claims processing system cannot identify an
improper claim unless the claim has information on it that permits it
to be identified as improper. For example, Medicare currently validates
the patient's needs only through medical review-a time intensive and
expensive method of personal assessment by a reviewer. A current
contract explores the potential of identifying variables that may be
submitted with claim data and used to limit services consistent with
beneficiaries' needs. The results of this study should be available for
use in a demonstration in 2007.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
A. Bruce Steinwald, (202) 512-7119 or steinwalda@gao.gov:
Acknowledgments:
In addition to the contact mentioned above, Katherine Iritani,
Assistant Director; Ellen W. Chu; Adrienne Griffin; Lisa A. Lusk; and
Jill M. Peterson made key contributions to this report.
[End of section]
Related GAO Products:
Medicare: More Specific Criteria Needed to Classify Inpatient
Rehabilitation Facilities. GAO-05-366. Washington, D.C.: April 22,
2005.
Comprehensive Outpatient Rehabilitation Facilities: High Medicare
Payments in Florida Raise Program Integrity Concern. GAO-04-709.
Washington, D.C.: August 12, 2004.
Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians'
Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.
Medicare: Outpatient Rehabilitation Therapy Caps Are Important Controls
but Should Be Adjusted for Patient Need. GAO/HEHS-00-15R. Washington
D.C.: October 8, 1999.
Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in
Nursing Homes. GAO/HEHS-95-23. Washington D.C.: March 30, 1995.
FOOTNOTES:
[1] Unless otherwise specified, throughout this report the terms
outpatient therapy and outpatient therapy services refer to all three
therapy categories collectively: physical therapy, occupational
therapy, and speech-language pathology.
[2] For example, since 1973 therapy provided by one type of outpatient
therapy provider, independent physical therapists in private practice,
has been subject to annual, per-beneficiary spending limits.
[3] GAO, Medicare: Tighter Rules Needed to Curtail Overcharges for
Therapy in Nursing Homes, GAO/HEHS-95-23 (Washington D.C.: Mar. 30,
1995). A list of related GAO products appears at the end of this
report.
[4] Under the law, the caps on Medicare outpatient therapy payments do
not apply to services provided by a hospital outpatient department. 42
U.S.C. § 1395l(g).
[5] The legislation provides for two caps per beneficiary: one for
occupational therapy and one for physical therapy and speech-language
pathology combined. The legislation set the caps at $1,500 each and
provided that these limits be indexed by the Medicare Economic Index
each year beginning in 2002. When last in place in 2003, the two caps
were set at $1,590 each.
[6] GAO, Medicare: Outpatient Rehabilitation Therapy Caps Are Important
Controls but Should Be Adjusted for Patient Need, GAO/HEHS-00-15R
(Washington D.C.: Oct. 8, 1999).
[7] See, for example, the Balanced Budget Act of 1997 (BBA), Pub. L.
No. 105-33, § 4541, 111 Stat. 251, 454.
[8] Pub. L. No. 108-173, § 624, 117 Stat. 2066, 2317.
[9] Studies based on 2002 claims data include Daniel E. Ciolek and
Wenke Hwang, Feasibility and Impact Analysis: Application of Various
Outpatient Therapy Service Claim HCPCS Edits, prepared for CMS
(Baltimore, Md.: Computer Sciences Corporation/AdvanceMed, 2004);
Daniel E. Ciolek and Wenke Hwang, Development of a Model Episode-Based
Payment System for Outpatient Therapy Services: Feasibility Analysis
Using Existing CY 2002 Claims Data, prepared for CMS (Baltimore, Md.:
Computer Sciences Corporation/AdvanceMed, 2004); Daniel E. Ciolek and
Wenke Hwang, Utilization Analysis: Characteristics of High-Expenditure
Users of Outpatient Therapy Services, CY 2002 Final Report, prepared
for CMS (Baltimore, Md.: Computer Sciences Corporation/AdvanceMed,
2004); and Daniel E. Ciolek and Wenke Hwang, Final Project Report,
prepared for CMS (Baltimore, Md.: Computer Sciences
Corporation/AdvanceMed, 2004). Studies based on other years and data
include Judith M. Olshin et al., Study and Report on Outpatient Therapy
Utilization: Physical Therapy, Occupational Therapy, and Speech-
Language Pathology Services Billed to Medicare Part B in All Settings
in 1998, 1999, and 2000 (Columbia, Md.: DynCorp/AdvanceMed, 2002);
Stephanie Maxwell and Cristina Baseggio, Outpatient Therapy Services
under Medicare: Background and Policy Issues, prepared for CMS
(Washington, D.C.: Urban Institute, 2000); and Stephanie Maxwell et
al., Part B Therapy Services under Medicare in 1998-2000: Impact of
Extending Fee Schedule Payments and Coverage Limits, prepared for CMS
(Washington, D.C.: Urban Institute, 2001).
[10] To check the reliability of the information we used from CMS-
contracted studies, we reviewed the analysis performed by the
contractor; discussed the results with the CMS official overseeing the
contract; obtained information about the methods and analysis from the
contractor, specifically, from the principal investigator of the
contracted study; and reviewed the contractor's summary of the study's
scope and methods. We also discussed the methods and results of the
analyses with provider groups and other researchers familiar with
Medicare claims data, including representatives of the Medicare Payment
Advisory Commission (MedPAC) and the Urban Institute. We determined
that the data as published were generally reliable for our purposes.
For one analysis--assessing variation in the length of treatment
received by Medicare beneficiaries according to their diagnosis codes-
-we used the results from an unpublished analysis performed by CMS's
contractor AdvanceMed. We verified the reliability of this analysis by
obtaining information from the principal investigator about the
reliability checks incorporated in that analysis and determined that
the analysis was sufficiently reliable for our needs.
[11] Medicare part B includes coverage for physician services and
payments to other licensed practitioners, clinical laboratory and
diagnostic services, surgical supplies and durable medical equipment,
and ambulance services. Medicare part A covers inpatient hospital and
certain other services.
[12] We interviewed officials from the American Physical Therapy
Association, the American Occupational Therapy Association, the
American Speech-Language Hearing Association, and the National
Association for the Support of Long-Term Care.
[13] Physical therapy services--such as whirlpool baths, ultrasound,
and therapeutic exercises--are designed to improve mobility, strength,
and physical functioning and to limit the extent of disability
resulting from injury or disease. Speech-language pathology, included
in the Medicare definition of outpatient physical therapy services, is
the diagnosis and treatment of speech, language, and swallowing
disorders. Occupational therapy services help patients learn the skills
they need to perform daily tasks such as bathing and dressing and to
function independently.
[14] Medicare does not cover maintenance therapy--that is, therapy
services performed to maintain, rather than improve, a beneficiary's
level of functioning. Maintenance therapy includes cases where a
patient's restoration potential is insignificant relative to the
therapy required to achieve such potential, where it has been
determined that the treatment goals will not materialize, or where the
therapy is considered a general exercise program. Medicare may,
however, cover the development of a maintenance program established
during the course of covered therapy.
[15] Unlike physical and occupational therapists, speech-language
pathologists are not recognized as practitioners who can directly bill
the Medicare program for outpatient therapy services.
[16] See GAO/HEHS-95-23.
[17] The improper claims were filed under Medicare part A and part B.
See Office of Inspector General, Physical and Occupational Therapy in
Nursing Homes: Cost of Improper Billings to Medicare, OEI-09-97-00122
(Washington, D.C.: Department of Health and Human Services, August
1999).
[18] Pub. L. No. 105-33, § 4541, 111 Stat. 251, 454.
[19] Pub. L. No. 106-113, app. F, § 221, 113 Stat. 1501A-321, 1501A-
351.
[20] Pub. L. No. 106-554, app. F, § 421, 114 Stat. 2763A-463, 2763A-
516.
[21] Pub. L. No. 108-173, § 624(a), 117 Stat. 2066, 2317.
[22] Two bills were introduced in February 2005 to repeal the therapy
caps: H.R. 916 and S. 438. As of October 2005, these bills had been
referred to appropriate committees, and no further action had been
taken. Another bill under consideration in the Senate as of October 31,
2005, would extend the moratorium on the therapy caps through 2006. See
S. 1932, Deficit Reduction Omnibus Budget Reconciliation Act of 2005.
[23] Diagnosis codes from the World Health Organization's ninth
revision of its International Classification of Diseases (ICD-9 codes)
are used on Medicare part B claim forms to identify a patient's
diagnosis. In addition to clinically specific codes, such as
osteoarthritis, the ICD-9 system also includes generic codes, such as
"other physical therapy," "occupational therapy encounter," and "speech
therapy."
[24] Ciolek and Hwang, Final Project Report (2004).
[25] An "episode" was defined in the CMS-contracted study as extending
from the date of a beneficiary's first therapy encounter until the last
encounter for the same type of therapy. For example, if the first
physical therapy encounter was on January 15 and the last was on
January 22, the physical therapy "episode" extended from January 15
through January 22. If the same beneficiary began speech-language
pathology services on January 20 and ended on January 28, the speech-
language pathology episode lasted from January 20 through January 28.
If a 60-day break intervened between therapy services of the same or a
different type, the new round of therapy was considered a new episode.
[26] All analyses of ranges in treatment length reflect the ranges to
the 99th percentile, to eliminate extreme outliers.
[27] This conclusion was part of a MedPAC letter to Congress on the
advisability of allowing Medicare fee-for-service beneficiaries to have
"direct access" to outpatient physical therapy services and
comprehensive rehabilitation facility services. MedPAC concluded that
the physician referral and review requirements are a necessary but not
sufficient mechanism to help beneficiaries receive outpatient physical
therapy services that are needed and appropriate for their clinical
conditions. MedPAC also found that providers need to be made more aware
of coverage rules for beneficiaries--for example, through increased
educational initiatives by the professional associations, the claims
contractors, and facilities in which physical therapists practice.
Medicare Payment Advisory Commission, letter to Congress (Washington,
D.C.: Dec. 30, 2004).
[28] GAO/HEHS-00-15R.
[29] This demonstration project will analyze the feasibility of a pay-
for-performance system in outpatient rehabilitation settings and also
analyze the outcomes of therapy services for Medicare part B
beneficiaries (who constitute about 15 percent of the 1.6 million
patients in the firm's database) on the basis of their condition and
functional status. The project expects to identify appropriate care for
particular therapy-related diagnoses, although the data have limited
applicability to the entire Medicare population.
[30] Ciolek and Hwang, Final Project Report (2004).
[31] Letter from the Director, Center for Medicare Management, Centers
for Medicare & Medicaid Services, to the Chair, Medicare Payment
Advisory Commission, March 31, 2005, and accompanying data.
[32] The five factors were increased spending for office visits (29
percent of overall growth), increased use of minor procedures including
therapy (26 percent), more frequent and complex imaging services (18
percent), more laboratory and other tests (11 percent), and more use of
prescription drugs in doctors' offices (11 percent). The greatest
contributors to the increase in minor procedures were the
administration of drugs and physical therapy, including procedures such
as manual therapy and neuromuscular reeducation of movement. See Center
for Medicare Management Director's letter (Mar. 31, 2005).
[33] Centers for Medicare & Medicaid Services, Medicare Financial
Limitations on Outpatient Rehabilitation Services (Baltimore, Md.:
November 2004).
[34] Centers for Medicare & Medicaid Services, Improper Medicare Fee-
for-Service Payments Report, Fiscal Year 2004 (Baltimore, Md.: January
2005).
[35] An "insufficient documentation" error means that the provider did
not include pertinent patient facts (e.g., the patient's overall
condition, diagnosis, or extent of services performed), or the
physician's orders or documentation were incomplete. "Medically
unnecessary" errors included situations where the claim reviewers
identified enough documentation in the medical record to make an
informed decision that the services billed to Medicare were not
medically necessary.
[36] Therapeutic exercises--such as treadmill use, stretching, and
strengthening--develop strength, endurance, range of motion, or
flexibility.
[37] Therapeutic activities--such as bending, lifting, and carrying--
improve functional performance.
[38] CMS's estimate of improper payments was projected because the data
collected had not been adjusted to exclude beneficiary co-payments,
deductibles, or reductions to recover previous overpayments.
[39] GAO, Comprehensive Outpatient Rehabilitation Facilities: High
Medicare Payments in Florida Raise Program Integrity Concerns, GAO-04-
709 (Washington, D.C.: Aug. 12, 2004).
[40] According to a CMS official, this recommendation had not been
implemented as of August 2005.
[41] Ciolek and Hwang, Feasibility and Impact Analysis (2004); Ciolek
and Hwang, Final Project Report (2004).
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