MEDICARE OUTPATIENT

PSYCHIATRIC SERVICES 
National Program Inspection 
July 1986 
Control Number P-09-86-00056 
Office of Analysis and Inspections 
LF.  d Region: 
Region X Seatt'e,  Office of Inspector General 
r.: 
Support Re lons:  Departmeni: of Health 
and Human S  ivjces 
Region V Chlca 
Region  Offlcs of Aud!: Beston, 
18  . . . ..  ..  ..  ..  ..  ...   ...   ..  ...   ....    ....    .....     ....   .. ..  ....    ...   ....    ....    
....    ....    
TABLE OF CONTENTS

Page 
MAOR FINDINGS 
INTRODUCTION 
AN 
STATUTORY  REGULATORY BACKGROUND 
AN III 
BRIEF OVERVIEW:  PHASES I, II 
FISCAL IMPACT OF DIFFERING CARRER PRACTICES 
DETAILED CLAIMS RECORDS ANALYSES: PHASE I 
WASHINGTON 
WISCONSIN 
CARER SURVEY:  PHASE II 
III 
DJiAILED CLAMS RECORDS ANALYSIS: PHASE 
NORTHERN CALIFORNIA 
METHODOLOGY 
APPEND IX  . 21  MAJOR FINDINGS

has  statutory limitation on Medicare Part B outpatient 
HCF A  interpreted the 
psychiatric services in two ways: 
hospitals and 
physician-rendered services provided in outpatient
ssientctien gthse  s1u9c6h5  alasw c, too m
 mUni y mental health centers, physicians' offices or 
outpatient 
services provided specifically 
since 1982, to both physician and nonphysician 
ive Outpatient Rehabilitation Facilities (CORFs). 
through CompreKe 
that this dichotomy exists, 
When developing the CORF regulations  HCF A admitted 
but argued that it would be "too drastic" a step to limit reimbursement that has 
been available since -the 1960s when the original regulations were written. Thus 
only CORFs are covered by the stricter limitation as Congress intended. 
The results of the inconsistent regulations and their policy interpretations are
billing practices.
variations in carriers' claims administration as well as in provider 

to 
All but four  of the nation  carriers  apply the limit  both physician- and
settings. In  3, the four who have not 
non physician-rendered services in all  CY 
approximately' $3.  million for care 
applied the limit to nonphysician care paid 
limit. 
exceeding the 
Many carriers reported that overutilization and billing problems occur primarily in 
centers (CMHCs). Even those carriers who have very 
community mental health 
tight controls over the outpatient psychiatric limit continue to monitor CMHCs 
closely. Phases I and II of this study found that most costs for nonphysician 
limit occurred in CMHCs. 
services exceeding the 
RECOMMENDA TIONS 
instructions implementing the 
HCF A should revise the regulations and carrier  (a) to reflect the original 
statutory limitation of outpatient psychiatric services 
ongressional intent,  e., t  cap both physician- and  nonphvsician-rendt=1 ed 
rviipc: iir:d  (b) to assure  istent administrative pra tic  among the nation 
carriers. 
establish review procedures to monitor utilization 
HaCnFd  Ab islhlonugld  advise carriers to  mental health centers and take corrective 
patterns in community 
actions as necessary. 
;t::"  INTRODUCTION

Part B  included a statutory 
When Congress passed the Medicare  legislation in 1965, it 
limitation on outpatient psychiatric services. In developing the program regulations 
the predecessor to the Health Care Financing Administration (HCF A) interpreted the 
statute liberally and imposed the limit only on physician-rendered services, allowing 
s care. 
unlimited nonphysician services rendered "incident to" a physician  In 1982 
when developing regulations for Comprehensive Outpatient Rehabilitation Facilities 
(CORFs) based on the same statutory language  HCF A applied the limitation to both 
so, 
physician and nonphysician services. In doing  HCF A admitted that this broader 
application was in keeping with Congress s original intent, but chose not to apply it to 
all  outpatient psychiatric services. 
federal 
In 1984, the Office of Inspector General began to study the  policies and 
statutory limitation in order to determine the fiscal 
practices which implement the 
regulatory position and (b) the carriers' administrative 
implications of (a) HCF A' 
practices. The study was undertaken in three phases.  Phase I of this study focus 
' Part B 
computerized analyses of the carriers claims records for the states 
Wa.snmgton, wisconsin, New Hampshire, Vermont, Massach setts and Connecticut, plus a 
eYiew of HCF A's regulatory position. We  ound that the carriers administerea th 
psychiatric coverage limitation in significantly different ways.  .. 
ST A TUTOR Y AND REGULATOR Y BACKGROUND 
Social Security Act places a cap on each Medicare beneficiary 
Section l833(c) of the 
psychiatric outpatient costs incurred during a calendar year. Specifically, the statute 
50 
allows as incurred expenses $312. or 62t percent of the charge, whichever 
smaller. (As applied, .625 x $500 = $312.50.  It should be noted, however, that the 
amount actually paid is less because each beneficiary s copayment of 20 percent 
reduces the amount to $250 (i.e., Medicare reimburses 80 percent of the allowed 
$312.50 ). 
The statute places a limit on expenses incurred in connection with treatment of 
mental, psychoneurotic and personality disorders. It does not restrict the psychiatric 
limit to  ection l861(s) defines medical and health 
physician services. Further, S
services as both h sicians' services an  those. services and su lies "furnished 
clent to a physician s professional service, of kinds which are . commonly furnished in 
nysicians'  offices and are commonly rendered without charge or included in the 
' bills 
physicians
It was HCF A regulation rather than the statute which introduced the distinction 
between physician and nonphysician services and applied the psychiatric limit only to 
direct physician care. Specifically, the regulation (42 C.F .R. 405.243 as it read prior 
to December 15, 1982) stated: 
Expenses incurred for services  . furnished by health personnel other than 
physicians, including home health services and outpatient services...are not 
LJrh limitation even  though the services are in connection with a 
biect to 
condition which is included in the definition of mental, psychoneurotic, or 
disorder. 
personali ty 
In 1982, HCF A was faced with applying the same statutory limitatiIonn  to regulations for 
Rehabilitation Facilities (CORFs).  doing so, HCF A 
Comprehensive Outpatient 
eliminated the distinction between physician and nonphysician services. In the 
pSreeamcblte ito othne  prlop8ose3d 3CO(RcF r)eg:ula tio
 ns, HCF A discussed its interpretation of
The variations between the statute and the regulations originated when the 
late 1960s. At 
Medicare program was first developed in the  that time, the 
decision was made to limit the . psychiatric services limitation to only 
pghryesaictieasnts  'c osesrtv ifcaecs t(obre cianus etJh..e.p hysicians' services gepnseyrcahlliayt rriecp rilelnseensste st.h..e.  
outpatient care of 
oSivgenirf itchaent  lachsant g1es5 i yn etaher sp rnaoct ilocen gofe rm seudpicpionret  atnhdi si nr tahtei oMnedailcear. e 4p7ro gFreadm. 

Reg. 20095-20096, May 10, 1982.

Although HCF A chose to apply the $250 payment cap to all psychiatric services (i.e., 
both physician and nonphysician) provided by a CORF , it did not extend the limitation 
to all Part B outpatient psychiatric services, e.g., those provided in a physician 
office or a community mental health clinic. HCF A continued in the preamble to the 
We believe that would be too drastic a step to take at 
proposed regulations to say, "
this time since it would limit reimbursement that is currently available....  justification for the 
final CORF regulations reaffirmed that the 
The preamble to the 
previous regulation was no longer valid: 
rules, the regulation did not 
As explained in the preamble to the proposed 
statute, which does not restrict the 
conform literally to the language of the 
, we do not 
pyschiatric limit to physician services. As further discussed
believe it would be in the best interest of the public and the program to 
extend the - limitation to other benefits that have long been available to 
amend the regulation by applying 
beneficiaries. Accordingly, we proposed to 
the  CORF services (whether furnished by physicians or 
psychiatric limit to 
law.  limit separate from the 
nonphysicians) as required by  This is not a 
limit on physicians' services. (47 Fed. Reg. 56287-56288, December l5, 1982) 
the psychiatric services limitation applies to 
Thus , the final regulations state that "
physicians services and CORF services (furnished by physicians or non physicians)... 
(42 CFR 405.243(b)) 
The Region X Office of General Counsel, in an informal review of the law and 
we  1982 CORF 
regulations, said that " agree with HCF A'  conclusion (in the 
the-board limit 
regulationsJ that the intent of the statute was to place an across-
all  expenses incurred in connection with mental illness.... 
Yet, this dichotomy exists between Congressional intent and Departmental policy and 
practice. Our study documents the effect of the dichotomy and the extent of the 
variations among provider billing patterns and carrier administrative practices in 
applying the statutory limitation.  , ,

BRIEF OVERVIEW:  PHASES I, II AND 

the initial phases led to new 
This study progressed sequentially, since the findings from 
inquiry. The Region X Office of Analysis and Inspections (OAI) began 
areas of 
issue after Region X HCF A alerted our office to discrepencies in provider 
studying the 
billing practices for outpatient mental health services in Washington State. To 
discrepencies, we began a comparative analysis of the 
determine the extent of the 
Washington and - Wisconsin Part B claims records. During this period, the Region 
carriers who administer Part B in New 
Office of Audit "researched the issue at three 
Massachusetts. 
Hampshire, Vermont, Connecticut and 
The five carriers studied in Phase I administered the psychiatric coverage limitation in 
significantly different ways: 
to 
physician-rendered care 
- Washington Physician Services applied the limit 0 
a owmg VIr ua y un mIte nonp ysiclan services. Me icare B paid a tota 
was for '

- psychiatric services, of which $2. 
million for outpatient  17 millon

exceedin

applied the limit only to physician-rendered 
- New Hampshire!Vermont Health Service 
care.  outpatient 
Medicare B paid a total of $588,996 for  psychiatric services, of 
which $310,000 was for care exceeding the limit which was provided in Community 
Mental Health clinics. 
both physician and nonphysician 
- Wisconsin Physician Services applied the limit to 
care. '  pal 
services; automatically curtailing-' the volume and cost o  Icare
total of $536,477 for outpatient psychiatric care, of which $54 980 was for care 
exceeding the coverage limit. 
- Marsvsaiccheuss eattus Btlou	 mShiaeldt idicd annlt lrl i  tin.g tu ish betwbeen oth. Medisciacriae nB a pnadid n oan  tphoytsailc ian 
254 for outpatient psychiatric services, of which none was for care exceeding

the limit.

Connecticut General did distinguish between physician and nonphysician care but

both.  78l 
Medicare B paid a total of $477, for outpatient

applied the limit to 
9l6 was for nonphysician services.

psychiatric care, of which $9,
During Phase II, we surveyed the remaining carriers who were not part of the Phase 
analyses to inventory their specific procedural applications in processing outpatient 
said they 
psychiatric claims. All but three  apply the coverage limitation to both 
physaici anl afndo norn hn siiclaan c iatriC servlces. wo carriers  . uei hcle :d  
Shield of Utah, were convertin their coldri neg xsycsete ms an 
ansas and Blue 
know how their new s stems wou  the limit. The t 
siciari and nonphysician serVices in
the limit. Since this is one of the largest carriers in the country, we 
app 
ceeded to determine the fiscal implications of this administrative practice. 
Thus, in Phase II, this Northern California carrier s claims records were analyzed. 
Although the available computer files contained several gaps, resulting in incomplete 
data, we determined that Medicare B paid at least $4 008 256 for outpatient 
psychiatric services, of which at least $646 808 was for care exceeding the limit. 
phase of this study are reported later. 
Detailed analyses of each  FISCAL IMP ACT OF DIFFERING CARRIER PRACTICES

Medicare carriers--Washington , New Hampshire/Vermont, and Northern 
CCuarlriefontrnlyia,- -tpharye e
 virtually unrestricted costs for nonphysicians services furnished
these 
"incident to" a  physician  care. OIG staff analyzed the claims records of 
carriers. 
TABLE 1 
CY 1983 MEICARE PART B PSYCHIATRIC DATA

ota1 B  Paid )$250 
Outpatient  Outpatient  of Outpatient 
Psyocthai1a tBr ic  Psychiatric  Psychiatric  Dollars  Psychiatric 
T oPtaay1o Puatrs t B  Payouts  of Total  Payouts  Paid )$250  Payments 
Washington  219, 625, 401*  $4, 099, 057  1.9  $2, 968  883  $2, 167  602  73. 
New 
HVearmmposnht ire/  74, 437, 854*  823, 287  1.1  588, 996  310, 000  52. 
NCoarltihfoerrnn ia  $1, 275, 164, 545  $7, 633, 064  $4, 008  256  '646 , 808  16.
Health Care Financing Administration , Bureau 
*Unpublished Data prepared by 
Strategy. 
of Data Management and 
also excluded nonphysicians from the limit 
Since the Utah carrier s old coding system 
03l,242 for outpatient psychiatric care in CY 1983, 
estimate  it paid as high as $l,
we  high and low estimates of 
752,807 exceeded the limit. Table 2 shows the 
of which 
 Washington and Northern California 
Utah outpatient psychiatric expenditures, using the 
The high estimates are based on the Washington 
carriers actual data as the models. 
Northern California experience. Although 
experience and the low estimates on twheh ether its new coding system will apply the 
Blue Shield of Karsas does not know 
, its old  limit to both physician and 
system did apply the 
limit to nonphysician services
 any estimates of 
We, therefore, are excluding this carrier from 
nonphysician care. 
psychiatric limit.
expenditures exceeding the outpatient 

TABLE 2 
CY 1983 ESTIMATES OF UTAH PSYCHIATRIC EXPENDITURES

Estimated 
Estimated  Total B  Estimated 
Outpatient  Outpatient 
Total B 
Psychiatric  psychiatric  Dollars 
Ac tual Total B 
Payouts  Paid )$ 250 
Payouts  Payou ts 
Utah  966, 781  (h)  424  369  (h)  031  243  (h) $  752  807 
(1)  449  801  (1)  236  146  (1)  020 
(h) = high  (I = low
 :: 
- -
Part B 
for these four carriers, Medicare  paid between 
Thus, we estimate that  psychiatric limit: 
9 million for care which exceeded the outpatient 
$3. 2 million and $3.
High  Low 
$ 2,167 602  $2,167,602 
Washington (actual) 
New HampshireIV ermont (actual)  361406,,080008   361406,,080008 

Northern California (actual) 
752,807  38,020

Utah (estimate)

$ 3,877 217  $3, 162,430 
CONCLUSIONS 
legislatio  in the 1960s, Congress approved Part
A t the time iotu ptpasasteiedn tt hpes yMecdhiicaatrreic  services with the proviso thayte saurc.h  services be 
coverage of  per beneficiary per  Implementing 
limited to an actual payment cap of $250 
limit to only those services delivered directly by physicians, thus 
regulations applied the  unlimited care rendered by their nonphysician 
esntaablfifnsg . physicians to bil Medicare fmora y be provided by either a physician or a 
Essentially, psychotherapy 
against the 
the treatment be counted 
nonphysician, but the Department requires that  physician 
for unlimited non 
limit only when provided by the physician. Medicare pays  that limit 
services reach the payment cap. Once 
- services until the physician-rendered  for any outpatient psychiatric services for the 
is reach  , Medicare ceases to pay  CORFs 
remainder of the calendar year. HCF A interpreted the statute differently for 

settings. 
versus all other outpatient 
HCF A' s liberal regulations 
s carriers report that they do not follow 
Most of the nation  CORF settings. In other words, 
in applying the outpatient psychiatric limitation in non- services. The four 
both 
they apply the limit to  physician- and nonphysician-rendered 
carriers who do not apply the limit to nonphysician services until the epxhcyesiecdiiann -trheen dleimreidt  
payment ceiling paid more than $3 million for care 
services hit the  practicmg isparate procedural applicatio  is, 
in CY 1983. The fact that carriers are 
itself,  s beneficiaries. 
nd o  inequitable to the nation 
R-, ANALYSES 
DETAILED CLAIMS RECORDS 
WISCONSIN
PHASE I: WASHINGTON AND 

WASHINGTON 
260 Washington beneficiaries
During calendar year 1983, Medicare Part B reimbursed f8r,om 679 providers. Table 3 
$4,099,058 for - all psychiatric services they received  services. The ratio 
inpatient and outpatient 
sho\\s the amounts allowed and paid for

is 1:3.

of inpatient to outpatient expenditures 

TABLE 3 
WASHINGTON PART B PSYCHIATRIC CLAIMS

CY 1983 
Amount  Total $ 
Paid 
Allowed 
$ 5, $ 4, 
200  128 
Inpatient diagnostic  1 ,447 , 448  1 , 126 ,046 
Inpatient therapeutic  173, 033  125, 521 
Outpatient diagnostic 681  687  843. 362 
Outpatient therapeutic 
$5, 307  368  $4, 099, 057 
Total li 
physician- and nonphysician-
billing procedures distinguish between 
The carrier 
portion of services given by doctors and 
rendered services, enabling us to identify the 
Since the cap 
those given "incident to" the doctors' caraels oby d inaognnphoysstiicc iparno csetdaufrfe.s , we focus our 
only inpatient charges but 
excludes not  doctor and

services. Table 4 compares the
attention on the outpatient therapeutic  therapeutic care. 
beneficiaries reimbursed for outpatient 

staff expenditures for all 
TABLE 4

PHYSICIAN AN NONPHYSICIAN

EXPENDITURES

OUTPATIENT THERAEUTIC 
IN WASHINGTON, CY 1983

physician  Nonphysician 
Totals 
Services  Services 
489  793*
beneficiaries  945
No.  133, 533  153, 113 
services  580 
No.  paid  $289, 451  $2, 553, 911  $2, 843, 36f 
Amount 
beneficiaries, some of 
*This total represents an unduplicated count of 
physician services. 
whom received both physician and non 
the dollars spent exceeded the $250 limit. Table 5 compares 
Approximately 88% of  beneficiaries whose Medicare Part B
the doctor and staff expenditures for only those 

$250.

reimbursement exceeded  . -
TABLE 5

CY 1983 OUTPATIENT THRAEUTIC EXPENDITURES

FOR BENEFICIARES EXCEEDING CAP

WASHINGTON

Physician  Nonphysician 
Services  Services  Totals 
beneficiaries  437  459  466* 
No. 
services  2, 757  124, 979  127  736
No. 
Amoun t paid  $ 34, 293  $2, 460, 041  $2, 494, 334 
*This total represents an unduplicated count of beneficiaries , some of 
whom received both physician and nonphysician services. 
Thus , 25% of the beneficiaries received 88% of the ouctapapt.i eInft  wtheer wapeeureti tco p ayout, with 
an average payment of $1,701, or $1 451 over the  include the 
outpatient diagnostic costs, the figure would be even greater. This is an important 
consideration because some therapeutic procedural codes allow for continuing diagnostic 
cases. 
from coverage under the payment cap in numerous 
evaluation and are excluded 
If there is a question whether such a service is therapeutic or diagnostic, the benefit 
of doubt leans toward diagnostic judgment call. Circumstantial evidence plants a 
nagging suspicion, however , that some providers may be abusing this administrative 
allowance. For example, one doctor saw a patient 17 out of 22 consecutive days and 
paid by Medicare 
biled Medicare only for diagnostic services. Thus, none of the $724 
From the claims record, it looks like this
was counted against the cap as therapeutic.
 services 
patient was "diagnosed" almost every day for three weeks, and none of the 
was billed as psychotherapy. 
, however, when compared to the practice

This practice pattern appears to be minor services.
among some providers of billng almost exclusively for nonphysician-rendered 
466 beneficiaries whose outpatient therapeutic reimbursement exceeded the cap 
The 1 
were treated by 34 doctors, 5 of whom did not bill at all for their direct services and 
many of whom billed rarely for their direct services. For example, one provider 
treating 253 beneficiaries. Interestingly, the doctor was paid 
recei ved $598 786 for  8 patients. He did not bill for any 
odnilrye c$t4 56 for physician setrhviec eres manadin oinngly 2 f4o5r  patients. He received $598 330 for 
physician care to 
nonphysiciancare. That equates to $l,3l2 in nonphysician reimbursement for every $1 
in physician reimbursement. Furthermore, 213 (84%) of this provider s patients received 
these were 
Only 6 of  billed for 
more than $250 fcoarr eo,u twpahtiileen atl lt h2e1r3ap weuetriec  bcialrlee.d  for nonphysician care. Of the 
direct physician 
137 reimbursed, only $441 was for physician care. Payment for these 213 
$594 
$2 over limit) to  ver 
from $252 (i.e., 
Qverlimit" beneficiaries ranged 
limlt . 
T en of the 34 providers who treated over limi t beneficiaries received 93% of the 
oovefr  tlhimei tt edonll ahrisg (hi.ees.,t  p$2a,i3dl4 p r7o5v2 ioduetr so fo f$ 2o u4t9p4a, 3t3i4e)n.t  Ttahbelree a6p ys htoow sb etnheef ibciilalrnige sp awthtoesrne  
reimbursement exceeded the $250 cap. Most of these are Community  ental Health

Centers.  - -
TABLE 6 
WASHINGTON , CY 1983

THRAY

TEN HIGHEST PAID PROVIDERS OF OUTPATIENT 
EXPENDITURES FOR OVERLIMIT BENEFICIARES

PHYSICIAN VS. NONPHYSICIAN SERVICES

Ph, sician Treatment  Non  hvsician Treatment 
Dollars  iF  Services  iF  Persons  Dollars  iF  Services  iF  Persons 
provider  441  593, 696  19, 183  213 
Provider Y  178  442  982  17 , 560  211 
Provider X  836  111  286  462  086  128
Provider W  656  257  136  , 828  140 
Provider V  2 , 435  277  174  01l  6 , 534  151 
173  392  393  149
Provider U

Provider T  750  172, 654  975

114, 946  818

Provider S  195 
Provider R  344  52, 845  1 , 842

Provider 0  470  39. 323  852

TOTALS  $ 7. 305  652  200  $2. 307. 447  114. 071  1.193 
In summary, the data reveal that Medicare Part B is paying a few providers the bulk 
dollars spent in Washington. Table 7 shows the rate of 
of the outpatient therapeutic 
payment per doctor. Please note that these figures include care for both over limit 
and  , 85% of the doctors received 3% of the payout 
under limit beneficiaries. Thus
payout. 
while 1 % of the doctors received 83% of the 
TABLE 7 
WASHINGTON , CY 1983 
OUTPATIENT THERAEUTIC CAR 
PROVIDER REIMBURSEMENT

Percent of  Amount Paid  Percent of 
Doc tors 
iF 
Ram!:e of Payout  in Ran2e  Doctors  to GrouD  Dollars Paid 
)$0 - $1.000  572  84%  84. 269 
)$1. 000 - $5 000  12%  157. 343

)$5  000 - $10. 000  54. 523

)$10  000 - $50. 000  201  040

)$50. 000  346  188  83%

TOTALS  679  99%*  843. 363  101%* 
rounding. 
*Not exactly 100% due to  WISCONSIN 
B a 
providers billed Medicare Part  total of 
1982, Wisconsin 
During calendar year  1982 tapes were the most recent ones 
psychiatric services. (CY 
$4,130, 385 for  Table 8 shows the amount allowed (i.e., the 
the analysis.

available at the time of  inpatient and outpatient services. The

amount paid for 
reasonable charge) and the 
2:1. 
ratio of inpatie t to outpatient expenditures was 

TABLE 8 
WISCONSIN PART B PSYCHIATRIC CLAMS

CY 1982

Amount Allowed  Total S Paid 
Inpatient 685, 353  196  447
Outpatient  369, 234  536, 477
Total "  S3, 054  587  732, 924 
reasons why the amount paid differs from the amount 
There is a variety of  the 
copayment was required of  beneficiary, the annual 
allowed-e.g., the 20 percent 
plan served as primary payor.

deductible had to be paid and/or another insurance 

694 beneficiaries for outpatient services and 3,259 for inpatient 
Medicare reimbursed 6,
individuals who received 
care. These totals undoubtedly include some duplication of 
Few of these beneficiaries received outpatient 
both outpatient and 
inpatient services.  . As Table 9 reveals, only 331 persons, 5 
expenditure cap
care that exceeded the $250  than $250 for that 
outpatient care, received more 
percent of those reimbursed for 
care. 
TABLE 9 
PAYOUT FOR WISCONSIN PART B

OUTPATIENT PROCEDURES, CY 1982

Range of  Number of  Percent of  Amount Paid

Beneficiaries  Beneficiaries  for Group  % Dollars Paid

Payout 
398. 837  74% 
)SO-S250  363  95% 
$ 90 596  17% 
)S250-$500  272 
)$500-$ 750  (1%  $ 21 595

)$750-$1000  (1%  $ 11. 893

)$1000  (1%  $ 13, 556

S536, 477  100% 
694  100% 
TOTALS 
dollars spent exceeded $250. Even though 5% of 
Approximately 26% ($137,640) of the  these 
the beneficiaries received 26% of the payout, the average payment for 
640 i- 331) or $166 per beneficiary over the $250 cap. 
beneficiaries was $4l6 ($137 
applied strictly, the maximum amount of questionable claims 
the payment cap were 
640 - ($250 x 
would be $54, 890 or 10% of all outpatient psychiatric expenditures ($137,
extract why some claims 
331) = $54 890). We cannot determine from thWe ec ocmapnu itdeern tify the many cases where 
and others were not. 
exceeding $250 were paid  , but we cannot identify the 
claims where rejected once the $250 cap was reached
reasons why others were paid in excess of the cap.  During 1982, the Wisconsin carrier did not distinguish by procedure code between 
, we cannot determine 
physician-rendered and nonphysician-rendered services. Thus
actually were provided by the doctor or by a staff 
whether the over limit services 
nonphysician. We were told, however, that midyear in 1983, the carrier added specific 
identify staff-rendered services. The extent to which this change 
procedure codes to 
is unknown. For CY 1982, we
affected total outpatient practice patterns and costs 
can identify ,  however, which procedures were billed most frequently. Table 10 shows 
that individual -medical psychotherapy (varying from 15-60 minutes) accounts for 96% of 
all billed services.

TABLE 10 
PROCEDURE FREQUENCY

WISCONSIN, CY 1982 
( excluding  inpatient hospitals as the place of service) 
Services  Percent of 
Rendered  Total Volume 
96. 
34 578 
387  1.0% 
256 
252 
208 
223 
35 904  100. 
TOTALS 
Viewed from an expenditure perspective (see Table 11), again individual psychotherapy 
accounts for 95% of all dollars paid for outpatient psychiatric care. 
TABLE 11 
AMOUNT PAID PER PROCEDURE 
WISCONSIN , CY 1982 
( excluding  inpatient hospitals as the place of service) 
Percent of 
Dollars Paid  Total Pa out 
minutes)  $508 003  95. 
$ 11 340 
9 823 
3 , 483 
$ 3 661 
$536 310*  100. 
TOTALS 
*This total is $167 less than the actual payout, due to truncation.  ::" " .
providers reimbursed by Medicare for outpatient psychiatric services, 415 
Of the 576  000. 
Table 12 shows the range of expenditures per 
(72%) received less than $1,
doctor. 
TABLE 12 
OUTPATIENT CAR 
PROVIDER REIMBURSEMENT 
WISCONSIN , CY 1982 
Percent of  Amount Paid  % of Dollars 
Range of  of Doctors 
4F 
Reimbursement  in Range  Doctors  to Group  Soen t

)$0 - $1. 000  415  72%  $ 74. 792  14%

)$1  000 - $5. 000  143  25%  310. 781  58%

84. 666  16%

)$5  000 - $10. 000 
)$10. 000 - $15. 531  66. 238  12%

576  100%  $536. 477  100%
TOTALS 
greatest 
The providers receiving the largest total reimbursement did not receive the 
individual patients, i.e., they treated many Medicare patients. For 
reimbursement for  530  individual 
highest paid doctor (i.e., $15, received for an 
example, the most the 
providers who received much more for 
tphatei ecnatr ew aosf  $a2n9 li.n dTihveidreu awle bree,n ehfoiwceiavreyr.,  Tshoeme d octor paid the most for an individual 
who received the highest Medicare 
patient also served the beneficiary in the state 
beneficiary served by a 
outpatient reimbursement, i.e., Medicare paid $3,671.40 for a 
who were reimbursed 
single provider. Viewed another way, of the eight beneficiaries 
more than $1 000, two were treated by only one doctor, four were treated by two 
was treated by three doctors, and one by four doctors. 
doctors, one 
COMPARISON 
The Wisconsin and Washington carriers have administered the psychiatric coverage 
significantly different ways.. The fact that Wisconsin did not apply 
limitation in  physician and nonphysician services 
procedure codes to distinguish between 
volume and cost of outpatient psychiatric care during 1982. 
automatically curtailed the  differentiate between these two 
1983 procedural revisions to 
The result of its mid-
unknown. 
levels of care is 
less strict 
fWeasdheirnagtl ognu, idona ntchee  oatnhder p haaindd ,v ibratsueadl liyt su ndirsecsrtertiec tperdo cceodusrtasl f aoprpl nicoantpihonyss iocnia n
  services 
furnished "incident to" a phy's iOcfiafni cse  coafre C. oInv eMraargceh  P1o9l8i4c,y  tfhoer  Rcelgairoinf iXc aHtCioFn  Ao fs ttahfef  
queried their headquarters
Section 
regulations. In a May 1984 memorandum, HCF A headquarters responded that 
l861(s) of the Social Security Act:

O:K.. nonphysician services must be furnished 
has been interpreted to provide that..
e., they must be furnished 
s professional services, i.
incident to" a physician 
covered physician s professional service in the course
aos fan  idntieagrgaln poarst iofs a 
 or treatment of an injury or ilness. In the case of a CMHC, 
covered  personal professional
this means that a physician must first render a 

service to which the services of the non physicians can be considered an 
lthough integral, part and the CMHC must submit a claim for 
incidental,-
this service to its Part B carrier. Until a claim for a physician s service has 
been processed by the carrier, there has been no adjudication of and thus no 
covered 
determination made on whether the physician s service is in fact 
addition, a physician must continue to provide covered personal professional 
patient periodically and sufficiently often to assess the 
services to the 
course of treatment and the patient' s progress and, where necessary, change 
the treatment regimen. 
The result of applying this recent policy clarification in Washington is yet to be seen. 
been 
Also, this policy clarification has  disseminated only in response to Region X' 
direct inquiry, with copies of the memorandum sent to the other regions. How this 
information is used by each regional HCF A staff depends entirely on their judgment. 
In other words, there is no headquarters directive to instruct individual carriers to 
bill for continued personal care periodically and sufficiently often 
require physicians to 
will be covered. This allows for continued variation in the 
before nonphysician care 
psychiatric reimbursement.

ways providers bil for and carriers administer outpatient 
results of their two diverse administrative approaches in Wisconsin 
In comparing the 
and  disproportionately greater Medicare physchiatric outlay for 
Washington, we find 
s Medicare population and expenditures are slightly 
Washington even though Wisconsin 
two states. 
larger. Table 13 compares applicable Medicare data for the 
TABLE 13 
WASHINGTON AN WISCONSIN

MEDICARE PART B PSYCHIATRIC DATA

Number of

Benef' s 
Total  Reimbursed  Number of 
Total  Total  Total B  Outpatient  for  Outpatient  Outpatient 
Psych.  Psych.  Outpatient  Benef'  Dollars 
Part B  Part B

Enrollees*  Payout*  Payouts  Payouts  Care**  Paid )$250**  Paid )$250** 
479. 014  $219. 625. 401  $4 099 057  $2 968 883  793  1 466  $2. 167. 602 
627. 954  $262 873 703  $1. 732. 924  536. 477  6 694  331  54. 980 
Ratio 
2:1  6:1  1:1  4:1  39:1 
WA:WI  1: 1  1: 1 
*Unpublished Data prepared by Health Care Financing Administration, Bureau of Data Management

and Strategy. 
-Excludes diagnostic expenditures. 
14 
 CARRIER SURVEY

PH ASE 
THE UMIT 
PROCEDURAL APPUCA nONS OF 
I)lJring Phase- II, Region  Office of Analysis and Inspections staff surveyed by 
carriers who were not a part of the Phase I analyses.! Of 
telephone the remaining 
these 42 carriers,2 39 said they apply the coverage limitation to both physician and 
outpatient psychiatric services. Of the remaining three, only one--Blue 
non physician 
Shield of California-clear ly distinguishes between physicians and non physicians 
Basically, this northern California carrier applies the coverage 
applying the limit. 
limit to physician services and will pay for auxiliary staff services until the 
"incident 
physician-rendered services arveaocihd  tuhnel ipmayitmeedn ta ulixmiliita.r yIn  sordtear tfof m ecet ather e without physician 
requirement and to 
involvement  treat and bill  routinely. 
, the carrier requires physicians to 
Shield of Utah, were in the 
The other two carriers, Blue Shield of Kansas and Blue 
HCF A Common Procedure Coding 
process of converting their coding systems to the 
new systems 
at the time of our discussions if their 
System (HCPCS), and did not know 
payment limit to both physician and nonphysician services. Blue Shield 
will apply the 
of Kansas began conversion from the Kansas Relative Value System to HCPCS in 
January 1985. The new HCPCS codes include procedure codes which identify services 
by  but the carrier did not know whether the new system would 
nonphysician staff, 
services under the limit. Blue Shield of Utah 
exclude or include these auxiliary staff  HCPCS in March 1985. Under the old 
began converting itds idol ndo ct oadpipnlgy  styhset leimm tito  to nonphysician care. Like Blue Shield of 
system, the carrier 
new system is too recent, and they re not sure how 
Kansas, their experience with the 
the limit will be applied. The carrier s spokesman did say, however, that in 1983, the 
not to apply  the limit to nonphysician-
HCF A regional office instructed all carriers  system. This HCF A instruction 
complied under the old 
rendered care, and the carrier  said they 
in Region VII, who  essentially ignored 
was mentioned also by another carrier 
the instruction because their procedures were already in place and continued to apply 
the limit to both physician and auxiliary staff care.

them to distinguish 
Eleven other carriers said that although their coding systems allow 
service was delivered by a physician or nonphysician, they apply the 
whether a 
outpatient psychiatric 
payment limit to both, thus curtailng the volume and cost of 
utilzation and billing problems occur 
services. Many carriers reported that over 
Even those carriers who have 
community mental health centers (CMHCs). 
pvreirmyar tiilgyh itn c ontrols over the outpatient psychiatric limit continue to monitor CMHCs 
example, some CMHCs bill frequently or routinely for nonsp hcysaicriea.n  care 
closely. For 
Most 
without documentation that the services are incident to a physician 
practices through postpayment reviews. 
carriers monitor billing 
was included in the 
One carrier studied in Phase I (Blue Shield of Massachusetts) 
Phase II survey because it also covers Maine, and its administration of claims 
records from Maine was excluded during Phase I. 
carriers cover substate geographic areas and some multi-state 
Note that some 
for a listing of the carriers contacted in Phase II. 
areas. See Appendix  Even though the statutory payment cap excludes both inpatient and diagnostic 
their application of the limit for diagnostic
psychiatric procedures, carriers do differ in 
carriers said they apply the limit only to outpatient therapeutic care 
services. Some 
if, as was found in 
with no limit on diagnostic services. This practice could be costly 
Washington State during Phase I, some providers are billing almost daily for extended 
diagnostic treatment, with little or no psychotherapy being documented or billed. 
Two other potentially costly issues surfaced during our Phase II discussions with 
carriers: 
Some providers bil for both physician- and nonphysician-rendered psychiatric services 
psychiatric procedures, thus circumventing the payment limit. 
as medical rather than 
' claims, one carrier 
For example, as a result of postpayment reviews of two CMHCs
Western New York) found ancillary personnel were billing office visits 
(Blue Shield of 
(i.e., medical codes) which were not being picked up under the psychiatric limit. 
The  these claims and has recently issued a newsletter warning 
carrier denied 
providers that such medical claims will not be paid. Some carriers catch these 
reviewing primary diagnosis and treatment codes and applying the 
medical codes by 
limit if the primary diagnosis is psychiatric. Other systems, however, won t pick up 
any medical treatment procedures regardless of who billed for them (i.e., psychiatrist 
what the original diagnosis was (i.e., psychiatric or medicaD. 
or nonpsychiatrist) or 
- Some psychiatrists practice "gang visits" to nursing homes and submit suspiciously 
claims. 
large numbers of therapy  Carrier attention to this issue is selective.  DET AILED CLAIMS RECORDS ANALYSIS

PHASE II: NORTHERN CALIFORNIA

The OIG's copy of Northern California carrier s source files contains defects which 
resulted in lost data for claims paid during the fourth quarter of 1983. The magnitude 
of this loss .is unknown and cannot be determined without substantial expenditure of 
staff time and .computer resources. The following analysis, therefore, is limited to the 
available data, and the results are conservative. 
reimbursed 29,909 Northern California 
During calendar year 1983, Medicare Part B 
beneficiaries $7,633,064 for all psychiatric services they received from 3,406 providers. 
Table 14 shows the amounts allowed and paid for inpatient and outpatient services. 
The ratio of 
inpatient to outpatient expenditures is 1:1. 
TABLE 14 
NORTHERN CALIFORNIA PART B PSYCHIATRIC CLAIMS

CY 1983 
Amoun t  Total $

Allowed  Paid 
-0- -0
Inpatient diagnostic 
Inpatient therapeutic  625, 000  624  808 
Outpatient diagnostic 434  515  339, 250 
Outpatient therapeutic  055  252  006 
Total "  $10  114  767  633  064 
As - in Washington, the Northern California carrier s system differentiated between 
doctor and staff 
physician- and nonphysician-rendered services. Table l5 compares the 
care. 
expenditures for all beneficiaries reimbursed for outpatient therapeutic 
TABLE 15

PHYSICIAN AN NONPHYSICIAN

OUTPATIENT THERAEUTIC EXPENDITURES

IN NORTHERN CALIFORNIA, CY 1983

Physician  Nonphysician 
Services  Services  Totals 
No.  beneficiaries  812  906  909* 
No.  services  176  124  , 11 7  196  241 
Amount  paid  985  712  $683, 293  669  006 
*This is an unduplicated count of beneficiaries, some of whom received both 
physician and nonphysician services. 
Approximately 17% of the dollars spent on outpatient psychiatric services exceeded the 
doctor and staff 
$250 limit. Table 16 compares the  expenditures for only those 
beneficiaries whose Medicare Part B reimbursement exceeded $250.  TABLE 16 
CY 1983 OUTPATIENT THERAEUTIC EXPENDITURES 
FOR BENEFICIARES EXCEEDING CAP 
NORTHERN CALIFORNIA 
Physician  Nonphysician 
Services  Services  Total s 
No.  beneficiaries  750  679  790*

No.  services  593  19, 618  211

Amount  paid  $137, 793  $667  061  $804, 854

*This total represents an unduplicated count of beneficiaries, some of whom 
services. 
received both physician and nonphysician 
Less than 3% of the beneficiaries received 22% of the outpatient therapeutic payout, 
019, or $769 over the limit. It'  should be noted that 
with an average payment of $1,
98% of payments for non physician care  , were made to beneficiaries whose 
reimbursement exceeded the cap. 
, these 790 beneficiaries whose outpatient therap  utic reimbursement 
On the other hand
exceeded the cap were treated by 84 providers (approximately 2% of the 3,406 
Of 
providers whom Medicare reimbursed for outpatient psychiatric care).  these 84, 
60% are group practices, primarily CMHCs. A few are psychiatric day care centers or 
clinics. 
other types of outpatient 
Sixteen of the 84 providers received 84% of the Medicare Part B dollars paid for 
outpatient psychiatric therapy to over limit beneficiaries. Table 17 illustrates the 
providers. 
billng pattern of these 16 highest paid 
TABLE 17 
NORTHERN CALIFORNIA, CY 1983 
HIGHEST PAID PROVIDERS OF OUTPATIENT THERAY 
EXPENDITURES FOR OVERLIMIT BENEFICIARES 
PHYSICIAN VS. NONPHYSICIAN SERVICES 
sician Treatment  Nonthvsician Treatment

Dollars  fF Services  fF Persons  Dollars  fF Services  fF Persons 
Provider A  $ 4 962  633  $154, 379  469

Provider B  676  245  96, 224  016

Provider C  432  301  72, 810  070

Provider D  25 , 504  024  100  42, 125  931

Provider E  096  267  40 , 952  931

Provider F  017  355  117  797

Provider G  246  124  166  796

Provider H  031  420  19 , 488  572

Provider I  730  20, 972  437

Provider J  150  19, 500  480

Provider K  350  281  477

Provider L  572  , 731  330

696  277

Provider M 
Provider N  665  148  996  189

Provider 0  112  305  165

Provider P  262  713  201

TOTALS  $66. 877  3 861  458  $605. 456  138  506  providers rendering outpatient 
Thus, the data reveal that a small percentage of 
psychiatric care are receiving most of the over limit Medicare Part B expenditures, and 
most of these are community mental health clinics or other group practices where most 
nonphysicians. 
of the services are provided by 
m."" 
19 "  METHODOLOGY

PHASES I and 

SAS computer 
The  analyzed using programs written in the 
Wisconsin claims were 
claims history file was created which contained only 
language. An extract of the  1982. This extract was further 
psychiatric codes. performed during calendar year 
divided into two files--inpatient and outpatient claims. 
For both files, beneficiaries were listed in ascending order based on total payments. 
each beneficiary. 
A paper output was produced with summary data for 
claims were analyzed using programs written in 
The Washington and Northern California 
psychiatric 
COBO L. An extraction- program created a file consisting of all 1983 
claims. This file was sorted two ways--by provider so that practice patterns could be 
by  identify patients treated by more than one 
characterized and  beneficiary to 
psychiatric provider.

Next, each sort was run against a COBOL program which categorized each claim 
service, whether the service was physician- or nonphysician
areccnodredirengd  taon dp lwachee tohfe r the service was diagnostic or therapeutic. Outpatient 
beneficiary listing into two classes: 
therapeutic services were subtotaled under each 
nonphysician-rendered. 
rendered and (b) 
(a) physician-
, in expanded 
and provider activity were written to paper and
Sfuomrmma,r ietso  oefl ebcetnreofnicicia fryi les. The disk files were downloaded (i.e., electronically 
transferred via telephone lines) to personal computers and further analyzed using dBase 
II and BASIC programs. 
New Hampshire/Vermont 
analyses of the 
The Office of Audit performed computerized 
Massachusetts CY 1982 Medicare payment files, using 
and Connecticut CY 1983 and 
Easytrieve computer language. 
PH ASE 
Part B contractors who were not part of the Phase I analysis were 
All Medicare 
surveyed by telephone to inventory their specific procedural applications in processing 
outpatient psychiatric claims.  APPENDIX 
PHASE II CARRIER CONTACTS 
GEOGRAPHIC COVERAGE 
CARRIER 
Massachusetts , Maine 
Blue Shield of Massachusetts

Blue Shield of Rhode Island  Rhode Island 
Queens 
Group Health , Inc. 
Blue Shield of Western New York  45 upstate counties

Shield of 
Blue Cross/Blue 
16 downstate counties 
Greater New York 
Puerto Rico, Virgin Islands 
Triple S

New Jersey, Georgia, North Carolina 
Prudential 
Shield  Pennsylvania, Delaware, D. 
Pennsylvania Blue 
Maryland 
Blue Shield of Maryland 
Virginia 
Travelers of Virginia 
Shield  South Carolina 
South Carolina Blue 
Tennessee

Equitable 
Alabama  Alabama

Blue Shield of 
Mississippi

Travelers 
Florida

Florida Blue Shield

Kentucky

Kentucky Blue Shield

Travelers
 Southeast Minnesota

Blue Cross/Blue Shield of Minnesota
 ll-county metropolitan area

Michigan 
Blue Cross/Blue Shield of Michigan 
Ohio, West Virginia 
Nationwide Mutual 
Indiana

Mutual Medical 
Illnois Health Care Service Corp.  Ilinois

Arkansas Blue Cross/Blue Shield  Arkansas , Louisiana

Oklahoma

Aetna 
Texas

Blue Cross/Blue Shield of Texas

New Mexico 
Equi table

Mutual of Omaha
 Nebraska

Iowa

Blue Shield of Iowa

Blue Shield of Kansas City  Metropolitan Kansas City area in both

Kansas and Missouri

All Kansas except two counties in

Blue Shield of Kansas

Metropolitan Kansas City area

All Missouri except four counties in 
General American Life 
Metropolitan Kansas City area

Montana

Montana Physicians Service

Equitable
 Wyoming

Utah

Blue Shield of Utah

Colorado Blue Shield  Colorado

North Dakota, South Dakota

Blue Shield of North Dakota

Aetna
 Arizona, Nevada

Aetna
 Hawaii 
Blue Shield of California
 5l northern California counties

Transamerica Occidental
 7 southern California counties

Idaho 
Aetna
 Oregon , Alaska

Equitable