George F. Grob

Deputy Inspector General

for Evaluation and Inspections 
Skilled Nursing Facility Therapy Services Under Part B of Medicare (OEI-09-99-00490) 
Kathleen A. Buto, Deputy Director 
Center for Health Plans and Providers 
Health Care Financing Administration 
Based on our recent discussions and requests from your staff, we have completed some data 
runs and analysis relevant to the Part B therapy caps that were mandated by the Balanced 
Budget Act of 1997. 
We downloaded all of the Calendar Year 1998 Medicare skilled nursing facility (SNF) claims 
data for Part B bills for therapy rendered to nursing home residents.  Although this is the year 
prior to the implementation of the therapy caps, we thought it would be valuable to see how 
the caps would have affected SNF patients had they been in effect during 1998. 
During 1998, Medicare was billed $1.92 billion in Part B therapy charges by SNFs who 
provided therapy with their own staff or under arrangement with therapy providers for 629,155 
SNF patients -- $870 million for physical therapy; $658 million for occupational therapy; and 
$393 million for speech therapy. 
In order to determine the effect of the various caps, we assumed an average cost-to-charge 
reimbursement ratio of .6.  We based this assumption on cost-to-charge ratios that we had 
collected for 22 of the SNFs that were in the national sample for our recently-completed 
therapy inspection. 
RESULTS 
Current Therapy Caps.  Based on our average cost-to-charge ratio assumption, we have 
prepared attached tables and charts (Chart 1 through Chart 4) which show that between 70.9 
and 77.6 percent of all beneficiaries in each category would not have exceeded any of the 
therapy caps and between 22.4 and 29.1 percent would have exceeded the caps had they been 
in place in 1998.  These percentages do not include any adjustment for improper billings. 
Other Possible Caps.  We have heard from several sources of interest in combining the 
current caps for physical/speech therapy and occupational therapy into a single cap.  In order 
to see how a single cap would affect SNF patients, we prepared the attached charts and tables  Page 2 - Kathleen A. Buto 
(Chart 5 and Chart 6) which show that approximately 35 percent of SNF Part B patients would 
exceed the current $1500 cap if it applied to all therapy services.  If the combined cap were 
$3,000 then 17.1 percent would exceed it.  The attached tables and graphs make it possible to 
quickly compute how many SNF patients would exceed caps established at other levels. 
SNF Types.  We analyzed the data to determine if the type of SNF affected the percentage of 
patients who would exceed the cap.  We found that patients in proprietary, free-standing, or 
chain-owned SNFs would be more likely to exceed the cap than patients in nonprofit, 
independently-owned, or hospital-based SNFs (Chart 7). 
By Diagnosis.  Concern has been expressed that SNF patients who are hospitalized for strokes 
or hip fractures may require significantly more therapy than others.  Therefore, we examined 
patients with these two diagnoses and found that approximately one-third of them would have 
exceeded the current cap.  This is several percentage points more than the universe of patients 
when all diagnoses are considered together (Chart 8). 
ASSUMPTIONS AND LIMITATIONS 
As we have noted, our results are based on modeling of 1998 data, the year prior to 
implementation of the caps.  In order to perform the modeling we had to make several other 
assumptions.  A key assumption, mentioned above, was our need to calculate an average cost-
to-charge ratio based on information that was readily available.  We are in the process of 
ascertaining specific cost-to-charge ratios for each SNF that billed for Part B therapy in 1998, 
and will further refine our data based on the specific per facility ratios. 
Furthermore, our analysis is based on charges per facility and does not reflect the possibility 
that a patient may have, in rare instances,  resided in different SNFs during 1998.  Our results 
roughly approximate a cost per individual, per episode or per year. 
Another significant assumption is that all the services that were charged were medically 
necessary.  In a recently completed inspection, we found that 13 percent of physical and 
occupational therapy in SNFs was improperly billed because the services were not medically 
necessary and/or therapy was provided by staff who did not have the appropriate skill for the 
patients medical condition. 
Our data does not include any therapy that was provided by therapy providers under agreement 
with a SNF and billed directly to a fiscal intermediary.  We do not know the extent of these 
claims, but assume that they are a relatively rare occurrence since we did not find any in our 
recent field work.  Also, our data does not include any services to SNF patients by therapists in 
independent practice who would bill the Medicare carrier and would have been subjected to a 
$900 limit which was in effect for their services in 1998.  Page 3 - Kathleen A. Buto 
ADDITIONAL WORK 
We believe that there is a lot more information that can be gleaned from a careful analysis of 
the 1998 claims data, and we are continuing our analysis.  For example, we are planning to 
analyze the data to determine, among other things, how various diagnoses affect the cap, how 
the cap affects individual SNFs, the effect of geographic location, demographic characteristics 
of patients who exceed the cap, and how the first quarter of 1999 compares with the first 
quarter of 1998. 
We are also beginning a study to determine the impact of the cap on access to medically 
necessary physical, occupational, and speech therapy provided to Medicare Part B patients in 
SNFs.  This study will focus on SNF patients who received therapy from January 1, 1999 
through September 30, 1999.  We anticipate the study will be completed during the Spring of 
2000. 
As we complete any additional analysis, we will discuss our assumptions and data analysis 
options with you and other Departmental staff as well as other interested parties.  We hope we 
can provide you with the most meaningful and thorough independent data analysis possible. 
We hope that you find the attached data helpful.  Please call me at (202) 619-0480, if you have 
any questions or comments. 
Attachments  CHART 1

ESTIMATED* PHYSICAL THERAPY REIMBURSEMENT PER SNF STAY

Physical therapy reimbursement  Number of stays  Percent of stays 
Less than $1,500  309,509  73.9% 
$1,500 to $1,799  23,028  5.5% 
$1,800 to $2,099  17,653  4.2% 
$2,100 to $2,399  13,350  3.2% 
$2,400 to $2,699  10,156  2.4% 
$2,700 to $2,999  7,859  1.9% 
$3,000 to $3,299  6,292  1.5% 
$3,300 to $3,599  4,899  1.2% 
$3,600 to $3,899  3,937  0.9% 
$3,900 to $4,199  3,199  0.8% 
$4,200 to $4,499  2,670  0.6% 
$4,500 to $4,799  2,122  0.5% 
$4,800 to $5,099  1,843  0.4% 
$5,100 to $5,399  1,574  0.4% 
$5,400 to $5,699  1,299  0.3% 
$5,700 to $5,999  1,084  0.3% 
$6,000 or more  8,336  2.0% 
TOTAL  418,810  100.0% 
Percent of stays 
PT reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 2

ESTIMATED* OCCUPATIONAL THERAPY REIMBURSEMENT PER SNF STAY

Occupational therapy reimbursement  Number of stays  Percent of stays 
Less than $1,500  224,198  72.3% 
$1,500 to $1,799  17,571  5.7% 
$1,800 to $2,099  13,677  4.4% 
$2,100 to $2,399  10,526  3.4% 
$2,400 to $2,699  8,218  2.6% 
$2,700 to $2,999  6,549  2.1% 
$3,000 to $3,299  5,099  1.6% 
$3,300 to $3,599  4,054  1.3% 
$3,600 to $3,899  3,393  1.1% 
$3,900 to $4,199  2,632  0.8% 
$4,200 to $4,499  2,201  0.7% 
$4,500 to $4,799  1,823  0.6% 
$4,800 to $5,099  1,490  0.5% 
$5,100 to $5,399  1,298  0.4% 
$5,400 to $5,699  1,085  0.3% 
$5,700 to $5,999  886  0.3% 
$6,000 or more  5,566  1.8% 
TOTAL  310,266  100.0% 
Percent of stays 
OT reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 3

ESTIMATED* SPEECH THERAPY REIMBURSEMENT PER SNF STAY

Speech therapy reimbursement  Number of stays  Percent of stays 
Less than $1,500  170,497  77.6% 
$1,500 to $1,799  10,771  4.9% 
$1,800 to $2,099  8,178  3.7% 
$2,100 to $2,399  6,155  2.8% 
$2,400 to $2,699  4,848  2.2% 
$2,700 to $2,999  3,583  1.6% 
$3,000 to $3,299  2,819  1.3% 
$3,300 to $3,599  2,230  1.0% 
$3,600 to $3,899  1,805  0.8% 
$3,900 to $4,199  1,463  0.7% 
$4,200 to $4,499  1,141  0.5% 
$4,500 to $4,799  982  0.4% 
$4,800 to $5,099  766  0.3% 
$5,100 to $5,399  609  0.3% 
$5,400 to $5,699  558  0.3% 
$5,700 to $5,999  476  0.2% 
$6,000 or more  2,933  1.3% 
TOTAL  219,814  100.0% 
Percent of stays 
ST reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 4

ESTIMATED* COMBINED PHYSICAL AND SPEECH THERAPY

REIMBURSEMENT PER SNF STAY

Physical + speech therapy  Number of stays  Percent of stays 
reimbursement 
Less than $1,500  386,885  70.9% 
$1,500 to $1,799  29,325  5.4% 
$1,800 to $2,099  23,258  4.3% 
$2,100 to $2,399  18,023  3.3% 
$2,400 to $2,699  14,131  2.6% 
$2,700 to $2,999  11,354  2.1% 
$3,000 to $3,299  9,298  1.7% 
$3,300 to $3,599  7,474  1.4% 
$3,600 to $3,899  6,203  1.1% 
$3,900 to $4,199  5,197  1.0% 
$4,200 to $4,499  4,445  0.8% 
$4,500 to $4,799  3,674  0.7% 
$4,800 to $5,099  3,174  0.6% 
$5,100 to $5,399  2,686  0.5% 
$5,400 to $5,699  2,363  0.4% 
$5,700 to $5,999  1,999  0.4% 
$6,000 or more  15,908  2.9% 
TOTAL  545,397  100.0% 
Percent of stays 
Combined PT + ST reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 5

ESTIMATED* COMBINED PHYSICAL AND OCCUPATIONAL THERAPY

REIMBURSEMENT PER SNF STAY

Physical + occupational therapy  Number of stays  Percent of stays 
reimbursement 
Less than $1,500  359,122  65.7% 
$1,500 to $1,799  29,874  5.5% 
$1,800 to $2,099  24,111  4.4% 
$2,100 to $2,399  19,464  3.6% 
$2,400 to $2,699  15,970  2.9% 
$2,700 to $2,999  13,057  2.4% 
$3,000 to $3,299  11,082  2.0% 
$3,300 to $3,599  9,190  1.7% 
$3,600 to $3,899  7,977  1.5% 
$3,900 to $4,199  6,642  1.2% 
$4,200 to $4,499  5,695  1.0% 
$4,500 to $4,799  4,937  0.9% 
$4,800 to $5,099  4,366  0.8% 
$5,100 to $5,399  3,745  0.7% 
$5,400 to $5,699  3,335  0.6% 
$5,700 to $5,999  2,945  0.5% 
$6,000 or more  25,323  4.6% 
TOTAL  546,835  100.0% 
Percent of stays 
Combined PT + OT reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 6

ESTIMATED* COMBINED PHYSICAL, OCCUPATIONAL, AND SPEECH

THERAPY REIMBURSEMENT PER SNF STAY

Physical + occupational + speech  Number of stays  Percent of stays 
therapy reimbursement 
Less than $1,500  412,756  64.3% 
$1,500 to $1,799  34,200  5.3% 
$1,800 to $2,099  27,962  4.4% 
$2,100 to $2,399  22,786  3.6% 
$2,400 to $2,699  18,807  2.9% 
$2,700 to $2,999  15,468  2.4% 
$3,000 to $3,299  13,134  2.0% 
$3,300 to $3,599  11,098  1.7% 
$3,600 to $3,899  9,662  1.5% 
$3,900 to $4,199  8,157  1.3% 
$4,200 to $4,499  7,212  1.1% 
$4,500 to $4,799  6,067  0.9% 
$4,800 to $5,099  5,463  0.9% 
$5,100 to $5,399  4,829  0.8% 
$5,400 to $5,699  4,279  0.7% 
$5,700 to $5,999  3,849  0.6% 
$6,000 or more  36,128  5.6% 
TOTAL  641,857  100.0% 
Percent of stays 
Combined PT + OT + ST reimbursement category ($300 increments) 
*Based on a cost-to-charge ratio of .6  CHART 7

EFFECT OF THERAPY CAP BY FACILITY CATEGORIES

For each category, percent of stays in which 
estimated part B therapy reimbursement reached $1,500 
SNF status  SNF type of ownership  SNF affiliation 
Type of 
therapy  Part of 
For- Not-for- multi- Independently  Free- Hospital-
profit  profit  facility  owned  standing  based 
chain 
Physical  28.9%  19.5%  29.1%  21.4%  26.3%  15.6% 
Occupational  30.5%  20.8%  30.4%  23.4%  28.1%  10.4% 
Speech  24.5%  16.8%  24.8%  18.5%  22.7%  9.2% 
Physical + 
32.0%  22.0%  32.3%  24.0%  29.4%  16.0% 
speech 
CHART 8

EFFECT OF THERAPY CAP FOR STROKE AND HIP FRACTURE DIAGNOSES 1

For beneficiaries with selected diagnosis, percent of stays in 
which estimated part B therapy reimbursement reached $1,500 
Type of therapy 
Stroke  Hip fracture  All diagnoses 
Physical  32.4%  32.3%  26.1% 
Occupational  32.8%  29.8%  27.7% 
Speech  29.5%  21.8%  22.4% 
Physical + speech  38.2%  34.6%  29.1% 
1For the stroke category, we included all beneficiaries whose SNF claim included an

ICD-9 diagnosis code beginning with 430, 431, 432, 433, 434, or 438.  For hip fracture, we

used ICD-9 diagnoses beginning with 820.