Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Physical, Occupational, and Speech Therapy 
for Medicare Nursing Home Patients 
Medical Necessity, Cost, and Documentation 
Under the $1500 Caps 
AUGUST 2001 
OEI-09-99-00560  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 
protect the integrity of the Department of Health and Human Services programs as well as the 
health and welfare of beneficiaries served by them. This statutory mission is carried out through a 
nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 
Inspector General informs the Secretary of program and management problems and recommends 
legislative, regulatory, and operational approaches to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General. It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public. The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's San Francisco Regional Office prepared this report under the direction of Paul A. Gottlober, 
Regional Inspector General. Principal OEI staff included: 
REGION IX  HEADQUARTERS 
Deborah Harvey, Project Leader  Susan Burbach, Program Specialist 
Christopher Tarbell, Lead Analyst  Linda Moscoe, Technical Support Staff 
Robert Gibbons, Program Analyst  Brian Ritchie, Technical Support Staff 
Camille Harper, Program Analyst  Bambi Straw, Program Specialist 
Scott Hutchison, Program Analyst  Stuart Wright, Director, Medicare and 
Steven Zerebecki, Program Analyst  Medicaid Branch 
To obtain copies of this report, please call the San Francico Regional Office at (415) 437-7900. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  E X E C U T I V E   S U M M A R Y  
PURPOSE 
This inspection analyzed the medical necessity, cost, and medical record documentation 
of physical, occupational, and speech therapy provided to nursing home patients in 
calendar year 1999 and billed to Medicare Part B by nursing homes, rehabilitation 
agencies, or hospital outpatient departments. 
BACKGROUND 
Medicare coverage guidelines state that all therapy must be reasonable, necessary, 
specific, and effective treatment for the patients condition. Therapy must be ordered by 
a physician or other qualified health care professional, require the skills of a qualified 
therapist, and be dictated by a written treatment plan. The plan must include specific and 
measurable goals and a reasonable estimate of when the patient will attain the goals. 
In 1997, Congress changed nursing home reimbursement for therapy by setting two 
annual caps. Occupational therapy was limited to $1500 annually, while physical and 
speech therapy shared the same $1500 annual cap. In November 1999, the caps were 
suspended for 2 years effective January 1, 2000. The moratorium on the therapy caps has 
subsequently been extended through calendar year 2002. The law that suspended the 
caps also requires the Centers for Medicare and Medicaid Services (formerly known as 
the Health Care Financing Administration) to (1) recommend a process to assure the 
appropriate utilization of Medicare outpatient therapy and (2) establish an alternative 
payment policy based on diagnostic categories, functional status, and prior use of 
therapy. To meet the requirements of the law, Agency staff requested our assistance. 
Our national random sample consisted of 320 Medicare patients. We conducted on-site 
medical and financial reviews at 132 nursing homes, rehabilitation agencies, and hospital 
outpatient departments. Several teams of physical and occupational therapists and 
speech-language pathologists reviewed the medical records for 318 of the sampled 
patients. 
FINDINGS 
The $1500 therapy caps did not prevent Medicare nursing home beneficiaries 
from receiving necessary and appropriate therapy 
Less than 2 percent of Medicare beneficiaries reached either of the $1500 therapy caps. 
While the caps were in place, beneficiaries required no additional therapy in 
1 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560   approximately 82 percent of therapy episodes. Furthermore, although physical and 
speech therapy shared a cap, most beneficiaries received the physical and speech therapy 
they needed. 
Despite the therapy caps, 14 percent of all therapy was not medically necessary 
Although most therapy was deemed medically necessary, 14 percent was not. Medicare 
allowed more than $28 million during the first 6 month of 1999 for these medically 
unnecessary services. Therapy was medically unnecessary because (1) patients were not 
appropriate candidates; (2) treatment goals were met, but therapy continued; (3) therapy 
goals were not achieved, and a reevaluation was not conducted; or (4) skilled therapy was 
provided instead of routine maintenance. 
Approximately 10 percent of the therapy units were not supported by adequate 
documentation 
Medicare paid nursing homes approximately $12 million for undocumented units and an 
additional $8 million for inadequately documented units during the first 6 months of 
1999. 
Physicians orders were not included in some medical records 
Medicare guidelines state that therapy must be ordered in advance by a physician or other 
health care professional and documented in writing in the medical record. We were 
unable to locate physicians orders for approximately 5.6 percent of the total therapy 
units billed to Medicare in the first 6 months of 1999. Medicare paid nursing homes 
approximately $10.6 million for these units. Since the focus of our study was to 
determine the medical necessity, quality of care, and utilization of therapy, some of these 
units may have been included in the calculations for medically unnecessary, 
undocumented, and inadequately documented units. 
Medicare allowed in error approximately $48.5 million for Part B therapy for nursing 
home patients during the first 6 months of 1999. This includes $28.7 million for 
medically unnecessary therapy, $12.2 million for undocumented therapy units, and 
$7.6 million for inadequately documented therapy units. These three categories 
represent an overall error rate of 24.7 percent of the total allowed amount of 
approximately $196.5 million for Part B therapy during the first 6 months of 1999. 
Our sampling methodology does not allow us to make statistically valid projections 
for the entire year. However, if we assume that the second half of 1999 was the same 
as the first 6 months of 1999, we estimate that the amount Medicare allowed for 
unnecessary, undocumented, and inadequately documented therapy was $97 million. 
2 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  RECOMMENDATIONS 
The Centers for Medicare and Medicaid Services (CMS) should: 
<	 encourage fiscal intermediaries to continue educating nursing homes on Part B billing 
and Medicare requirements for record documentation and retention, with an emphasis 
on the proper documentation of physicians orders in patients records; 
<	 instruct fiscal intermediaries to conduct focused medical review in order to identify 
and collect Part B therapy overpayments; 
<	 continue working collaboratively with the national therapy associations to assure that 
they provide accurate and comprehensive information to their members on proper 
documentation of therapy in medical records; and 
<	 consider options when developing a new reimbursement system for Part B therapy, 
such as (1) reimbursement based on an episode of therapy and (2) prior authorization 
for therapy that exceeds a separate monetary cap for each type of therapy. 
AGENCY RESPONSE 
We received comments on the draft report from CMS. The Agency concurred with our 
recommendations. They will continue to educate nursing homes on Medicare Part B 
billing and medical record documentation and continue to recommend that fiscal 
intermediaries conduct focused medical review whenever their analysis suggests 
egregious overutilization of services. The CMS will consider options when developing a 
new reimbursement system for Medicare Part B therapy. Finally, CMS will continue its 
ongoing collaboration with the national therapy associations to provide information on 
proper documentation of therapy in medical records. The full text of the Agencys 
comments appears in appendix B. 
3 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  T A B L E   O F   C O N T E N T S  
PAGE

EXECUTIVE SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

INTRODUCTION ............................................................. 5

FINDINGS  ................................................................. 13

The $1500 caps  ........................................................ 13

Unnecessary  therapy  .................................................... 14

The shared therapy cap  .................................................. 17

Undocumented or inadequately documented therapy  ........................... 18

Physicians orders  ...................................................... 19

Retention of medical records .............................................. 20

RECOMMENDATIONS  .....................................................  21

APPENDICES  .............................................................. 23

A:  Confidence Intervals for Selected Statistics  ............................... 23

B:  Agency Comments ..................................................  26

4 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  I N T R O D U C T I O N  
PURPOSE 
This inspection analyzed the medical necessity, cost, and medical record documentation 
of physical, occupational, and speech1 therapy provided to nursing home patients in 
calendar year 1999 and billed to Medicare Part B by nursing homes, rehabilitation 
agencies, or hospital outpatient departments. 
BACKGROUND 
Medicare Coverage for Skilled Nursing Facilities 
All skilled nursing facilities (SNFs) must meet the requirements of Section 1819 of the 
Medicare law. The SNFs must, for example, (1) provide 24-hour skilled nursing service 
under policies developed by physicians, registered nurses, or other professionals; 
(2) develop health plans for each patient, under the supervision of a physician; 
(3) maintain clinical records on all patients; and (4) meet a number of conditions to 
assure patients health and safety. 
All SNFs are required to assess each patients status and needs shortly after admission, 
including the need for physical, occupational, and speech therapy. The Nursing Home 
Reform Act (P.L. 100-203), which Congress passed as part of the Omnibus Budget 
Reconciliation Act of 1987, requires that SNFs assess all patients needs within 14 days 
of admission and reassess long-term patients annually. 
A physician must see the patient at least every 30 days.2  If a patient needs therapy over a 
period of time under the same treatment plan, the physician must recertify the continuing 
need for therapy every 30 days and estimate how long the patient will need therapy.3 
Fiscal intermediaries, the insurance companies that process and adjudicate Medicare 
claims for inpatient hospitals and SNFs, often develop local medical review policies to 
supplement Medicare guidelines for medical necessity and utilization. 
1Throughout this report, we will refer to speech-language pathology as speech therapy. 
2Health Care Financing Administration, Skilled Nursing Facility Manual, Sections 214, 230, 
230.3(C), and 271. 
3Ibid., Section 271.1B. 
5 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Descriptions of Physical, Occupational, and Speech Therapy 
Physical therapy includes, but is not limited to, (1) examining patients with impairments, 
functional limitations, disabilities, or other health-related conditions to determine a 
diagnosis, prognosis, and intervention; (2) alleviating impairments and functional 
limitations by designing, implementing, and modifying therapeutic interventions; and 
(3) preventing injury, impairment, functional limitation, and disability, including the 
promotion and maintenance of fitness, health, and quality of life.4  Common treatments 
include therapeutic exercise, prescription and customization of prosthetic devices and 
equipment, and wound management. 
Occupational therapy is the use of purposeful activity or interventions designed to 
achieve constructive outcomes which promote health and/or prevent injury or disability, 
and which develop, improve, maintain, or restore the highest possible level of 
independence of any individual who has an injury, illness, cognitive impairment, psycho 
social dysfunction, mental illness, developmental or learning disability, physical 
disability, or other disorder or condition.5  Occupational therapy primarily focuses on 
compensatory techniques to improve a patients ability to complete independently the 
activities of daily living. An example includes teaching a stroke patient new techniques 
to eat and dress himself as independently as possible.6 
Speech therapy includes (1) services for patients with speech, hearing, and language 
disorders which result in communication disabilities and (2) the diagnosis and treatment 
of swallowing disorders, regardless of the presence of a communications disability. 
Communication disabilities most frequently affect patients with cerebrovascular disease 
(e.g., stroke), Parkinson disease, multiple sclerosis, and laryngeal carcinoma. Patient 
conditions may include (1) hearing sounds faintly, in a distorted way, or not at all; 
(2) substituting simple sounds; or (3) lacking the ability to use speech and language.7 
Therapy may include, but is not limited to, diagnostic, screening, preventive, or 
corrective services provided by or under the direction of a speech-language pathologist or 
4American Physical Therapy Association, Model Definition of Physical Therapy for State 
Practice Acts, Board of Directors Policies, Positions and Guidelines, March 1998. 
5The American Occupational Therapy Association, Inc. Definition of occupational therapy 
practice for State regulation. The American Occupational Therapy Association, Inc. Policy Manual 
(Association Policy 5.3.1), July 1994. 
6Health Care Financing Administration, Skilled Nursing Facility Manual, Section 253.3. 
7American Speech-Language-Hearing Association, Recognizing Communication Disorders, 
organization website, www.asha.org/consumers/brochures/comm_disorders.htm. 
6 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  audiologist.8  An example of speech therapy is teaching a patient with swallowing 
disorders various ways to talk and chew without choking. 
Medicare Coverage and Cost of Physical, Occupational, and Speech Therapy 
Coverage guidelines for Part B therapy.  Medicare guidelines state that all therapy 
must be reasonable, necessary, specific, and effective treatment for the patients 
condition. The Centers for Medicare and Medicaid Services (formerly known as the 
Health Care Financing Administration or HCFA), the federal agency that administers the 
Medicare program, requires that therapy (1) is ordered by a physician or other qualified 
health care professional, (2) requires the skills of a qualified therapist rather than 
nonskilled SNF staff, (3) is provided either by or under the direct supervision of a 
certified therapist (as defined in State law), and (4) is dictated by a written treatment 
plan. 
Nursing home charges for Part B therapy. Part B therapy increased from 1999 to 
2000. In the first 6 months of 1999, nursing homes charged the Medicare program 
$271 million for Part B therapy for 328,000 beneficiaries. In the first 6 months of 2000, 
the charges increased to $316 million for 348,000 beneficiaries. 
CHANGES IN THERAPY CHARGES9 
January-June 1999  January-June 2000  Percent 
Therapy Type 
Medicare Charges  Medicare Charges  Change10 
Physical  $138 million  $186 million  34.8 percent 
Occupational  $86 million  $89 million  3.6 percent 
Speech  $47 million  $41 million  -12.9 percent 
Total  $271 million  $316 million  16.6 percent 
Source: Office of Evaluation and Inspections, 2001 
842CFR 440.110 (c). 
9Statistics in this table were calculated from 100 percent of beneficiaries for 1999 and a 5 percent 
sample of beneficiaries for 2000. 
10The totals may not add up due to rounding. 
7 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Medicare Guidelines for Documentation and Retention of Medical Records 
Medical records should include documentation that describes all treatments and the 
patients progress throughout the episode of therapy. Documentation should include, but 
is not limited to: 
<	 written or telephone physicians order for the therapy (telephone orders should be 
documented in the medical record by a nurse and then confirmed in writing by the 
physician or other health care professional as soon as possible); 
<	 initial examination and evaluation by the therapist describing the patients 
history, admitting and treatment diagnoses, initial functions, diagnosis, short and 
long-term treatment goals, and the treatment plan; 
<	 information for each therapy session, also called treatment logs or daily notes, 
describing the types and length of the types of therapy that the patient received 
and who provided the therapy (therapist, assistant, or aide); 
<  progress notes explaining the patients progress or lack of progress on the 
treatment plan; 
<  reexaminations and re-evaluations (at least monthly for the same episode of 
therapy) confirming the continued need for therapy; and 
<  discharge summary which is required at the end of the episode of therapy.11 
The Centers for Medicare and Medicaid Services (CMS) requires that nursing homes 
retain medical records for 5 years after the patient is discharged.12  If the nursing home 
contracted with independent providers (such as a therapy provider) to render services, 
Medicare guidelines require that nursing homes retain all records for 3 years after final 
payment under the contract.13 
The Therapy Caps 
Section 4541(c) of the Balanced Budget Act of 1997 changed SNF reimbursement for 
physical, occupational, and speech therapy by setting two annual caps for Medicare 
Part B patients. Effective January 1, 1999, occupational therapy was limited to $1500 
annually, while physical and speech therapy shared the same $1500 annual cap. 
11American Physical Therapy Association, Guide to Physical Therapist Practice, appendix 7, 
1998. 
12Health Care Financing Administration, Skilled Nursing Facility Manual, Chapter VBilling 
Procedures, Section 545.4. 
13Peer Review Organization Manual, Part 13--Management, Section 13140. 
8 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Section 221 of the Medicare, Medicaid, and SCHIP14 Balanced Budget Refinement Act 

of 1999, passed in November 1999, suspended the cap for 2 years effective 

January 1, 2000. Section 221(c)(2) of the Law requires CMS to (1) recommend a

mechanism to assure the appropriate utilization of Medicare outpatient therapy and 

(2) establish an alternative payment policy based on diagnostic categories, functional

status, and prior use of therapy.15

Focused Medical Review 
The 1999 law also mandated that the Secretary conduct focused medical reviews of 

Part B therapy claims, with an emphasis on SNF claims in calendar years 2000 and 2001. 

In October 2000, CMS launched a Program Safeguard Contract for therapy to (1) analyze

current national and local medical review policies; (2) conduct extensive literature

review, analysis, and abstraction; (3) interview fiscal intermediaries and therapy

providers; and (4) develop medical review protocol for the fiscal intermediaries. 

Section 421 of the Medicare, Medicaid, and SCHIP Benefits Improvement and

Protection Act of 2000, passed in November 2000, extended the moratorium on the

therapy caps for another year, through calendar year 2002. The law also extended the

requirement for focused review of SNF therapy claims until year 2003. 

Previous Office of Inspector General Work 
The Office of Inspector General released two reports in August 1999 concerning physical 
and occupational therapy rendered to Medicare patients in nursing homes. We found that 
most Medicare patients received appropriate therapy for their initial medical conditions 
and benefitted from therapy. However, almost 13 percent of physical and occupational 
therapy was billed improperly because it was not medically necessary and/or the therapy 
was provided by staff who did not have the appropriate skill. During the 12-month 
period before implementing the SNF prospective payment system, Medicare paid SNFs 
almost $1.3 billion for the unnecessary and improperly documented therapy.16 
In our report entitled Monitoring Part B Therapy for SNF Patients, we noted that there 
was a dramatic decrease in Part B therapy charges during 1999. The decrease may be 
explained by the requirement that, as of January 1999, reimbursement changed from 
cost-based to the Medicare Part B fee schedule. However, preliminary reports indicate 
that a rebound in SNF Part B therapy charges may occur because of the moratorium on 
14State Childrens Health Insurance Program. 
15The Social Security Act, Section 1833(g) as amended. 
16Office of Inspector General, Physical and Occupational Therapy in Nursing Homes: Quality of 
Care and Medical Necessity for Medicare Patients (OEI-09-97-00121), and Physical and Occupational 
Therapy in Nursing Homes: Cost of Improper Billings to Medicare (OEI-09-97-00122), August 1999. 
9 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  the caps and the lack of adequate contractor oversight of billing practices and medical 
necessity. We recommended that CMS ensure that adequate medical reviews of Part B 
therapy in SNFs are conducted. We also recommended that CMS continue working with 
therapy providers to improve their understanding of Medicare billing procedures and the 
medical necessity guidelines for Part B therapy. 
METHODOLOGY 
Selection of Sampled SNF Part B Therapy Patients 
From the Medicare Common Working File, we extracted all Part B physical, 
occupational, and speech therapy claims for services provided to SNF patients.17  These 
claims were submitted to intermediaries by SNFs, rehabilitation agencies, and hospital 
outpatient departments for therapy initiated between January 1 and June 30, 1999. We 
limited the extract to the continental United States. 
We used a multi-stage stratified clustered sample. We clustered the Medicare Part B 
therapy patients into groups of similar size in the same geographical area. We then 
stratified the clusters into four quadrants of the United States. We randomly selected 
4 clusters per quadrant for a total of 16 clusters. 
We used the 75th percentile of each clusters estimated therapy reimbursement to group 
patients into two groups. Group 1 contained the 25 percent of patients with the highest 
therapy reimbursement. Group 2 contained the remaining 75 percent. For each cluster, 
we stratified patients within both groups and then selected 20 patients as follows: 
Stratum I--patients with the highest reimbursement in Group 1  8 
Stratum II--random selection of additional patients from Group 1  8 
Stratum III--random selection of patients from Group 2  4 
Total patients per cluster  20 
Our sample for all clusters totaled 320 patients. 
On-Site Medical and Financial Review 
Several teams of certified and/or licensed physical and occupational therapists and 
speech-language pathologists conducted on-site review of the medical records for the 
national random sample. Reviewers used medical review instruments to assess the 
medical necessity, underutilization, overutilization, and quality of care provided in 
17We identified beneficiaries as SNF patients if (1) the SNF submitted the claims, or (2) the 
beneficiaries were identified as SNF residents in CMS minimum dataset (MDS). 
10 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  calendar year 1999. The reviewers also determined if the record documentation and the 
information on the Medicare claims accurately reflected the types of therapy and the 
appropriate length of treatment that the patients received. 
While on-site, in addition to the medical review, we: 
<  reviewed therapy ledgers to determine how SNFs track each patients charges that 
were billed to Part B of Medicare; 
<  gathered data to identify payment sources for patients in addition to Medicare 
reimbursement; 
<  interviewed SNF administrators and key therapy staff about how they tracked the cap 
and their interactions with their fiscal intermediaries; and 
<  observed physical, occupational, and speech therapy conducted with patients. 
We conducted interviews at 132 facilities--97 SNFs, 28 hospital outpatient departments, 
and 7 rehabilitation agencies located in 18 States. We obtained the medical records for 
318 of the 320 sampled patients. We were unable to review two patient records because 
the facility had closed before our review, and the corporate owner could not retrieve the 
records from storage. 
Claims Analysis 
We analyzed the Part B physical, occupational, and speech therapy claims submitted for 
the sampled patients. For each patient, we extracted only claims that were submitted for 
therapy initiated between January 1 and June 30, 1999. 
We analyzed the claims by individual therapy units and clusters of therapy units. An 
individual unit of physical, occupational, or speech therapy constitutes one 15-minute 
session of therapy. Clusters of units were grouped into an episode of care. An episode 
of care consists of a series of continuous therapy units tied to a specific diagnosis, 
treatment plan, and set of patient goals. An episode of care may last a few days or a few 
months. 
The Balanced Budget Act of 1997 mandated that nursing homes use the CMS Common 
Procedural Coding System to describe each type of therapy that patients receive. 
Medicare Part B therapy claims must include both the code and the number of 15-minute 
sessions, or units, for each type of therapy. To illustrate, an occupational therapist 
works with a patient on the activities of daily living, such as bathing and dressing, for 
45 minutes. The Medicare claim would include the appropriate code with three units for 
the length of the treatment. 
Cost projections were based on an analysis of the extracted Part B physical, occupational, 
and speech therapy claims. Information found on each claim was used to calculate the 
estimated amount that Medicare allowed for each therapy claim. Cost projections then 
11 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560   were calculated using the lower of the calculated Medicare allowed amount or the fiscal 
year 1999 Medicare fee schedule amount. 
This report is one of two reports on physical, occupational, and speech therapy for 
Medicare SNF patients. The other report, Physical, Occupational, and Speech Therapy 
for Medicare Nursing Home Patients: Medical Necessity and Quality of Care based on 
Treatment Diagnosis (OEI-09-99-00563), focuses on the medical necessity and quality of 
care for different therapy diagnoses. 
Our review was conducted in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
12 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560   F I N D I N G S  
The $1500 therapy caps did not prevent Medicare SNF
beneficiaries from receiving necessary and appropriate
therapy 
Less than 2 percent of Medicare beneficiaries reached either of the $1500 therapy 
caps 
Nationally, 0.5 percent of Medicare Part B patients who began therapy between January 
and June 1999 reached or exceeded the $1500 occupational therapy cap within 6 months, 
and only 1.7 percent of patients reached or exceeded the shared $1500 physical and 
speech therapy cap. The average Medicare allowance for patients who received 
occupational therapy was $516, and the average Medicare allowance for physical and 
speech therapy patients was $503. 
In approximately 82 percent of therapy episodes, beneficiaries required no 
additional therapy 
In most of the episodes of care,18 patients needed no additional therapy by the time their 
treatment ended. To determine if additional therapy was needed, medical reviewers 
examined medical records, treatment logs, and physician orders for each episode of care. 
Reviewers discovered patients rarely needed additional therapy to reach their treatment 
goals or patients would not have benefitted from additional therapy. For example, one 
occupational therapy patient received treatment once a day for approximately 3 weeks. 
After reviewing his record, one medical reviewer suggested, This is a well documented 
case showing appropriate improvement in a reasonable time. There was good rationale 
for discharging.... 
With regard to the remaining 18 percent, we found that in approximately 12 percent of 
the episodes patients actually needed additional therapy. For the rest, reviewers were 
unable to make a determination. 
Patients received therapy beyond the caps because SNFs ignored the caps or 
were unaware of them 
According to administrators, SNFs rarely discontinued therapy when patients reached the 
therapy caps. When they reached the $1500 cap, beneficiaries and their families were 
18An episode of care consisted of a series of continuous therapy units tied to a specific 
diagnosis, treatment plan, and patient goals. 
13 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  presented with the option of switching to another type of insurance or paying for therapy 
costs out of their own pocket. Administrators indicated that, in some cases, they 
continued to provide therapy to patients and absorbed the extra costs themselves. 
A lack of education on Part B therapy also caused some SNFs to provide therapy to 
patients after they had reached or exceeded the $1500 caps. Staff in more than half of the 
facilities we interviewed reported not receiving training from fiscal intermediaries on 
Part B therapy. According to administrators, this often left them unclear on new billing 
requirements, including the therapy caps.  Administrators in these facilities indicated 
that they were unaware of how to monitor the therapy caps, and, subsequently, costs were 
not tracked. 
Despite the therapy caps, 14 percent of all therapy was not
medically necessary 
Although most therapy was medically necessary, some was not. Medical reviewers 
deemed that 88 percent of physical therapy was medically necessary, 86 percent of 
occupational therapy was medically necessary, and 67 percent of speech therapy was 
medically necessary. This included therapy that was undocumented or inadequately 
documented, since reviewers were instructed to deem therapy medically necessary when 
documentation was absent or inadequate. 
MOST THERAPY WAS MEDICALLY NECESSARY 
Therapy Type 
All 
Therapy 
Therapy 
Physical  Occupational  Speech 
Medically Necessary 
85.7 percent  87.7 percent  86.3 percent  66.7 percent 
Therapy 
Therapy Units Billed 
9,000,000  6,000,000  2,000,000  700,000 
(approximate) 
Source: Office of Evaluations and Inspections, 2001 
Most SNF patients were diagnosed properly, and a necessary treatment plan was 
developed for each diagnosis. Therapists usually updated treatment plans when a 
patients progress or condition changed, and therapy usually was administered with the 
proper frequency and duration. Reviewers also found that most Medicare patients 
benefitted from these services, and medically necessary therapy helped them reach their 
treatment goals. 
14 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Medical reviewers also found that some Medicare SNF patients received medically

unnecessary therapy. Reviewers identified several reasons why 14 percent of therapy

was medically unnecessary including, but not limited to:

<  patients were not appropriate candidates based on their condition;

<  treatment goals were being met, but therapy continued; 

<  therapy goals were not being achieved, and a reevaluation was not conducted; or

<  skilled therapy was provided instead of the routine maintenance that was more

appropriate for the patientss condition. 
Medical reviewers found that the medical condition of some SNF patients did not 
indicate the need for skilled therapy. The diagnosis of some patients indicated that 
therapy would not have benefitted the patient, or the therapist should have postponed 
therapy until the patients medical condition stabilized. For example, one occupational 
therapy patient with a questionable cognitive condition received unnecessary therapy 
three times a week for 3 weeks, without improvement. The patients lack of motivation 
to participate in a previous therapy episode should have alerted the provider that this 
patient was not an appropriate candidate for therapy.19 
Some therapy episodes continued 1 to 2 weeks beyond what was medically necessary. 
Medical reviewers noted that therapy continued because, among other reasons, a patients 
medical condition had plateaued or SNFs did not properly monitor patient progress. 
In one rural facility, four out of the five patients in our sample received physical therapy 
from 1 to 4 weeks longer than was medically necessary. Reviewers also questioned why 
therapists continued to provide care that was not supported by documentation. 
The SNFs continued to provide therapy, in some cases, to patients who were not meeting 
their treatment goals. Medical reviewers indicated that when a patient does not reach 
their treatment goals, therapy should be reevaluated and possibly discontinued. 
However, several facilities used a cookie-cutter treatment plan for all Medicare SNF 
patients. Therapy continued regardless of a patients medical status. For example, one 
beneficiary received occupational therapy for 3 months without reaching her treatment 
goals. As the medical reviewer suggested, ...this case did not meet the Medicare 
guidelines of significant practical improvement over a reasonable time period, and 
treatment should have been discontinued. 
Medical reviewers found that some patients did not need skilled speech therapy. Nursing 
home staff should have provided maintenance instead of skilled speech-language 
pathologists providing maintenance. For example, it was standard practice in many SNFs 
19 The effects of medical condition, or diagnosis, on medical necessity and quality of care is 
discussed in our companion report, Physical, Occupational, and Speech Therapy for Medicare Part B 
Nursing Home Patients: An Analysis of Medical Necessity and Quality of Care based on Treatment 
Diagnosis, OEI-09-99-00563, July 2001. 
15 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  to bill an evaluation and several units of treatment for changing a patients diet as 
skilled speech therapy. This therapy should have been delivered by the nursing home 
staff after the speech-language pathologist evaluated the patient and recommended the 
appropriate changes. 
Medicare allowed approximately $28 million for unnecessary therapy in the first 
6 months of 1999 
The Medicare program allowed almost $15 million for unnecessary physical therapy, 
$6.4 million for unnecessary occupational therapy, and $7.5 million for unnecessary 
speech therapy during the first 6 months of 1999, while the therapy caps were in effect. 
MEDICARE PAYS FOR UNNECESSARY THERAPY 
All  Therapy Type (Millions) 
Reimbursement 
Therapy 
Type 
(Millions)  Physical  Occupational  Speech 
Allowed amount for 
$28.7  $14.7  $6.4  $7.5 
unnecessary units 
Total allowed amount  $196.5  $121.4  $49.0  $26.0 
Source: Office of Evaluations and Inspections, 2001 
The mean Medicare allowance for physical, occupational, and speech patients was higher 
with medically unnecessary therapy than without medically unnecessary therapy. We 
discovered that the mean allowance for physical therapy patients was at least $57 higher 
than it should have been, at least $54 higher for occupational therapy patients, and more 
than $76 higher for speech therapy patients. These higher payments were all a result of 
Medicare paying for medically unnecessary services. 
Our sampling methodology does not allow us to make statistically valid projections for 
the entire year. Nevertheless, if we assume that the rate of medically unnecessary 
therapy for the second half of the year was the same as it was for the first 6 months, 
Medicare allowed approximately $56 million dollars for unnecessary therapy during 
1999. 
Patients who reached or exceeded the caps received medically unnecessary 
therapy 
Eighty percent of the 2 percent of Medicare beneficiaries who reached either of the 
therapy caps received some unnecessary therapy. Medicare allowed between $1500 and 
$2800 for patients who reached the occupational therapy cap, with unnecessary therapy 
totaling anywhere from zero to $1500. Similarly, the amount allowed for Medicare SNF 
patients who reached or exceeded the shared physical and speech therapy cap was 
16 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  between $1500 and $2700, with unnecessary therapy totaling anywhere from zero to 
$1900. 
Sixty-three percent of the 1.7 percent of patients who reached the shared therapy cap 
would not have done so if they had received medically necessary therapy only. 
Similarly, approximately 76 percent of the 0.5 percent of beneficiaries who reached or 
exceeded the occupational therapy cap would not have done so had they received 
medically necessary therapy only. For example, more than 50 percent of the units billed 
to Medicare for one patient who exceeded the occupational therapy cap were medically 
unnecessary. 
Although physical and speech therapy shared a cap, most
beneficiaries received the physical and speech therapy they
needed 
Less than 10 percent of SNF patients needed speech and/or physical therapy and 
did not receive them 
Medical reviewers confirmed that when most patients did not receive physical or speech 
therapy it was because therapy would not have benefitted their medical condition. For 
example, after confirming that one patient needed no speech therapy, a medical reviewer 
noted, Patient previously received speech therapy from October 1998 to January 1999, 
was discharged due to a lack of progress. 
Approximately 2 percent of beneficiaries reached the shared cap at any time 
during calendar year 1999 
Very few patients were prevented from receiving physical or speech therapy because they 
reached the $1500 shared cap. An analysis of the complete 1999 claims history showed 
that no more than 2 percent would have reached the shared cap. Approximately 1 percent 
of sampled beneficiaries would have reached the shared cap if Medicare had paid for 
medically necessary therapy only.20 
As mentioned earlier, possible explanations for why patients reached the cap include lack 
of training by fiscal intermediaries on Part B therapy, unnecessary therapy, or disregard 
for the therapy caps by providers. 
20We excluded all unnecessary services received by each patient during 1999. 
17 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Approximately 10 percent of the therapy units were not
supported by adequate documentation 
We used the decisions of medical reviewers to determine how we would quantify 
documentation errors within our sample. Some episodes of therapy lacked any 
supporting documentation. For these episodes, reviewers were unable to determine if 
therapy was medically necessary. We counted all the billed therapy units associated with 
these episodes as undocumented. In other instances, reviewers determined that the 
episode of therapy was medically necessary, although some individual units were 
undocumented or inadequately documented. We counted these units accordingly. 
Overall, Medicare paid almost $20 million for therapy units that were undocumented or 
not documented adequately in the first 6 months of 1999 
Medicare paid approximately $12 million for undocumented therapy units during 
the first 6 months of 1999 
Type of Therapy  Total for All 
Undocumented 
Undocumented 
therapy 
Physical  Occupational  Speech  Units 
Percent of units  8.0%  5.9%  3.3%  7.1% 
Medicare payment  $8.7 million  $ 2.8 million  $730,000  $12.2 million 
Source: Office of Evaluation and Inspections, 2001 
Although reviewers found some documentation in medical records to support almost 
93 percent of therapy units, documentation was missing for approximately 7 percent of 
the units. The progress notes for some billed units did not describe all types of therapy 
provided in the session. For example, one patients Medicare claim included 45 minutes 
of therapy each day for 21 consecutive days. The reviewer noted that the medical record 
contained documentation for 30 minutes of therapy each day rather than 45 minutes. In 
other instances, Medicare claims included units for some therapy that patients did not 
receive. For example, one claim included one unit for 15 minutes of gait training on 
2 consecutive days. However, the therapist stated in the progress notes that the patient 
refused treatment on both days. 
18 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  Medicare paid approximately $8 million for inadequately documented therapy 
units during the first 6 months of 1999 
Total for All 
Inadequately  Type of Therapy 
Inadequately 
Documented 
Documented
Therapy  Physical  Occupational  Speech 
Units 
Percent of units  3.4%  0.7%  6.8%  2.9% 
Medicare payment  $4.3 million  $333,000  $2.9 million  $7.6 million 
Source: Office of Evaluation and Inspections, 2001 
Because almost 3 percent of therapy units were not documented adequately, reviewers 
were unable to determine the full range of therapy that patients received. Progress notes, 
which are intended to document how patients were progressing for each type of therapy, 
were incomplete in some medical records. For example, one patient received three types 
of therapy in each session--exercises to build strength and endurance, neuromuscular 
reeducation, and direct therapeutic activity with the therapist. The same types of therapy 
continued for 12 days between January and March 1999. However, the medical reviewer 
found that the documentation was adequate for only two of the three types of treatment in 
each session, but was consistently inadequate for the third type. 
Physicians orders were not included in some medical
records 
Medicare guidelines state that therapy must be ordered in advance by a physician or other 
health care professional and documented in writing in the medical record. We were 
unable to locate a telephone or written order for some of the therapy episodes in our 
sample. The lack of orders corresponds to approximately 5.6 percent of the total therapy 
units billed to Medicare in the first 6 months of 1999. However, medical reviewers still 
determined the medical necessity, quality of care, and utilization of therapy for these 
units. 
Several reasons for missing orders may include: 
<  a separate log of all physicians orders was missing from a patients medical 
record, 
<  the medical record included a signed order for the first therapy episode but not for 
subsequent episodes, or 
<  physicians did not countersign telephone orders as required by Medicare 
guidelines. 
19 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  For example, one patient received physical therapy in two episodes. We found a 
physicians order for the first episode in February 1999. Therapy lasted 1 month. The 
patient began another episode of therapy in May and received therapy for 3 months. 
However, we did not locate a physicians order for the second episode of therapy. 
Medicare paid nursing homes approximately $10.6 million for these therapy units. Since 
the focus of our study was to determine the medical necessity, quality of care, and 
utilization of therapy, some of these units may have been included in the calculations for 
medically unnecessary, undocumented, and inadequately documented units. 
Some SNFs did not retain medical records according to
Medicare guidelines 
Medicare guidelines require that SNFs retain medical records for 5 years after the patient 
is discharged. We reviewed medical records for therapy provided 12 to 20 months before 
our review. Some SNFs were unaware that records were missing until our review. In 
some cases, records were missing because (1) therapy notes were purged from the 
records for long-term patients, sent to storage, and subsequently misplaced or (2) the 
SNF changed therapy providers during 1999, and the previous provider removed the 
therapy records from the facility. 
By removing records, therapy providers may have violated their contracts. Several 
contracts that we reviewed contained language such as, All case records, case histories, 
personal and regular files concerning patients of the facility or facility patients consulted, 
interviewed, or treated and cared for by the provider shall belong to and remain the 
property of the facility. In fact, contracts between SNFs and independent therapy 
providers often stated that therapy records should be retained in patients records and 
available for a minimum of 4 years after the contract expired. 
Medicare allowed in error approximately $48.5 million for Part B therapy during the 
first 6 months of 1999. This includes $28.7 million for medically unnecessary therapy, 
$12.2 million for undocumented therapy units, and $7.6 million for inadequately 
documented therapy units. These three categories represent an overall error rate of 
24.7 percent of the total allowed amount of approximately $196.5 million for Part B 
therapy during the first 6 months of 1999. 
Our sampling methodology does not allow us to make statistically valid projections for 
the entire year. However, if we assume that the second half of 1999 was the same as 
the first 6 months of 1999, we estimate that the amount Medicare allowed for 
unnecessary, undocumented, and inadequately documented therapy was $97 million. 
20 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  R E C O M M E N D A T I O N S  
The CMS should: 
Encourage fiscal intermediaries to continue educating SNFs on Part B billing and 
medical record documentation 
More than half of all administrators told us that SNFs did not receive any training from 
the fiscal intermediary on billing for Part B therapy. Nursing home administrators and 
billing staff often remarked that they did not know how their facility billed therapy 
(charges or the fee schedule), and they were not aware that therapy reimbursement was 
based on the Part B fee schedule. 
Fiscal intermediaries should also educate SNFs and their staff on Medicare requirements 
for medical record documentation and retention, with an emphasis on the proper 
documentation of physicians orders in patient records. 
Instruct fiscal intermediaries to conduct focused medical review in order to 
identify and collect Part B therapy overpayments 
Using focused medical review we identified approximately $28 million in overpayments 
for medically unnecessary Part B therapy services in the first 6 months of 1999. 
Instructing fiscal intermediaries to conduct similar focused medical review could result in 
significant cost savings for the Medicare program. 
Consider options when developing a new reimbursement system for Part B 
therapy 
As mentioned in the background, Section 221 of the Medicare, Medicaid and SCHIP 
Balanced Budget Refinement Act of 1999 requires that CMS establish an alternative 
payment policy for SNFs. Based on our inspection, we suggest that CMS consider: 
<  basing reimbursement on an episode of therapy rather than an annual cap, and/or 
<  requiring prior authorization for therapy that exceeds a separate monetary cap for 
each type of therapy. 
Continue working collaboratively with the national therapy associations 
We believe that poor documentation is a result of a lack of awareness and understanding 
of Medicare guidelines and requirements on the part of SNFs and therapists. By working 
with the national associations, CMS can assure that they provide accurate and 
21 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  comprehensive information to their members on proper documentation of therapy in 
medical records. 
AGENCY RESPONSE 
We received comments on the draft report from CMS. The Agency concurred with our 
recommendations. They will continue to educate nursing homes on Medicare Part B 
billing and medical record documentation and continue to recommend that fiscal 
intermediaries conduct focused medical review whenever their analysis suggests 
egregious overutilization of services. The CMS will consider options when developing a 
new reimbursement system for Medicare Part B therapy. Finally, CMS will continue its 
ongoing collaboration with the national therapy associations to provide information on 
proper documentation of therapy in medical records. The full text of the Agencys 
comments appears in appendix B. 
22 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  AAPPPPEENNDDIXIX A A 
Confidence Intervals for Selected Statistics

The following table shows the point estimates and 95 percent confidence intervals for 
selected statistics, in the order that they appear in the report. These calculations account 
for all levels of clustering and stratification as described in the methodology. 
Point  95 Percent 
Statistic 
Estimate  Confidence Interval 
Of Medicare SNF beneficiaries, percent who reached 
1.7%  0.4% - 3.1% 
either of the $1500 therapy caps 
Of Medicare SNF beneficiaries, percent who reached 
0.5%  0% - 1.1% 
the $1500 occupational therapy cap 
Of Medicare SNF beneficiaries, percent who reached 
1.7%  0.3% - 3.0% 
the $1500 shared cap for physical and speech therapy 
Average allowed amount that Medicare reimbursed 
$516  $309 - $723 
SNFs for occupational therapy beneficiaries 
Average allowed amount that Medicare reimbursed 
$503  $425 - $581 
SNFs for physical and speech therapy beneficiaries 
Of Medicare nursing home beneficiaries, percent who 
82.1%  75.1% - 89.1% 
did not need additional therapy 
Of January - June 1999 therapy units, percent that were 
85.7%  79.7% - 91.7% 
medically necessary for all therapies 
Of January - June 1999 therapy units, percent that were 
87.7%  79.2% - 96.1% 
medically necessary for physical therapy 
Of January - June 1999 therapy units, percent that were 
86.3%  79.3% - 93.9% 
medically necessary for occupational therapy 
Of January - June 1999 therapy units, percent that were 
66.7%  48.6% - 84.9% 
medically necessary for speech therapy 
Of January - June 1999 therapy units, percent that were 
14.3%  8.3% - 20.3% 
medically unnecessary for all therapies 
Amount Medicare reimbursed SNFs for all therapy that 
$28.7 million  $16.9 million - $40.5 million 
was medically unnecessary 
23 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX A 
Point  95 Percent 
Statistic 
Estimate  Confidence Interval 
Amount Medicare reimbursed SNFs for physical 
$14.7 million  $4.3 million - $25.2 million 
therapy that was medically unnecessary 
Amount Medicare reimbursed SNFs for occupational 
$6.4 million  $2.4 million - $10.4 million 
therapy that was medically unnecessary 
Amount Medicare reimbursed SNFs for speech therapy 
$7.5 million  $1.5 million - $13.5 million 
that was medically unnecessary 
Of Medicare nursing home beneficiaries, percent who 
needed physical and/or speech therapy but did not  9.3%  3.6% to 14.9% 
receive them 
Of January - June 1999 therapy units, percent that 
7.1%  2.4% - 11.7% 
were undocumented 
Of January - June 1999 therapy units, amount 
Medicare reimbursed nursing homes for units that  $12.2 million  $5.0 million - $19.5 million 
were undocumented 
Of January - June 1999 physical therapy units, 
amount Medicare reimbursed nursing homes for  $8.7 million  $1.5 million - $15.8 million 
units that were undocumented 
Of January - June 1999 occupational therapy units, 
amount Medicare reimbursed nursing homes for  $2.8 million  $0.8 million - $4.8 million 
units that were undocumented 
Of January - June 1999 therapy units, percent that 
2.9%  0.8% - 5.1% 
were not documented adequately 
Of January - June 1999 therapy units, amount 
Medicare reimbursed nursing homes for units that  $7.6 million  $2.1 million - $13.1 million 
were not documented adequately 
Of January - June 1999 physical therapy units, 
amount Medicare reimbursed nursing homes for  $4.3 million  $0.4 million - $8.2 million 
units that were not documented adequately 
Of January - June 1999 occupational therapy units, 
amount Medicare reimbursed nursing homes for  $333,000  $50,000 - $616,000 
units that were not documented adequately 
24 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX A 
Point  95 Percent 
Statistic 
Estimate  Confidence Interval 
Of January - June 1999 speech therapy units, amount 
Medicare reimbursed nursing homes for units that were  $2.9 million  0 - $6.0 million 
not documented adequately 
Of January - June 1999 therapy units, percent of units 
5.6%  2.0% - 9.3% 
for which we were unable to find a physicians order 
Of January - June 1999 units, amount Medicare 
reimbursed nursing homes for units that were medically 
$48.5 million  $29.6 million - $67.4 million 
unnecessary, undocumented, and inadequately 
documented 
Of January - June 1999 therapy episodes, percent that 
9.2%  3.5% - 14.9 % 
did not have physicians order 
25 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX B 
Agency Comments

26 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX B 
27 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX B 
28 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX B 
29 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560  APPENDIX B 
30 
Nursing Home Therapy Under the $1500 Caps  OEI-09-99-00560