Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
Medical  Necessity  of Physical  and  Occupational 
Therapy  in  Skilled  Nursing  Facilities 
California  Probe  Sample  Results 
[Early  Alert] 
JUNE  GIBBS  BROWN 
Inspector  General 
APRIL1998 
OEI-09-97-00120  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. 
OEIs San Francisco  regional  office  prepared this report under the direction  of Kaye D. Kidwell, 
Regional  Inspector  General, and Paul A. Gottlober,  Deputy  Regional  Inspector  General. 
Principal  OEI staff included: 
REGION IX  HEADOUARTERS 
Robert  Gibbons  Susan Burbach 
Carrie Lozano 
Brad Rollin 
To obtain copies of this report, please call the San Francisco  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  EXECUTIVE  SUMMARY 
PURPOSE 
The purpose of this inspection  was to determine,  through  a probe sample, whether  sufficient 
evidence of medically  unnecessary physical  and occupational  therapy  exists to warrant 
conducting  a national  study. 
BACKGROUND 
Many  residents of Medicare-certified  skilled  nursing  facilities  (SNFs) receive physical  and 
occupational  therapy, whether  they are covered under Medicare  Part A or not.  In fact, 
SNFs submitted  claims totaling  almost $7 billion  for physical  and occupational  therapy in 1996. 
The amount that Medicare  pays for these therapies has grown  immensely  since Congress passed 
nursing  home reform  legislation  in 1987.  These changes required  SNFs to assess all residents 
needs on a regular basis.  The increases in physical  and occupational  therapy  outlays have caused 
the Office  of Inspector  General (OIG),  General Accounting  Office,  and other oversight  groups to 
examine these increases. 
Medicare  guidelines  delineate  specific  coverage criteria.  All  therapy  services must be 
reasonable  and necessary and speczjk  and effective treatment  for the patients  condition. 
Services must be dictated by a written  plan  oftreatment  that encompasses specific  and 
measurable functional  goals along with  a reasonable estimate of when  those goals will  be 
attained.  The plan of treatment  should describe the specific therapeutic  services that will  be 
utilized,  the frequency  of visits, and the duration  of services.  Services must be ordered by a 
physician  and require  the skills  of a qualified  therapist. 
Almost  all therapy  services are billed  by SNFs to fiscal intermediaries.  In general, SNFs either 
contract with  rehabilitation  agencies for services or use in-house  staff.  The Balanced  Budget  Act 
of 1997 significantly  changes how  SNFs will  be reimbursed  for physical  and occupational 
therapy.  For Part A beneficiaries,  it requires that HCFA  implement  a prospective  payment 
system for SNFs that incorporates  therapy  services, to be phased in over several years.  The Act 
requires that the prospective  payment rates be based on SNFs  1995 allowable  costs plus an 
estimate of the amounts that would  have been payable under Part B for certain  services, such as 
physical  and occupational  therapy.  The HCFA  also will  implement  a $1,500 annual cap on 
therapy  services for Part B beneficiaries,  whether  or not they reside in SNFs.  The legislation  also 
requires that all Part B ancillary  services provided  by SNFs be billed  to Medicare  by the 
SNFs under a consolidated  billing  program. 
Probe Sample Methodology 
For the probe, we selected a stratified  random  sample of six SNFs in California  that are 
administered  by Blue  Cross of California  or Mutual  of Omaha.  In collaboration  with  a medical 
i  review  contractor,  we conducted  on-site reviews  of their medical  records for a random  sample of 
Medicare  beneficiaries  for whom  these intermediaries  processed claims during  August  1997.  We 
assessed a total of 80 records to determine  the extent to which  patients received physical  and/or 
occupational  therapy  in accordance with  Medicare  guidelines. 
FINDINGS 
Medically  unnecessary  physical  and occupational  therapy  services at sampled facilities  ranged 
from  less than  4 to more than  SOpercent 
More  than one-quarter  of therapy  services were medically  unnecessary at five out of the six 
SNFs.  The remaining  facility,  which  had less than 4 percent medically  unnecessary services, 
had recently  been under prepayment  review  by its fiscal intermediary.  Most  unnecessary 
therapies were the result of skilled  therapy  services being provided  although  the medical  records 
did not document  the need for the services based on Medicare  guidelines.  In other cases, the 
patients  file was missing,  failed to contain  a physician  order, or did not include  any evidence 
that therapy had been provided.  The rates of medically  unnecessary services were slightly  higher 
for occupational  therapy  than for physical  therapy. 
Multiple  factors  account for  the high  volume  of  medically  unnecessary  services 
t 	 Skilled  services are frequently  provided  when non-skilled  services would  be more 
appropriate. 
Some beneficiaries  simply  require help building  strength and endurance--which  can be 
provided  by nursing  staff--but  receive skilled  physical  and occupational  therapy  instead. 
In other cases, therapists  fail to cease therapy or transition  patients to a nursing  program 
within  an appropriate  amount of time. 
Therapists  sometimes ignore the beneficiarys  prior  level of function  and set unrealistic 
b 	
goals. 
We identified  several cases where the therapist  listed goals that included  performing 
independent  activities  of daily  living  that the beneficiary  had not performed  for several 
years, because the beneficiary  had a full-time  caregiver or was a resident of a nursing 
home.  In other cases, the therapist  seemed to overestimate  a patients  ability  to recover 
from a debilitating  illness. 
t  The frequency  of therapy is sometimes excessive. 
Some SNF patients in our sample received therapy  comparable  to patients in acute 
rehabilitation--up  to 5 hours per day, according  to medical  records and ledgers.  Most 
alarming  were instances where  exceptionally  frail patients or people with  Alzheimers 
ii  disease or advanced senility  and dementia received 4 to 5 hours of therapy per day for 
several weeks. 
Other  observations  raise additional  concerns  about  how  therapy  services are provided 
Time billed  for therapy  exceeds the actual time that services are provided. 
F 
We observed billed  time being inflated  by including  time to transport  or ambulate the 
patient to a therapy  area and when patient  fatigue required  that a therapist  halt a session. 
t  Recurring  hospitalization  may trigger  unnecessary therapy  services. 
Long-term  SNF residents who  are hospitalized  frequently  receive unnecessary therapy 
when they return to the SNF.  We found that patients who were hospitalized  with  medical 
problems  other than orthopedic  (e.g. hip fracture or replacement)  or neurological 
conditions  (e.g. stroke) were more likely  to receive medically  unnecessary services. 
Summary of SNFsreviewedby the OIG 
Percentage 
Facility  Medically  Summary 
Unnecessary 
Facility  recently  changed ownership,  but the contracted rehabilitation 
#l  80.3  agency remains.  Facility  exemplifies  all of the issues described in this 
report. 
Appropriate  candidates and good use of therapists time, but services 
#2  43.3 
continue  beyond the point  where skilled  therapy is necessary. 
Therapists appear to spend much less time with  patients than they bill  for. 
#3  54.3  Typical  issues of inappropriate  candidates and excessive frequency  and 
duration. 
#4  27.5  Expensive  therapy management contract adds to the costs. 
Until  recently,  the fiscal intermediary  was reviewing  100 percent of this 
#5  3.7  facilitys  claims prior  to paying  them, based on concerns about the medical 
necessity of its therapy services. 
Facility  bills  inappropriately  for routine  assessments and team conferences. 
#6  62.6  In addition,  therapist goals were inappropriate,  and therapy did not cease 
when appropriate. 
CONCLUSION 
Our probe sample findings  detail some significant  concerns about how  therapy  services are 
provided  to SNF patients.  We found that, with  the exception  of one facility,  more than a quarter 
. . . 
111  and as many as 80 percent of recent therapy  services are medically  unnecessary in sampled 

SNFs.  With  almost $7 billion  in therapy  charges nationally  in 1996 and the upward  trend not 

abating, we believe that Medicare  is paying  significant  amounts for medically  unnecessary 

physical  and occupational  therapy. 

The Balanced  Budget  Act,  with  its implementation  of a prospective  payment  system for 

Part A beneficiaries  and a $1,500 cap on therapy  services for Part B beneficiaries,  creates an 

appropriate  structure to control  the cost of therapy  services.  At the same time, we believe that 

the cost formulas  being used to develop the prospective  payment  rates and Part B cap could be 

significantly  compromised  by the volume  of medically  unnecessary services. 

During  1998, we will  conduct  a full  national  study to quantify  the extent of medically 

unnecessary services and to develop baseline data to compare therapy  utilization  before and after 

implementation  of the Balanced  Budget  Act. 

iv  TABLE  OF  CONTENTS 
PAGE 

EXECUTIVE  SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..l 

PROBE  SAMPLE  FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 

Medically  unnecessary therapies at sampled facilities  ranged from 4 to 80 percent  ........  8 

l 
Multiple  factors account for high volume  of medically  unnecessary services  .............  9 

l 
.  Other observations  raise additional  concerns  .....................................  10 

SUMMARYTABLE..  ........................................................  12 

CONCLUSION  ............................................................  ..13 
 INTRODUCTION 
PURPOSE 
The purpose of this inspection  was to determine,  through  a probe sample, whether  sufficient 
evidence of medically  unnecessary physical  and occupational  therapy  exists to warrant 
conducting  a national  study. 
BACKGROUND 
Medicare  (Parts A and B) 
Congress enacted Medicare  in 1965 to provide  health services to the elderly  and disabled.  The 
program  consists of two  distinct  parts.  The first part is hospital  insurance  or Part A. 
Part A covers services furnished  by providers,  i.e., hospitals,  home health agencies, and skilled 
nursing  facilities.  The second part, supplementary  medical  insurance  or Part B, covers a wide 
range of medical  services and supplies.  These include  physician  services, outpatient  hospital 
services, diagnostic  laboratory  tests, x-rays, ambulance  services, and durable medical  equipment. 
The Health  Care Financing  Administration  (HCFA)  administers  Medicare  and contracts with 
private  insurance companies to process and pay claims.  Contractors  that process Part A claims 
are referred to asfiscal  intermediaries.  Contractors  that process Part B claims are called 
carriers.  Some contractors  have both fiscal intermediary  and carrier  components.  The 
HCFA  provides  substantial  guidance to fiscal intermediaries  and carriers on applicable  laws, 
regulations,  national  polices,  fee schedules, and other requirements. 
Skilled  Nursing  Facilities 
This inspection  focuses on patients in Medicare-certified  skilled  nursing  facilities  (SNFs).  All 
SNFs must meet the requirements  of Section  1819 of the Medicare  law.  The facility  must, for 
example, (1) provide  24-hour  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. 
1 	 An exception  to this general rule is that fiscal intermediaries  process Part B claims submitted by hospitals 
(for inpatient  and outpatient  services), home health agencies, and skilled  nursing  facilities. 
1  Unlike  other long-term  care facilities,  SNFs may be reimbursed  under Part A as well  as for any 

patients who receive Part B-covered  services only.  The Medicare  program  provides  coverage 

under Part A for skilled  nursing  facility  services but not for custodial  care.2 

The Part A SNF benefit  includes: 

b  nursing  care, 

b  bed and board, 

b  physical,  occupational,  or speech therapy, 

b  medical  social services, and 

b  drugs, biologicals,  supplies, appliances, and equipment  for use in the facility. 

Medicare  law stipulates that beneficiaries  are eligible  for Part A benefits  if they are transferred  to 

a SNF after a minimum  3-day covered stay in an acute hospital.  The patient must require  skilled 

nursing  care, and a physician  must order the services.  Part A covers SNF services for up to 

100 days per spell  of illness.  The beneficiary  is responsible  for a copayment  for the 

2 1st through  100th day of care.  After  100 days, beneficiaries  are not covered under the 

SNF benefit,  but they may be covered for various  services under Part B, even while  they are 

receiving  only  custodial  care. 

Most  SNFs provide  custodial  care as well  as skilled  nursing  services.  The SNFs are responsible 

for meeting  the needs of long-term  patients who  are eligible  for Part B services only  during  their 

stay. 

Therapy  Services for  SNF  Patients 

What are nhvsical  and occunational  therapy? 

According  to the American  Physical  Therapy  Association,  physical  therapy  primarily  involves 

(1) examining  patients with  impairments  or functional  limitations  in order to determine  a 

diagnosis  and intervention  and (2) designing,  implementing,  and modifying  a program  to 

alleviate those impairments.  Among  other things, physical  therapists  evaluate patients motor 

function,  range of motion,  posture, pain, gait, and balance.  Common  treatments  include 

therapeutic  exercise, functional  training  in activities  of daily  living,  prescription  and 

customization  of prosthetic  devices, and wound  care.  For example, physical  therapy may include 

therapeutic  exercises--such  as knee extensions to restore injured joints--or  walking  on ramps, 

stairs, or curbs to improve  walking  ability  impaired  by injury  or illness. 

2 	 Facilities  that are certified  by Medicare  to provide  skilled  nursing  services are referred to as skilled  nursing 
facilities,  even if most of their patients do not receive skilled nursing  services. 
2  According  to Medicare  guidelines,  occupational  therapy  is: 
...medically  prescribed  treatment  concerned with  improving  or restoring  functions 
which  have been impaired  by illness or injury,  or, where  function  has been 
permanently  lost or reduced by illness or injury,  to improve  the individuals  ability 
to perform  those tasks required for  independent functioning  [emphasis added]. 
Occupational  therapy primarily  focuses on compensatory  techniques  to improve  a patients 

ability  to complete  activities  of daily  living.  Some examples include  teaching  a patient who has 

lost the use of an arm how  to pare potatoes and chop vegetables with  one hand and designing, 

fabricating,  and training  a patient  in the use of a device that would  enable him to hold a utensil 

and feed himself  independently. 

A SNF resident may receive more than one type of therapy.  While  Medicare  regulations  define 

common  illnesses and injuries  requiring  therapy  services, the regulations  do not specifically  bar 

therapy  for illnesses or injuries  that are not mentioned. 

Who nrovides  nhvsical  and occunational  theranv services? 

A number  of different  entities provide  physical  and occupational  therapy  in SNFs.  The 

SNPs frequently  contract with  rehabilitation  agencies, certified  outpatient  rehabilitation  facilities 

(CORPS), hospitals,  or individuals  to provide  therapy  services on-site.  Rehabilitation  agencies 

and CORPS provide  most SNF therapy  services by contracting  with  therapy professionals.  In 

other instances, SNFs have therapy professionals  on staff on-site or transport  patients to 

outpatient  therapy providers. 

Medicare  regulations  define most therapy providers: 

t 	 Physical  therapists  must be graduates of an accredited physical  therapy  curriculum  and 
be licensed by the State in which  they practice. 
Occupational  therapists  must be (1) graduates of a curriculum  jointly  accredited by the 
F 	
American  Medical  Associations  Committee  on Allied  Health  Education  and the 
American  Occupational  Therapy  Association  or (2) eligible  for the National  Registration 
Examination  of the American  Occupational  Therapy  Association. 
Physical  therapy  assistants must be graduates from a 2-year college-level  program 
b 	
approved by the American  Physical  Therapy  Association  and be licensed by the State in 
which  they practice.  Physical  therapy  assistants provide  services to patients under the 
direct  supervision  of a physical  therapist.  Physical  therapy  assistants also supervise 
physical  therapy  aides and document  treatment progress. 
w 	 Occupational  therapy  assistants must be certified  by the American  Occupational 
Therapy  Association. 
3 
 t 	 Physical  therapy  aides are non-licensed  workers  who perform  designated routine  tasks 
under the direct  supervision  of a physical  therapist  or physical  therapy  assistant.3 Their 
duties include  assisting patients with  robing  and disrobing,  positioning  patients  for 
treatments  and tests, administering  routine  treatments such as hydrotherapy,  hot packs, 
and paraffin  baths, transporting  patients to and from treatment  areas, and cleaning  the 
work  area after treatment. 
What does Medicare  cover? 

All  SNFs are required  by law to assess each patients status and needs, including  the need for 

physical  and occupational  therapy.  The Nursing  Home Reform  Act  (P.L.  lOO-203), which 

Congress passed as part of the Omnibus  Budget  Reconciliation  Act  of 1987 (OBRA  87), requires 

that SNFs assessthe needs of all residents within  14 days of admission  and annually.  This 

assessment is completed  through  the Resident Assessment Instrument  which  identifies  a 

residents unique physical  and mental health problems.  According  to the Act, problems 

identified  through  the assessment must be treated to attain or maintain  the highest practicable 

level  of functioning,  taking  into account the residents physical,  mental,  and psychosocial  well-

being. 

Coverage guidelines  state that all therapy  services must be reasonable  and necessary and speczjk 

and effective treatment  for the condition.  The HCFA  requires that therapy  services be dictated by 

a written  plan of treatment.  The treatment plan must include  specific  and measurable functional 

goals along with  a reasonable estimate of when those goals will  be attained.  It should describe 

the specific  therapeutic  services (modalities)  that will  be utilized,  the frequency  of visits, and the 

duration  of services.  Services must be ordered by a physician  and require  the skills  of a qualified 

therapist. 

While  therapies are generally  expected to result in the full  or partial  restoration  of function,  this 

is not required.  Coverage guidelines  state: 

The fact that full  or partial  recovery  is not possible  or rehabilitation  potential  is 
not present is not the deciding  factor.  The deciding  factor is based on whether  the 
services are reasonable effective  treatment  for the patients condition  and require 
the skills  of a physical  therapist,  or whether  they can be safely and effectively 
carried out by non-skilled  personnel,  without  the physical  therapists  supervision. 
The guidelines  state that therapists  should document  the reason why  therapy  is medically 
necessary and the goal of the treatment,  even if the goal is not full  or partial  restoration  of 
function. 
3  Supervisory  requirements vary by State. 
4  How  does Medicare  nav for theranv services for SNF natients? 
Almost  all therapy  services are billed  by SNFs to fiscal intermediaries.  In general, SNFs either 
contract with  rehabilitation  agencies for services or use in-house  staff. 
A majority  of SNFs contract  and bill  under  arrangement  for therapy  services.  Under  these 
arrangements,  SNFs contract with  therapy  service providers  who bill  the SNF for services.  The 
SNFs submit claims to Medicare,  typically  marking  up the amount claimed  for overhead.  Fiscal 
intermediaries  reimburse  services billed  under arrangement  on a cost basis.  The costs for 
physical  therapy  services provided  by rehabilitation  agencies and billed  by SNFs are subjected to 
hourly  salary equivalency  guidelines.  The HCFA  implemented  salary equivalency  guidelines  for 
physical  therapy  in 1975 to ensure that it did not reimburse  providers  for excessive contracted 
therapy  costs.  While  SNFs may charge amounts that are considered  to be reasonably  related to 
costs, the guidelines  are applied to SNFs  costs when they submit their cost report. 
Until  recently,  occupational  therapy  services were not subjected to salary equivalency  guidelines. 
The HCFA  recently  published  final  salary equivalency  guidelines  for occupational  therapy and 
also revised the physical  therapy  guideline  amounts. 
When SNFs use staff therapists, the salaries and fringe benefits paid to those staff become the 
cost of providing  the services and the basis for the amount claimed.  These costs are not 
subjected to physical  therapy  salary equivalency  guidelines.  In rare cases, SNFs transport 
patients to other facilities  for therapy  or contract with  a rehabilitation  agency or other therapy 
provider  that bills  Medicare  directly. 
Recent Increases  in Outlays for  Physical  and Occupational  Therapy 
In 1996, SNF charges for physical  and occupational  therapy  services were approximately 
$6.7 billion.  Most  of the charges were for services provided  under arrangement,  and a majority 
of the charges were for beneficiaries  covered by the SNF benefit: 
Part A chargescomprisethe majority of therapy claims 
1Beneficiary  Coverage  I  1996 Charges  I  1996 Claims  I 
1PartA  I  $5.3 billion  I  2.2 million  I 
I
Part B  I  $1.4 billion  I  1.1 million  I 
After  Congress passed OBRA  87, therapy  service utilization  increased significantly.  According 
to the General Accounting  Office  (GAO),  charges for occupational  therapy  grew  1,968 percent 
from  1989 to 1995, and charges for physical  therapy grew 646 percent during  that same period. 
This trend does not appear to be abating.  The following  table illustrates  the increases in charges 
and claims for physical  and occupational  therapy  from  1994 to 1996: 
5 
 Chargesand claims for physical and occupationaltherapy continue to skyrocket 
Charges  (percentage  increase  Claims  (percentage  increase
Therapy 
between 1994 and 1996)  between 1994 and 1996) 
1Physical  Therapy  I  62.8%  I  41.2%  I 
1Occupational  Therapy  66.9%  52.8% 
I  I 
Recent  Work on Therapy  in SNFs 
Two  1996 GAO  reports describe other weaknesses in Medicares  oversight  of therapy  services. 
Both reports describe the need for HCFA  to rapidly  implement  salary equivalency  guidelines  for 
occupational  therapy.  The first report,  Medicare:  Tighter  Rules Needed to Curtail  Overcharges 
for Therapy  in Nursing  Homes,  also states that it was impossible  to determine  how much time a 
therapist  spent with  a patient by reviewing  claims.  As a result, it is difficult  to determine 
whether  Medicare  is being overbilled.  The second report,  Early  Resolution  of Overcharges for 
Therapy  in Nursing  Homes is Unlikely,  reiterated these problems  and concerns. 
The Balanced  Budget  Act  of 1997 
The Balanced  Budget  Act  of 1997 significantly  changes how  SNFs will  be reimbursed  for 
physical  and occupational  therapy.  For Part A beneficiaries,  it requires  that HCFA  implement 
a prospective  payment  system for SNFs that incorporates  therapy  services, to be phased in 
over several years.  The Act requires that the prospective  payment  rates be based on 
SNFs  1995 allowable  costs plus an estimate of the amounts that would  have been payable 
under Part B for certain services, such as physical  and occupational  therapy. 
The HCFA  also will  implement  a $1,500 annual cap on therapy  services for Part B beneficiaries, 
whether  or not they reside in SNFs.  In addition,  the legislation  requires that all Part B ancillary 
services provided  to SNF residents be billed  to Medicare  by the SNF under a consolidated  billing 
program. 
Probe Sample Methodology 
For the probe, we selected a stratified  random  sample of six SNFs that (1) billed  Medicare  for 
more than $291,500  in therapy  charges in 1996, (2) are in 11 selected counties  in northern  and 
southern California,  and (3) are administered  by either Blue  Cross of California  or Mutual  of 
Omaha.  In order to increase statistical  precision,  we divided  large SNFs into multiple  sampling 
units.  We eliminated  SNFs from our sample if we could not determine  how  they provided 
physical  and occupational  therapy  from HCFAs  Online  Survey Certification  and Reporting 
system. 
Blue  Cross of California  and Mutual  of Omaha provided  us with  claims that they had received or 
processed during  August  1997 for these six facilities.  We randomly  selected 15 claims to review 
6  at each site.  We contracted  with  Inaba-Foto  Associates to conduct  the on-site medical  review. 
Inaba-Foto  Associates  contracts with  several fiscal intermediaries  nationally  to conduct  medical 
review  on therapy  service claims. 
We evaluated medical  records and therapy  ledgers to assess compliance  with  the medical 
necessity criteria  set forth  in Medicares  SNF manual.  The review  included  determining 
whether: 
the patient was a good candidate for physical  and/or occupational  therapy,  i.e., he or she 
b 
could benefit  from the services; 
b  the services were ordered by a physician; 
b  the condition  warranting  the therapy was documented  in the records; 
t  the plan of treatment  and therapists  goals were appropriate; 
t  the modalities  and frequency  and duration  of treatment were clearly  delineated  and 
followed; 
b  appropriate  therapy  staff performed  the services; and 
t  the records clearly  documented  the patients progress. 
We analyzed a total of 80 records--l4  or 15 records at each site except one SNF that had only 

8 claims processed during  August  1997.  We also observed therapy  services being performed, 

interviewed  SNF and therapy  staff, and obtained  copies of therapy  service contracts. 

We determined  the percentage of medically  unnecessary therapy  services in two ways.  Four 

SNFs provided  us with  itemized  ledgers which  allowed  us to determine  how much the 

SNFs charged  for medically  unnecessary services.  Two  SNFs were unable to provide  us with 

ledgers.  For these SNFs, the percentage of medically  unnecessary services is based on the 

percentage of visits documented  in the medical  record that were medically  unnecessary.  The 

table on page 8 notes how we determined  the percentage of medically  unnecessary services for 

each SNF. 

We believe that evaluating  charges is the most accurate way to assessmedical  necessity because 

it enables us to allow  or disallow  parts of services and to account for the difference  in the length 

of a particular  therapy  service.  It also enables us to make distinctions  between  therapy 

evaluations  and regular  therapy  sessions.  SNFs typically  bill  more for evaluations. 

In order to assess the effect of using different  methods to determine  the percentage of medically 

unnecessary services, we determined  the percentage of medically  unnecessary services using 

visits for the four SNFs that provided  us with  itemized  ledgers.  In all cases, we found that the 

percentages corresponded  within  a few percentage points  of the percentages we found using the 

itemized  charges. 

7 
 PROBE  SAMPLE  FINDINGS 
Medically  unnecessary  physical  and occupational  therapy  services at sampled 
facilities  ranged  from  less than  4 to more  than  80 percent 
As the table below  illustrates,  more than one-quarter  of physical  and occupational  therapy 
services were medically  unnecessary at five of the six SNFs we reviewed.  The SNF with  less 
than 4 percent medically  unnecessary services recently  had been under prepayment  review  by its 
fiscal intermediary: 
Ratesof medically unnecessaryservicesvary widely 
in sampledSNFs 
Percentage  Percent  that failed  to  Percentage  with  no 
Facility  medically  meet Medicare  medical  physician  order or 
unnecessary  necessity criteria  documentation  missing 
I  I  I  I 
#l  80.3**  65.1  15.1 
I  #2  I  43.3*  I  41.6  I  1.7 
I  I  I  I 
#3  54.3*  54.0  0.3 
I  #4  I  27.5*  I  27.1  I  0.4 
I  I  I  I 
#5  3.7**  3.1  0.5 
#6  62.6*  55.4  7.3 
*  Percent medically  unnecessary based on itemized charges in SNF ledgers 
**  Percent medically  unnecessary based on visits documented in medical records (ledgers not availat  e) 
Some totals do not equal the overall  percentage of medically  unnecessary services due to rounding. 
The percentage of medically  unnecessary services is based on instances where  (1) we determined 
that the services failed to meet Medicare  coverage criteria  and (2) the patients  file lacked the 
physician  order or documentation  that the services had been provided  at all. 
While  denial rates for both types of therapy were high, occupational  therapy was more likely  to 
be medically  unnecessary than physical  therapy  at five of the six sites.  The following  chart 
illustrates  this variation: 
8 
 Ratesof medically unnecessaryserviceswere slightly higher 
for occupationaltherapy than physical therapy 
Percentage of 
OccupationaTlherapy 
Medically  Unnecessary 
#6  57.7* 
* 
Percent medically  unnecessary based on itemized chaq 
**  Percent medically  unnecessary based on visits 
Multiple  factors  account  for  the high  volume  of medically  unnecessary 
services 
While  many factors account for the volume  of unnecessary therapy,  three major reasons emerged 
in our analysis of these services:  (1) skilled  services are frequently  provided  when non-skilled 
services would  be more appropriate,  (2) therapists sometimes ignore  the beneficiarys  prior  leve:l 
of function  and set unrealistic  goals, and (3) the frequency  of therapy  is sometimes excessive. 
Skilled  services are frequently  provided  when  non-skilled  services would  be more appropriate 
Some beneficiaries  simply  require  help in building  strength and endurance but receive skilled 
physical  and occupational  therapy  instead.  Assistance in building  strength and endurance should 
be performed  by nursing  staff.  Of the 80 beneficiaries  we assessed, 14 did not require  skilled 
services at all.  These patients received thousands of dollars  of physical  and occupational  therapy 
nonetheless.  In these cases, the therapists  role should have been only  to design a program  of 
routine  therapy to be administered  by nursing  staff. 
Therapists  fail to cease therapy or transition  patients to a nursing  program  within  an appropriate 
amount of time.  Many  of the beneficiaries  who received medically  unnecessary services 
received appropriate  evaluations  and some medically  necessary services.  However,  patient 
records often did not support the need for on-going  skilled  therapy  services.  We estimate that 
26 of the 80 beneficiaries  we reviewed  should have been transitioned  to routine  nursing  services 
after some skilled  services had been provided.  The therapists  role should have changed from 
providing  services to designing  a nursing  routine  that would  continue  the patients  improvement 
and help maintain  the gains. 
9  Therapists  sometimes ignore  the beneficiarys  prior  level offunction  and set unrealistic  goals 
Therapists  are required  to design realistic  short- and long-term  therapeutic  goals for patients. 
These are used to guide the course and ultimately  judge  the success of the treatment.  If a 
therapist  sets unrealistic  goals, the patient will  receive lengthy  and unsuccessful  treatments.  In 
14 of our 80 cases, the therapists  goals were unrealistic.  These included  goals of performing 
independent  activities  of daily  living  that the beneficiary  had not performed  for several years, 
because the beneficiary  had a full-time  caregiver or was a resident of a nursing  home.  In other 
cases, the therapist  seemed to overestimate  a patients  ability  to recover from a debilitating 
illness. 
The frequency  of therapy  is sometimes excessive 
Some SNF patients in our sample received therapy  comparable  to patients  in acute 
rehabilitation--up  to 5 hours per day, according  to medical  records and ledgers.  In 7 out of 
the 80 cases, we deemed the frequency  excessive.  Most  alarming  were instances where 
exceptionally  frail patients or people with  Alzheimers  disease or advanced senility  and dementia 
received 4 to 5 hours of therapy per day for several weeks.  It is unlikely  that many of these 
patients could tolerate  such intensive  therapy.  In general, we found that physical  therapists were 
prone to routinely  provide  2 or more hours of therapy per day when the beneficiary  would  have 
received the maximum  benefit  from  1 hour of physical  therapy per day. 
Other  observations  raise  additional  concerns  about  how therapy  is provided 
During  our on-site visits, we also had some concerns with  issues not directly  related to our 
medical  review.  While  observing  therapy being performed,  we found that the time billed  for 
therapy  frequently  exceeds the actual time that services are provided.  In addition,  while 
reviewing  the history  of sampled patients, we observed that recurring  hospitalization  may trigger 
unnecessary therapy  services. 
Time billed for  therapy  exceeds the actual  time that services are provided 
Medicare  guidelines  state that time billed  for therapy  services must be for time spent providing 
skilled  services.  This does not include  time spent on documentation,  team conferences, or 
unskilled  therapy  such as simple ambulation. 
Most  therapy  ledgers that we reviewed  showed four units (1 hour)  of therapy being performed 
and billed  per session.  We did not observe any therapy that lasted anywhere  close to an hour. 
The GAO  report,  Medicare:  Tighter  Rules Needed to Curtail  Overcharges  for Therapy  in 
Nursing  Homes,  noted that it was impossible  to determine  how much time a therapist  spent with 
a patient by reviewing  claims. 
We did, however,  observe that therapists inflated  billed  time  by including  time to transport  or 
ambulate the patient  to a therapy  area. Time billed  as skilled  therapy  included  transferring  the 
10 
 patient to a wheelchair  or walker  as skilled  therapy.  Technically,  this is skilled  bed transfer 
therapy, but it might  take another 5 to 10 minutes to ambulate or transport  the patient to a therapy 
area, plus an additional  5 to 10 minutes  to return the patient to his room.  While  the therapist 
might  give some safety and gait instruction  during  transport  or ambulation,  these are not 
considered  skilled  services, according  to Medicare  guidelines. 
In addition,  patient  fatigue  frequently  requires that a therapist halt a session.  Some patients are 
frail  and cannot tolerate  an hour of skilled  therapy.  Other patients become combative  or 
uncooperative  as a therapy  session progresses.  These instances may force a therapist  to stop 
therapy before the allotted  hour is up.  While  the therapist may attempt to complete  the daily 
session later in the day, this is not always possible. 
Recurring  hospitalization  may trigger  unnecessary  therapy  services 
Long-term  SNF residents who  are hospitalized  frequently  receive unnecessary therapy when they 
return to the SNF.  We found that patients who were hospitalized  with  medical  problems  other 
than orthopedic  (e.g., hip fracture  or replacement)  or neurological  (e.g., stroke) conditions  were 
more likely  to receive medically  unnecessary services.  These patients typically  were hospitalized 
for conditions  such as dehydration,  bowel  obstruction,  or the onset of congestive  heart failure. 
We determined  that these patients might  (1) require  a longer recovery  time prior  to initiating 
therapy,  (2) require  only  unskilled  services to build  strength and endurance, or (3) not ever attain 
the level of physical  health they possessed before hospitalization,  due to the chronic  nature of 
their illness. 
11 
 SUMMARY  TABLE 
The table below  summarizes  our primary  findings  at the six sampled facilities: 
Percentage 
Facility  Medically  Summary 
Unnecessary 
Facility  recently  changed ownership,  but the contracted rehabilitation 
#l  80.3  agency remains.  Facility  exemplifies  all of the issues described in this 
report. 
Appropriate  candidates and good use of therapists time, but services 
#2  43.3 
continue  beyond the point  where skilled  therapy is necessary. 
Therapists appear to spend much less time with  patients than they bill  for. 
#3  54.3  Typical  issues of inappropriate  candidates and excessive frequency  and 
duration. 
#4  27.5  Expensive  therapy management contract adds to the costs. 
Until  recently,  the fiscal intermediary  was reviewing  100 percent of this 
#5  3.7  facilitys  claims prior  to paying  them, based on concerns about the medical 
necessity of its therapy services. 
Facility  bills  inappropriately  for routine  assessments and team conferences. 
#6  62.6  In addition,  therapist goals were inappropriate,  and therapy did not cease 
when appropriate. 
12  CONCLUSION 
Our probe sample findings  detail some significant  concerns about how  therapy  services are 

provided  to SNF patients.  We found that, with  the exception  of one facility,  more than a quarter 

and as many as 80 percent of recent therapy  services are medically  unnecessary in sampled 

SNFs.  With  almost $7 billion  in therapy charges nationally  in 1996 and the upward  trend not 

abating, we believe that Medicare  is paying  significant  amounts for medically  unnecessary 

physical  and occupational  therapy. 

The Balanced  Budget  Act,  with  its implementation  of a prospective  payment  system for 

Part A beneficiaries  and a $1,500 cap on therapy  services for Part B beneficiaries,  creates an 

appropriate  structure  to control  the cost of therapy  services.  At the same time, we believe that 

the cost formulas  being used to develop the prospective  payment  rates and Part B cap could be 

significantly  compromised  by the volume  of medically  unnecessary services. 

During  1998, we will  conduct  a full  national  study to quantify  the extent of medically 

unnecessary services and to develop baseline data to compare therapy  utilization  before and after 

implementation  of the Balanced  Budget  Act. 

13