Report Template Update  = 04-30-05_rev.12  
Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

C D
ARRIER  ETERMINATION OF 

C
OPAYMENTS 

M M
FOR  EDICARE  ENTAL 

H S
EALTH  ERVICES 

Daniel R. Levinson

Inspector General 

October 2006

OEI-09-04-00221
 Report Template Update  = 04-30-05_rev.12  
Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.  Report Template Update  = 04-30-05_rev.12 
  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine the extent to which Medicare carriers: 
1.	 consistently calculate beneficiary copayments for mental health 
services, and  
2.	 correctly calculate copayments for mental health services rendered 
to beneficiaries diagnosed with Alzheimers disease or related 
disorders. 
BACKGROUND 
The Outpatient Mental Health Treatment Limitation 
The outpatient mental health treatment limitation (the limitation) 
reduces payments from Medicares Supplementary Medical Insurance 
Benefits for the Aged and Disabled (Part B) to 62.5 percent of the 
expenses (Medicare approved amount) for services in connection with 
the treatment of mental disorders. Mental disorders that occur most 
frequently for Medicare beneficiaries include affective psychoses, 
senile psychotic conditions, schizophrenic disorders, and neurotic 
disorders.  Services include such things as psychotherapy, psychiatric 
pharmacologic management, and evaluation and management. 
Mental health services are typically rendered by psychiatrists, clinical 
psychologists, licensed clinical social workers, nurse practitioners, 
clinical nurse specialists, and physician assistants. 
While the usual copayment for medical services is 20 percent, the 
limitation commonly results in a copayment for the beneficiary of  
50 percent of the approved amount (Medicare pays 80 percent of  
62.5 percent of the approved amount).  The limitation applies to services 
that are furnished in connection with the treatment of a mental, 
psychoneurotic, or personality disorder and either: 
o	 furnished by physicians and other practitioners, whether 
furnished directly or as incident to those practitioners services, or 
o	 provided by a comprehensive outpatient rehabilitation facility. 
Pursuant to 42 CFR  410.155(b)(2), some services are exempt from 
the limitation, such as services furnished to a hospital inpatient, 
diagnostic services, and medical management services furnished to a 
patient diagnosed with Alzheimers disease or a related disorder. 
However, carriers must interpret the meaning of mental health 
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E X E C U T I V E   S U M M A R Y  
treatment and mental, psychoneurotic, and personality disorders to 
determine whether they should apply the limitation to specific claims. 
Application of the Limitation by Carriers 
The Centers for Medicare & Medicaid Services (CMS) contracts with 
private companies, called carriers, to process and pay physicians 
and nonphysician practitioners Part B claims. CMS authorizes 
carriers to process and pay claims submitted by providers in CMS-
defined geographic service areas.  In most cases, an individual service 
area is one State.  However, some States (such as New York and 
Missouri) have two service areas.  While most carriers process and 
pay claims for multiple service areas, each service area is represented 
by only one carrier. In 2003, 19 carriers processed claims from 
providers in the 57 service areas that encompassed all 50 States, the 
District of Columbia, Puerto Rico, and the U.S. Virgin Islands.   
Claims Processing 
Physicians and other practitioners submit Medicare claims to their 
respective carriers.  Carriers are responsible for applying the limitation 
via their automated claims processing systems. Carriers customize 
their systems and apply the limitation according to their individual 
payment policies.  The application of the limitation does not affect 
coverage. Instead, the limitation determines the proportion of expenses 
that will be borne by a beneficiary. 
Methodology 
We used multiple methods to accomplish our objectives.  To determine 
the extent to which Medicare carriers consistently calculate beneficiary 
copayments for mental health services and correctly calculate  
copayments for beneficiaries diagnosed with Alzheimers disease and 
related disorders, we surveyed (by mail, telephone, and e-mail) the 
carriers and analyzed a 1-percent sample of claims from the Medicare 
National Claims History for services rendered from 2001 through 2004. 
In addition, we reviewed all relevant statutes, regulations, and CMS 
guidance. 
FINDINGS 
Beneficiary copayments can be more than double for the same mental 
health service in different service areas. Medicare beneficiaries can be 
responsible for either 20 percent or 50 percent of the cost of exactly the 
same mental health service, based on their geographic locations. 
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E X E C U T I V E   S U M M A R Y  
Individual beneficiaries who move from one State to another may see 
dramatic changes in their Medicare liability.   
Because their payment policies are inconsistent, carriers do not 
uniformly apply the outpatient mental health treatment limitation.  Among 
the 57 carrier service areas, we identified 9 different payment policies 
for application of the limitation.  Carriers policies vary regarding the 
services that trigger the limitation and the psychiatric illnesses that 
trigger the limitation. 
Carriers overstated copayments for beneficiaries with Alzheimers 
disease and related disorders by approximately $27 million during  
a 4-year period.  Both the regulations and CMS guidance clearly state 
that medical management for patients diagnosed with Alzheimers or a 
related disorder should not be subject to the limitation.  Only 
psychotherapy services are subject to the limitation for these patients.  
However, from 2001 to 2004, carriers applied the limitation to medical 
management services for approximately 488,000 beneficiaries with 
Alzheimers and related disorders. 
RECOMMENDATIONS 
Due to carriers inconsistent policies regarding application of the 
limitation, carriers do not uniformly calculate beneficiaries copayments. 
In addition, some carriers are incorrectly applying the limitation to 
services for beneficiaries with Alzheimers disease and related disorders. 
To address this, CMS should: 
o	 Issue new guidance to carriers regarding the outpatient mental 
health treatment limitation and ensure that the limitation is 
consistently applied among all carriers. 
o	 Require its carriers to adjust the copayments for beneficiaries who 
were overcharged.   
AGENCY COMMENTS 
CMS agreed to take steps to address our recommendations.  CMS plans 
to issue more precise guidance that will establish policy for application 
of the outpatient mental health treatment limitation, create and post 
educational materials to its Web site, and, to the extent operationally 
feasible, require its carriers to reopen and adjust incorrectly processed 
claims. 
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  T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Unequal beneficiary copayments . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Inconsistent carrier payment policies  . . . . . . . . . . . . . . . . . . . . . .  13

Overstatedcopaymentsfor Alzheimers patients  . . . . . . . . . . . . .  18

R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

   Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22

A:  Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22

B:  Alzheimers-RelatedDisorders . . . . . . . . . . . . . . . . . . . . . . . . .  24

C:  Procedure Codes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25

D:  AgencyComments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
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  I N T R O D U C T I O N  

OBJECTIVE 
To determine the extent to which Medicare carriers: 
1.	 consistently calculate beneficiary copayments for mental health 
services, and  
2.	 correctly calculate copayments for mental health services 
rendered to beneficiaries diagnosed with Alzheimers disease or 
related disorders. 
BACKGROUND 
Outpatient Mental Health Services and Psychiatric Disorders 
Outpatient mental health services commonly rendered1 to Medicare 
beneficiaries include: 
o	 Psychotherapy:  treatment for mental illness and behavioral 
disturbances in which the clinician establishes a professional 
contract with the patient, and through definitive therapeutic 
communication, attempts to alleviate emotional disturbances, 
reverse or change maladaptive patterns of behavior, and 
encourage personality growth and development;2 
o	 Psychiatric pharmacologic management:  pharmacologic 
management, including prescription, use, and review of 
medication with no more than minimal medical psychotherapy;3 
and 
o	 Evaluation and management (E&M) services:  office visits, 
hospital visits, and consultations that typically involve at least 
one of three key components  history, physical examination, and 
medical decisionmaking.  E&M services can vary in complexity.4 
Psychiatric disorders that occur most frequently for Medicare 
beneficiaries5 include: 
o	 affective psychoses (e.g., major depressive disorder and bipolar 
affective disorder); 
1 Based on the Office of Inspector General (OIG) analysis of a 1-percent sample of 
Medicare claims for 2003. 
2 AMA, Current Procedural Terminology, Professional Edition, 2003. 
3 Ibid. 
4 Ibid. 
5 Based on OIG analysis of a 1-percent sample of Medicare claims for 2003. 
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o	 senile psychotic conditions; 
o	 schizophrenic disorders; and  
o	 neurotic disorders (e.g., neurotic depression and adjustment 
reaction). 
These disorders are described in more detail in the American Medical 
Associations (AMA) International Classification of Diseases,  
9th Revision (ICD-9) and the American Psychiatric Associations 
(APA) Diagnostic Statistical Manual, Third Edition   Revised 
(DSM-III-R). 
Practitioners who render mental health services to Medicare 
beneficiaries include psychiatrists, clinical psychologists, licensed 
clinical social workers, nurse practitioners, clinical nurse specialists, 
and physician assistants. 
The Outpatient Mental Health Treatment Limitation 
Medicares Supplementary Medical Insurance (Part B) covers 
physicians services, outpatient care, and some other services not 
covered by Medicares Hospital Insurance (Part A).  In general, 
beneficiaries are responsible for copayments of 20 percent of the 
approved amount for most Part B services.  Outpatient mental health 
services are covered under Part B.  However, Federal law limits 
Medicare payments to 62.5 percent of the expenses (Medicare approved 
amount) for mental health services.6  Specifically, the law limits 
payments for services in connection with the treatment of mental, 
psychoneurotic, and personality disorders.  For these services, 
beneficiaries face greater cost-sharing liability.    
Federal statute and regulations. The implementing regulations for 
section 1833(c) of the Social Security Act (the Act) are called the 
outpatient mental health treatment limitation (the limitation).7 
Pursuant to 42 CFR  410.155(b), services subject to the limitation 
include those furnished in connection with the treatment of a mental, 
psychoneurotic, or personality disorder (that is, any condition 
identified by a diagnosis code within the range of 290 through 319) 
and either: 
o	 furnished by physicians and other practitioners, whether 
furnished directly or as incident to those practitioners services, or 
6 Section 1833(c) of the Act (42 U.S.C. 1395I). 
7 42 CFR  410.155. 
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I N T R O D U C T I O N  
o	 provided by a comprehensive outpatient rehabilitation facility. 
Pursuant to section 1833(c) of the Act, services not subject to the 
limitation include the following: 
o	 services furnished to a hospital inpatient; 
o	 brief office visits for the sole purpose of monitoring or changing 
drug prescriptions used in the treatment of mental, 
psychoneurotic, or personality disorders; and 
o	 partial hospitalization services that are not directly provided by a 
physician. 
In addition, the regulations at 42 CFR  410.155(b)(2) prohibit 
application of the limitation to:  
o	 diagnostic services, such as psychological testing, that are 
performed to establish a diagnosis; and 
o	 medical management, as opposed to psychotherapy, furnished to a 
patient diagnosed with Alzheimer's disease or a related disorder. 
The regulation contains examples of how the limitation affects 
provider reimbursement and beneficiary copayments.  The example 
below from 42 CFR  410.155(c) illustrates why the limitation results 
in a 50-percent beneficiary copayment for mental health services: 
A clinical psychologist submitted a claim for $200 for outpatient 
treatment of a beneficiarys mental disorder.  The Medicare approved 
amount was $180.  Since clinical psychologists must accept assignment, 
the beneficiary is not liable for the $20 in excess charges.  The 
beneficiary previously satisfied the $100 annual Part B deductible.  The 
limitation reduces the amount of incurred expenses to 62 12 percent of 
the approved amount.  After subtracting any unmet deductible, Medicare 
pays 80 percent of the remaining incurred expenses.   Medicare payment 
and beneficiary liability are computed as follows: 
1. Actual charges  $200.00 
2. Medicare approved amount  180.00 
3. Medicare incurred expenses (0.625 x line 2)  112.50 
4. Unmet deductible  0.00 
5. Remainder after subtracting deductible (line 3 minus line 4)  112.50 
6. Medicare payment (0.80 x line 5)  90.00 
7. Beneficiary liability (line 2 minus line 6)  90.00 
Source:  42 CFR  410.155(c). 
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I N T R O D U C T I O N  
The application of the limitation in the example on the preceding page 
results in a beneficiary liability of 50 percent of the Medicare approved 
amount for the service. While Medicare approved the entire physician 
fee schedule amount for the service, it limited the incurred expenses to 
62.5 percent and reimbursed the provider 80 percent of that limited 
amount.  The provider collected the remaining reimbursement from the 
beneficiary. 
For other Part B services, beneficiaries are typically liable for 
20 percent of the Medicare approved amount, as opposed to 50 percent 
under the limitation.  Using the example provided in  
42 CFR  410.155(c) (above), Table 1 compares the Medicare payment 
calculation for mental health services (limitation is applied) and medical 
services (limitation is not applied). 
Table 1  Medicare Payment Calculation:   
Comparison of 
Mental Health vs. Other Medical Services  
Medicare Payment 
Calculations: 
Mental Health  Other Medical
By law, Medicare  
Services   Services  
incurs less for 
mental health  1. Actual charges  $200.00  $200.00 
services, resulting 
in higher 
2. Medicare approved amount  $180.00  $180.00 
copayments for 
beneficiaries. 
$112.50  $180.00 
3. Medicare incurred expense  
(62.5 percent    (100 percent 
of approved amount)  of approved amount) 
4. Unmet deductible  0.00  0.00 
5. Remainder after subtracting deductible  
$112.50  $180.00 
(line 3 minus line 4) 
6. Medicare payment  
$ 90.00  $144.00 
     (0.80 x line 5)
7. Beneficiary liability
$90.00  $36.00 
 (line 2 minus line 6) 
8. Beneficiary liability as percent of approved  50 percent  20 percent 
Source:  Office of Inspector General analysis of Medicare payment policies, 2005. 
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I N T R O D U C T I O N  
CMS guidance.  The Centers for Medicare & Medicaid Services (CMS) 
issues binding guidance to its carriers in the form of claims processing 
manuals and memoranda. CMS has issued guidance on the limitation 
in the Medicare Carriers Manual and its Internet Only Manuals.8 In 
1995, at least three CMS regional offices also issued to their respective 
carriers memoranda that contained additional clarification on the 
application of the limitation. 
CMS guidance9 interprets and implements regulations10 concerning the 
limitation by identifying (1) the disorders that are subject to the 
limitation, (2) the services that are subject to the limitation, and (3) the 
services that are not subject to the limitation.  However, the guidance 
lacks the specificity necessary for carriers to apply the limitation to 
claims without additional interpretation of the regulations. In 
particular, the guidance lacks specificity in two areas. One is the 
definition of mental, psychoneurotic, and personality disorders.  The 
other is the definition of mental health treatment. 
CMS guidance defines the phrase mental, psychoneurotic, and 
personality disorders as the specific psychiatric conditions described in 
APAs DSM-III-R.11  The guidance also provides that, if the primary 
diagnosis is the same as or equivalent to a condition described in the 
APAs DSM-III-R, the service is subject to the limitation.  CMS 
guidance does not mention the range of diagnosis codes that are 
specified in the regulation, i.e., 290 through 319, nor does it mention the 
ICD-9. The ICD-9 lists diagnosis codes for all diseases and conditions, 
including mental illness, and contains 192 diagnosis codes for mental 
illness that are not in the DSM-III-R.   
To identify services that are subject to the limitation, CMS guidance 
instructs carriers to apply the limitation to professional services that 
represent mental health treatment.12  However, the guidance does not 
list the specific procedure codes (i.e., AMAs Current Procedural 
8 Medicare General Information, Eligibility, and Entitlement Manual, Publication  
100-1, Chapter 3, sections 30.0 through 30.3 and Medicare Claims Processing Manual, 
Publication 100-4, Chapter 12, sections 210 and 210.1. 
9 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, section 210.1. 

10 42 CFR  410.155. 

11 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, section 

210.1(B). 
12 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, section 
210.1(C). 
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II NN TT RR OO DD UU CC TT II OO NN
Terminology (CPT codes)) that qualify as mental health treatment 
services. 
To identify services that are not subject to the limitation, CMS provides 
additional guidance for the following exceptions: diagnosis of 
Alzheimers disease or related disorders, brief office visits for 
monitoring or changing drug prescriptions, diagnostic services, and 
partial hospitalization services not directly provided by a physician.13 
CMS guidance on exceptions relevant to this report are discussed in 
more detail later. 
Application of the Limitation by Carriers 
Section 1842 of the Act authorizes CMS to contract with private 
companies, called carriers, to process and pay physician and 
nonphysician practitioner Part B claims within a given service area. In 
most cases, a carrier service area is a single State; however, some States 
(such as New York and Missouri) have two service areas. Most carriers 
process and pay claims for multiple service areas. In 2003, 19 carriers 
processed claims from providers in the 57 service areas that 
encompassed all 50 States, the District of Columbia, Puerto Rico, and 
the U.S. Virgin Islands. 
Unlike Local Coverage Determinations (LCD), application of the 
limitation is a payment decision, not a coverage decision. The LCD is a 
decision by a carrier to cover a particular item or service. In contrast, 
the application of the limitation does not affect coverage. Instead, the 
limitation determines the proportion of expenses that will be borne by a 
beneficiary. Carriers are required by law to apply the limitation; 
however, they make decisions on its application to specific services on 
the basis of national payment policy in conjunction with their 
interpretation of that policy (CMS guidance and memoranda). 
Claims Processing 
Physicians and other practitioners submit Medicare claims to their 
respective carriers. They submit claims electronically in a uniform 
format that includes, among other things: 
o  demographic information about the patient, 
o  the patients Medicare identification number, 
13 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, section 
210.1(D). 
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I N T R O D U C T I O N  
o  codes used to describe the services rendered,14 and 
o  codes used to describe the patients diagnosis.15 
Using their automated claims processing systems, carriers determine if 
Medicare covers the services billed by physicians and other 
practitioners.  If the services are covered, prior to paying the claim, 
carriers transmit the claim information to one of nine host sites for the 
Common Working File (CWF).  The CWF system reviews the claim and 
beneficiary information and authorizes payment, based on the payment 
rules.  However, carriers are solely responsible for applying the 
limitation via their automated claims processing systems.  Carriers 
customize their systems and apply the limitation according to their 
individual payment policies, which, as previously mentioned, are a 
combination of national payment policy and carriers interpretations of 
national payment policy. 
Companion Report 
This report is the first of two reports on Medicare Part B mental health 
services rendered in 2003. The second report will describe the results of 
a medical review of a representative sample of Medicare claims for 
mental health services rendered in 2003. 
METHODOLOGY 
Because CMS has not provided the carriers with comprehensive 
guidance on the limitation, we focused on how consistently the carriers 
calculate beneficiary copayments.  However, since carriers can 
determine whether the limitation applies to services rendered to 
beneficiaries diagnosed with Alzheimers and related disorders based on 
the plain language of the CMS guidance, we determined the extent to 
which carriers correctly calculate copayments for these beneficiaries.   
We used multiple methods to accomplish our objective.  To determine 
the extent to which carriers consistently calculate beneficiary  
copayments for mental health services, we surveyed each carrier and 
analyzed a 1-percent sample of claims from the Medicare National 
Claims History for claims received in calendar year 2003.   To determine 
the extent to which carriers are correctly calculating copayments for 
beneficiaries diagnosed with Alzheimers disease or related disorders, 
14 Procedure codes are from AMAs Current Procedural Terminology. 
15 Diagnosis codes are from AMAs ICD-9. 
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I N T R O D U C T I O N  
we analyzed a 1-percent sample of claims from the Medicare National 
Claims History for claims received in calendar years 2001 through 2004.  
In addition, we reviewed all relevant statutes, regulations, and CMS 
guidance. 
Carrier Survey 
We sent a written survey to 18 of the 19 carriers that had paid claims in 
calendar year 2003. All 18 carriers responded to our survey.  The 
carrier that processed claims for Rhode Island in 2003 was no longer a 
Medicare contractor at the time we conducted our survey (October 2004) 
and was, therefore, not included in our survey.  The carriers that 
responded to our survey represented at least 1 of all 57 Part B service 
areas in 2003, except Rhode Island. 
We asked the carriers to provide detailed explanations of their payment 
policies for applying the limitation to the claims they paid for services 
rendered in 2003.  After receiving their completed surveys, we contacted 
many of the carriers by telephone, fax, and/or e-mail to clarify their 
survey responses. 
2003 Medicare Claims Data and Carrier Payment Policy Analysis 
We analyzed a 1-percent sample of claims from the Medicare National 
Claims History for claims received in calendar year 2003.  We analyzed 
the claims to (1) verify that carriers followed their stated payment 
policies for application of the limitation in 2003 and (2) calculate 
Medicare reimbursements and beneficiary liabilities for claims paid 
under the limitation.  
We analyzed the carriers payment policies in four categories: 
1.	 Psychiatric pharmacologic management services. See page 1 for  
the definition. 
2.	  E&M services.  See page 1 for the definition. 
3.	 Diagnosis lists used to trigger the limitation.  As mentioned on 
page 5, there are two professionally recognized sources for 
diagnosis codes for mental illnesses: (1) AMAs ICD-9 and 
(2) APAs DSM-III-R. The ICD-9 is the international standard for 
a comprehensive listing of all diseases and conditions, and is not 
limited to mental illnesses. The DSM-III-R is the standard 
diagnostic manual used by mental health practitioners, and is 
limited to mental illnesses.  In addition to listing the diagnosis 
codes, it contains other information, such as diagnostic criteria. 
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I N T R O D U C T I O N  
4.	 Services to treat Alzheimers and related disorders. Federal 
regulations16 prohibit application of the limitation to medical 
management, as opposed to psychotherapy, furnished to a patient 
diagnosed with Alzheimers disease or a related disorder. 
Alzheimers-related disorders comprise 12 different diseases, as 
defined by the DSM-III-R.  See appendix B for a complete listing 
of the diseases. 
Policy verification analysis. We verified that the carriers were following 
their payment policies in each of these four categories of claims by 
analyzing their paid claims in the 2003 1-percent sample. Based on the 
results of our analysis, we included a service area in our findings if at 
least 99.5 percent of the paid claims in that service area were processed 
in accordance with the carriers payment policies.  For example, if a 
carrier stated that it applied the limitation to E&M services in a 
particular service area, we included that service area in our findings if 
at least 99.5 percent of paid claims showed that the carrier had followed 
its stated payment policy. If fewer than 99.5 percent of the service 
areas claims were paid in accordance with the payment policy, we 
excluded that service area from our findings for that category of claims 
only (E&M services in the example).  The service area could still be 
included in our findings related to the three other categories if the  
99.5 percent-criterion were met for those particular services. See  
Table 2 for details about the carriers and service areas that we 
excluded.  
Table 2  Carriers and Service Areas Excluded from this Reports Analyses 
Excluded Carriers 
Service  Percent 
and Service Areas: 
Categories for Application of the  Carriers*  Areas  Service 
Carriers stated  Limitation  (n=19)  (n=57)  Areas  
payment policies  Psychiatric pharmacologic management 
3  4  7% 
for specific claim  services 
categories could  Evaluation and management services   8  11  19% 
not be verified in 
Diagnosis lists used to trigger the 
2003 paid claims  10  14  25% 
limitation 
data. 
Services to treat Alzheimers and related 
5  7  12% 
dementia disorders 
*This column indicates that at least one service area for the carrier was excluded, not that the entire carrier 
was excluded from our analysis. 
Source:  Office of Inspector General analysis of a 1-percent sample of calendar year 2003 Medicare claims, 
2005. 
16 42 CFR  410.155(b)(2)(v). 
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The carriers in Table 2 could not accurately describe their payment 
policies for applying the limitation. Determining why the carriers could 
not accurately describe their payment policies was outside of the scope 
of this study. However, a few carriers provided information that 
suggests they do not keep accurate written records of their limitation 
policies and are unable to query their payment systems to obtain past 
payment policies (e.g., the limitation policy in 2003). 
We also excluded from our verification analysis all claims for which the 
primary payer was not Medicare.  These claims represented less than 
1 percent of the claims in our sample. 
We analyzed carriers payment policies that were in effect on  
December 31, 2003. For most carriers and most service areas, the 
limitation policies that were in effect on December 31, 2003, represented 
the policies that were in effect throughout the calendar year.   
We asked the carriers if they changed their limitation policies for claims 
that were processed in 2004 and 2005.  Eight carriers had added specific 
procedure codes to the list of services that were subject to the limitation 
and/or had added specific diagnosis codes to trigger the limitation. One 
carrier changed its limitation policies from 2003 to 2004 because of a 
change in its claims processing system; however, the carrier was unable 
to explain how its policies had changed.  
Medicare reimbursement and beneficiary liability estimates 
We analyzed a 1-percent sample of paid claims for services rendered in 
2003 to determine actual Medicare reimbursement and beneficiary 
liability for services subject to the limitation.  During claims processing, 
carriers code individual claims to indicate whether the limitation has 
been applied. In comparing the copayments among beneficiaries in 
different States, we factored in the difference in fee schedule amounts to 
make comparisons of beneficiary liability stemming from the limitation. 
We relied on these codes to identify the individual claims for cost 
estimates. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
See appendix A for a glossary of the terms used in this report. 
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  F I N D I N G S

Beneficiaries financial liability for 
Beneficiary copayments can be more than double for 
Medicare mental health services vary 
the same mental health service 
based on the geographic location in 
in different service areas 
which they receive the services. In 
one service area, the beneficiary  
copayment might be 20 percent, while in another the copayment could 
be 50 percent for the same service. For example, approximately 
7,600 Medicare beneficiaries received psychiatric pharmacologic 
management services on December 31, 2003.  Carriers applied the 
limitation to the services for approximately 83 percent of these 
beneficiaries.  For two of these beneficiaries, one in Florida and the 
other in Utah, Medicare approved approximately $53 and $46 for the 
services, respectively.  Because carriers that serve Florida and Utah 
have different payment policies regarding the limitation, the beneficiary 
in Florida was responsible for approximately $11, while the beneficiary 
in Utah was responsible for approximately $23.  This is one example 
among thousands in which beneficiaries pay significantly different 
amounts for the same Medicare-covered mental health services. In 
2003, Medicare approved approximately $1.2 billion for claims for which 
carriers applied the limitation.  Beneficiaries were liable for 
$662 million of that amount. 
Beneficiaries who move from one State to another may see dramatic 
changes in their Medicare liability for the same Medicare-covered services 
To illustrate the effect the carriers inconsistent limitation policies can 
have on Medicare beneficiaries, the scenarios depicted in  
Figure 1 include two real Medicare beneficiaries.  In each scenario, the 
beneficiaries hypothetically moved from their home State to a State 
served by a carrier with a different limitation policy.  The number of 
services reported in figure 1 were the actual number of services these 
beneficiaries received in their home States in 2003.17 
o	 Scenario 1: Beneficiary A received 50 E&M services in California 
and was liable for 50 percent copayments for all Medicare mental 
health services.  The carrier applied the limitation to services that 
appear in the psychiatric section of the AMAs Current 
Procedural Terminology, as well as E&M services where a mental 
disorder appeared on the claims. If the beneficiary moved to Ohio 
17 Approximately 3 percent of beneficiaries in 2003 received 50 or more E&M services. 
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F
 I N  D I N G  S  
and received exactly the same services, the beneficiary would be 
liable for approximately $1,386 less in copayments.18 
o  Scenario 2: Beneficiary B received 47 E&M services in Ohio, 
avoided the limitation for these services, and was liable for the 
standard 20 percent copayment. The local carrier does not apply 
the limitation to E&M services for patients with a mental disorder 
in that service area.  If the beneficiary moved to California, the 
beneficiarys liability for copayments for the same services would 
increase by approximately $468.19 
Figure 1 
Beneficiaries  If Beneficiary A moves to Ohio and receives the 
Who Move to  same services, the beneficiary will be liable for 
Another  $1,386 less. 
Service Area: 
Hypothetical 
movement of 
If Beneficiary B moves to California and 
two real 
receives same services, the beneficiary 
Medicare  will be liable for $468 more. 
beneficiaries 
to States with 
different 
limitation 
policies.  Beneficiary A: 2003 Medicare mental health  Beneficiary B: 2003 Medicare mental health 
services received in the State of California.  services received in the State of Ohio. 
Diagnosis: Paranoid Schizophrenia  Diagnosis:  Opioid Dependence 
50 E&M Services  47 E&M Services 
Note: While the two beneficiaries received a similar number of E&M services, beneficiary A received services of a higher level of complexity, 
and therefore the fee schedule amounts were higher than the services for beneficiary B. 
Source:  Office of Inspector General analysis of 1-percent sample of calendar year 2003 Medicare claims, 2005. 
18 Of this total, $1,157.25 of the difference is attributed to the variance in the outpatient 
mental health treatment limitation policy, and $229.00 is attributed to the change in fee 
schedule amounts.  The total approved amount for this beneficiarys services in California 
was $4,315. 
19 Of this total, $432.86 of the difference is attributed to the variance in the outpatient 
mental health treatment limitation policy, and $36.58 is attributed to the change in fee 
schedule amounts.  The total approved amount for this beneficiarys services in Ohio was 
$1,978. 
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F I N D I N G S  

Among the 57 service areas, we 
Because their payment policies are inconsistent,  
identified 9 distinctive payment 
carriers do not uniformly apply 
policies for application of the 
the outpatient mental health treatment limitation 
limitation, based on the 4 categories 
listed below. In some cases, the 
payment policies vary within the carriers themselves.  Among the  
13 carriers that have multiple service areas, at least 6 carriers have 
more than 1 distinctive payment policy in effect, which reflects 
variations within the carriers across service areas. 
Carriers payment policies vary in four categories 
Significant Medicare payment policy variance among the carriers occurs
primarily in four categories: 
1.  psychiatric pharmacologic management services, 
2.  E&M services, 
3.  diagnosis lists20 used to trigger the limitation, and 
4.  services to treat Alzheimers disease and related disorders. 
These four categories include most Medicare Part B claims for mental 
health services. Among all claims in 2003 for mental health services 
and/or beneficiaries with a psychiatric diagnosis, these four categories 
apply to 58 percent of the claims and 90 percent of the beneficiaries. 
The remaining 42 percent of the claims were for psychotherapy services, 
for which carriers were mostly consistent in applying the limitation.   
For the first three categories, CMS guidance lacks the specificity 
necessary for carriers to apply the limitation to claims without 
additional interpretation.  Carriers must interpret the meaning of  
mental health treatment and mental, psychoneurotic, and personality 
disorders in order to determine whether the limitation should apply to 
claims. For the fourth category, CMS guidance is unequivocal.  
Nevertheless, carriers still vary in their application of the limitation to 
services for beneficiaries with Alzheimers and related disorders.   
20 AMAs ICD-9 or APAs DSM-III-R. 
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FF II NN DD II NN GG SS  
Psychiatric pharmacologic management is not always subject to the 
limitation 
In 86 percent of the service areas, carriers subject psychiatric 
pharmacologic management to the limitation. However, in approximately 
one-fourth of those service areas, psychiatric pharmacologic management is 
subject to the limitation only if the patient has a diagnosis recognized by 
the carrier to trigger the limitation (e.g., a mental disorder according to the 
ICD-9 or DSM-III-R). In two-thirds of the service areas, psychiatric 
pharmacologic management is subject to the limitation regardless of 
diagnosis. See Table 3 for details on how carriers payment policies differ. 
Table 3  Psychiatric Pharmacologic Management  CPT 90862 
Psychiatric 
Percent 
Pharmacologic 
Application of the Limitation  Carriers*  Service Areas  Service Areas 
Management: 
Never  2  4  7% 
Carriers did not 
always apply the  Always 13  36  63% 
limitation to these 
Based on Diagnosis  6  13  23% 
claims in 2003. 
Unknown  carriers stated payment policies 
3  4  7% 
could not be verified in claims data 
Total  24  57  100% 
*There were 19 carriers in 2003; this column totals 24 because 5 carriers use different policies among their service areas. 
Source: Office of Inspector General analysis of carriers payment policies, 2005. 
AMA defines psychiatric pharmacologic management (CPT 90862) as a 
psychiatric service consisting of pharmacologic management, including 
prescription, use, and review of medication with no more than minimal 
medical psychotherapy. AMAs definition does not explicitly indicate 
whether psychiatric pharmacologic management is a therapeutic 
(treatment) service only, as opposed to a therapeutic service with 
diagnostic and evaluative features. CMS guidance21 exempts tests and 
evaluations performed to establish or confirm the patients diagnosis 
from the limitation. Moreover, CMS guidance provides that diagnostic 
services should take more than one visit only in rare cases, and that, 
in those rare cases, carriers should request documentation to justify 
the reason for more than one diagnostic visit. 
Carriers inconsistently apply the limitation to E&M services 
E&M services are sometimes subject to the limitation in at least 
72 percent of the service areas. In at least 9 percent of the service areas,
E&M services will never trigger the limitation. See Table 4 for details. 
21 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, 
section 210.1(D)(3). 
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Table 4  E&M Services 
Evaluation and 
Service  Percent Service 
Management 
Application of the Limitation  Carriers*  Areas  Areas  
Services: 
Never  3  5  9% 
 Carriers in most 
States applied 
the limitation in  Based on Diagnosis  13  41  72% 
2003. 
Unknown  carriers stated payment policies 
8  11  19% 
could not be verified in claims data 
Total  24  57  100% 
*There were 19 carriers in 2003; this column totals 24 because 5 carriers use different policies among their service areas. 
Source:  Office of Inspector General analysis of carriers payment policies, 2005. 
Further, carriers that apply the limitation based on diagnosis may use 
different lists of diagnoses to trigger the limitation for E&M services. The 
diagnosis lists that carriers use to trigger the limitation represent the 
most complex aspect of the limitation, and accordingly, result in 
significant inconsistency among the carriers and the service areas. All 
carriers that subject E&M services to the limitation do so based on the 
patients diagnosis, which appears on the claim.  Each carrier that applies 
the limitation to E&M services uses a list of diagnoses coded into their 
claims payment systems to trigger the limitation.  Typically, a carrier will 
use one list of diagnoses to include E&M services as subject to the 
limitation. At least one carrier uses another list of diagnoses to exclude 
E&M services from the limitation.  Among the carriers, and even within 
some carriers, these lists vary.  See Table 5 for details. 
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F I N D I N G S  

Table 5  DSM-III-R and Non-DSM- III-R Psychiatric Diagnoses Used to Apply the 
Diagnostic Triggers 
Limitation to E&M Services in 2003 
Vary: 
Carriers used 
Application of the Limitation to E&M  Service  Percent Service 
different lists of  Services  Carriers*  Areas  Areas**  
diagnoses to 
trigger the  E&Ms are never subject to the limitation 3  5  9% 
limitation for E&M 
claims received in  DSM-III-R Included 
2003.  Only DSM-III-R diagnoses trigger the  4  12  21% 
limitation 
DSM-III-R and non-DSM-III-R Included 
Both DSM-III-R and non-DSM-III-R  10  25  44% 
diagnoses trigger the limitation 
Non-DSM-III-R Excluded 
Non-DSM-III-R diagnoses prevent the  1  1  2% 
application of the limitation to any claim 
Unknown 
Carriers stated payment policies could  10  14  25% 
not be verified in claims data 
Overall Total  28  57  101% 
*There were 19 carriers in 2003; this column totals 28 because 9 carriers use different policies among their service areas.

**The percent of service areas column equals 101 percent due to rounding. 

Source:  Office of Inspector General analysis of carriers payment policies, 2005.

Carriers diagnosis lists are not consistent 
The differences in carriers diagnosis lists can be explained, at least in 
part, by the source(s) that carriers use to develop them.  The ICD-9 and 
DSM-III-R do not contain the same diagnoses.  In its mental disorders 
sections, the ICD-9 contains 192 diagnoses22 not found in the 
DSM-III-R. As shown in Table 5, carriers covering 12 service areas use 
only DSM-III-R diagnoses, and therefore, none of these 192 diagnoses 
listed only in the ICD-9 will trigger the limitation.  In contrast, carriers 
covering 25 service areas use both DSM-III-R and some of these  
192 non-DSM-III-R diagnoses to trigger the limitation. Many of the 
192 diagnoses excluded from the DSM-III-R are subcategories of 
diseases, specifying, for example, a recurrent episode or chronic 
condition. For example, in service areas in which carriers rely solely on 
22 In 1995, at least three CMS regional offices issued to their respective carriers 
memoranda that listed each diagnosis code as found in the ICD-9 but not in the DSM-III-R. 
We used these memoranda as our source for identifying the non-DSM-III diagnoses. 
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FFF III NNN DDD III NNN GGG SSS  
the DSM-III-R, diagnoses that providers code more specifically 
(e.g., schizo-affective type, chronic, code 295.72) will not trigger the 
limitation while diagnoses coded more broadly (e.g., schizo-affective 
type, unspecified, code 295.70) will trigger the limitation. 
The ICD-9 and DSM-III-R are not fully compatible, and regulations and 
CMS guidance do not specify how carriers should reconcile the 
differences to consistently apply the limitation. The most recent CMS 
guidance states that, for purposes of applying the limitation, a mental 
disorder is . . . defined as the specific psychiatric condition described in 
the American Psychiatric Associations Diagnostic and Statistical 
Manual of Mental Disorders, Third Edition  Revised.23 However, the 
regulations state, without mentioning the DSM-III-R or the ICD-9, that 
for the purpose of applying the limitation a mental disorder is any 
condition identified by a diagnosis code within the range of 290 through 
319.24  The range of codes in the mental disorders section of the 
ICD-9 is 290 through 319, while the range of codes in the DSM-III-R is 
290 through 319 in addition to other codes (e.g., 780.50, 780.54, 
799.90). In addition, as mentioned earlier, there are 192 diagnoses in 
the ICD-9s mental disorders section that do not appear in the 
DSM-III-R. 
Carriers incorrectly subject E&M services for Alzheimers patients to the 
limitation in approximately half of the service areas 
Contrary to Federal regulations and CMS guidance,25 in approximately 
one-half of the service areas, carriers subject E&M services to the 
limitation for patients diagnosed with Alzheimers and related 
disorders. Eleven carriers representing twenty-six service areas apply 
the outpatient mental health treatment limitation to E&M services 
rendered to Alzheimers and dementia patients. See Table 6 for details. 
We could verify the payment policies of 11 of the 19 carriers that 
reported that they apply the limitation to E&M services for beneficiaries 
diagnosed with Alzheimers disease or related disorders. 
23 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, sections 210 
and 210.1(B). 
24 42 CFR  410.155(b). 
25 42 CFR  410.155 and Medicare General Information, Eligibility, and Entitlement 
Manual, Publication 100-1, Chapter 3, section 30.2. 
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F I N D I N G S  

Table 6  Diagnoses of Alzheimers Disease or Related Disorders as a Trigger for 
Diagnoses of 
Applying the Limitation to E&M Services 
Alzheimers or 
Related Disorders: 
Carriers payment  Service  Percent 
policies for  Application of the Limitation to E&M Services  Carriers*  Areas  Service Areas 
application of the  No 
3  5  9% 
limitation to E&M  regardless of diagnosis. 
claims received in  Yes 
2003.  but not to Alzheimers or dementia  7  19  33% 
disorders. 
Yes 
to some but not all Alzheimers and  11  26  46% 
dementia disorders. 
Yes 
0  0  0% 
to all Alzheimers and dementia disorders. 
Unknown 
Carriers stated payment policies could not  5  7  12% 
be verified in claims data. 
Overall Total  26  57  100% 
*The total number of carriers in 2003 was 19, however, the carriers column totals 26 because 7 carriers use different 
policies among their service areas. 
Source:  Office of Inspector General analysis of carriers payment policies, 2005. 
The regulations at  
Carriers overstated copayments for beneficiaries with 
42 CFR  410.155(b)(2)(v) prohibit 
Alzheimers disease and related disorders  
application of the limitation to medical 
by approximately $27 million during a 4-year period 
management, as opposed to 
psychotherapy, furnished to a patient 
diagnosed with Alzheimers disease or a related disorder. In its 
guidance to carriers, CMS elaborates: 
When the primary diagnosis reported for a particular service is Alzheimers 
Disease (coded 331.0 in the International Classification of Diseases, 9th 
Revision) or Alzheimers or other disorders coded 290.XX in the APAs 
DSM-III-R, carriers look to the nature of the service that has been 
rendered in determining whether it is subject to the limitation.  Typically, 
treatment provided to a patient with a diagnosis of Alzheimers Disease or 
a related disorder represents medical management of the patients 
condition (rather than psychiatric treatment) and is not subject to the 
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FF II
 NN DD II NN GG SS  
limitation. However, when the primary treatment rendered to a patient 
with such a diagnosis is psychotherapy, it is subject to the limitation.26 
Both the regulations and CMS guidance clearly state that medical 
management for these patients should not be subject to the limitation. 
Only psychotherapy services are subject to the limitation for patients 
diagnosed with Alzheimers or a related disorder. The regulations do 
not specifically define an Alzheimers related disorder; however, CMS 
guidance identifies the specific range of diagnosis codes as 290.XX. 
See appendix B for a complete list of diagnoses referenced in the 
guidance. 
CMS guidance on 42 CFR  410.155 is consistent with the regulation. 
However, carriers are applying inappropriately the outpatient mental 
health treatment limitation to medical management services27 for 
beneficiaries diagnosed with Alzheimers disease or related disorders. 
Consequently, Medicare underpaid providers for these services. As a 
result, the beneficiaries were responsible for copayments in excess of 
what is mandated by Federal regulations. See Table 7 below for the 
total copayments miscalculated by year and Appendix C for the services 
in 2004 for which the copayments were miscalculated. 
Table 7  Incorrect Application of the Limitation for Patients with Alzheimers Disease 
Diagnoses of 
or Related Disorders 
Alzheimers or 
Related  Total  Total 
Medicare  Beneficiary  Beneficiary  Medicare 
Disorders: 
Year Services were  Total  Liability  Liability  Under-
Incorrect  Rendered  Beneficiaries  Approved  (by Carriers)  (Correct)  payment 
application of 
2001  158,000  $20,489,000  $10,245,000  $4,098,000  $6,147,000 
the limitation 
for claims  2002  178,000  $22,587,000  $11,294,000  $4,517,000  $6,776,000 
received 2001  2003  197,000  $27,503,000  $13,752,000  $5,501,000  $8,251,000 
through 2004. 
2004  146,000  $20,091,000  $10,046,000  $4,018,000  $6,027,000 
Total  488,000  $90,671,000  $45,336,000  $18,134,000  $27,201,000* 
*This table represents projections from a 1-percent sample of Medicare claims. The projections are rounded to the nearest 1,000. 

The 95 percent confidence interval for the point estimate of $27,201,000, rounded to the nearest thousand is $26,213,000 to $28,190,000.

Source: Office of Inspector General analysis of 1-percent sample of calendar years 2001, 2002, 2003, and 2004 Medicare claims, 2005.

26 Medicare Claims Processing Manual, Publication 100-4, Chapter 12, 
section 210.1(D)(1). 
27 These services include E&M and psychiatric pharmacologic management. See 
Appendix B for a complete list of the procedure codes in 2004. 
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F I N D I N G S  
  R E C O M M E N D A T I O N S  

Due to carriers inconsistent policies regarding application of the 
outpatient mental health treatment limitation, carriers do not 
uniformly calculate beneficiaries copayments.  In addition, some 
carriers are incorrectly applying the limitation to services for 
beneficiaries with Alzheimers disease and related disorders, resulting 
in beneficiary overpayments. 
To address this, CMS should: 
Issue new guidance to carriers regarding the outpatient mental health 
treatment limitation and ensure that the limitation is consistently applied 
among all carriers 
In the new guidance, CMS should instruct its carriers (using a 
comprehensive list of specific CPT and ICD-9 codes) how the outpatient 
mental health treatment limitation applies to services for: 
o	 psychiatric pharmacologic management; 
o	 evaluation and management; 
o	 patients with diagnoses that appear in the ICD-9 list of  
psychiatric illness, but do not appear in the DSM-III-R;  
o	 patients with diagnoses that appear in the DSM-III-R, but do 
not appear in the ICD-9; and 
o	 patients diagnosed with Alzheimers disease and related 
disorders. 
CMS should instruct its carriers that, pursuant to 42 CFR  410.155 
and the Medicare General Information, Eligibility, and Entitlement 
Manual, Publication 100-1, Chapter 3, section 30.2, they should 
discontinue applying the limitation to any services, except 
psychotherapy, for patients with Alzheimers disease (diagnosis code 
331.0) or related disorders (diagnosis codes 290.XX). 
Require its carriers to adjust the copayments for beneficiaries who were 
overcharged 
CMS should instruct its carriers to identify claims for all 
nonpsychotherapy services (e.g., E&M services and psychiatric 
pharmacologic management) for patients with Alzheimers disease or 
related disorders that were subjected to the limitation.  Carriers should 
reopen these claims in accordance with 42 CFR  405.841 and 
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R E C O M M E N D A T I O N S  
determine if beneficiary copayments for the claims were calculated 
improperly and need to be adjusted.  
AGENCY COMMENTS 
CMS agreed to take steps to address our recommendations.  CMS 
believes that providing more precise guidance is in the best interest of 
the Medicare program. Accordingly, CMS plans to issue new guidance 
to carriers to eliminate variations in the application of the mental 
health treatment limitation.  Additionally, CMS indicated that it would 
create educational materials for the Medicare Learning Network 
located on its Web site. Finally, to the extent operationally feasible, 
CMS will require its carriers to reopen and adjust incorrectly processed 
claims for patients with Alzheimers disease and related disorders. See 
Appendix D for the complete CMS response.  
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 A P P E N D I X   A  
Glossary of Terms 
 
Approved amount  The amount Medicare allows as total reimbursement to the 
  provider for a service, including Medicares share and the 
beneficiarys copayment. 
Beneficiary   The Medicare approved amount less the practitioner 
liability  reimbursement.  Usually 50 percent of the approved amount for 
claims processed under the limitation.  
Carrier  A private insurance company working under contract with CMS 
to process Part B Medicare claims.  In 2003, there were  
19 separate carriers. 
Copayment  The amount the Medicare beneficiary is liable for any given 
service.  Typically, this amount is either 20 percent (medical 
services) or 50 percent (mental health services) of the Medicare 
approved amount. 
CPT  A listing of descriptive terms and identifying codes for medical 
services and procedures performed by physicians.  The purpose of 
the terminology is to provide a uniform language that will 
accurately describe medical, surgical, and diagnostic services, 
and will thereby provide an effective means for reliable 
nationwide communication among physicians, patients, and third 
parties.  (AMA, Current Procedural Terminology, 2003, 
Professional Edition, Forward, p. vii.) 
DSM-III-R  The standard diagnostic tool used by mental health 
professionals worldwide to promote reliable research, accurate 
diagnosis, and thus appropriate treatment and patient care. 
Each psychiatric disorder with its corresponding diagnostic code 
is accompanied by a set of diagnostic criteria . . .  (American 
Psychiatric Association, Diagnostic and Statistical Manual of 
Mental Disorders Third Edition Revised (DSM-III-R), available 
online at www.psychiatryonline.org.  Accessed on November 15, 
2005.) 
 
 
 
  
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A P P E N D I X   A  
E&M  Evaluation and Management services (CPT codes 
99201-99499).  These include office visits, hospital 
visits, and consultations.  E&M services typically 
involve three key components: history, physical 
examination, and medical decisionmaking. E&M 
services can vary in complexity and can be rendered by 
practitioners for patients with mental disorders. 
ICD-9  Comprehensive source for disease classification. Diseases 
are classified with a 5-digit code, such as 295.00, 
schizophrenia, simple type, unspecified.  (AMAs 
International Classification of Diseases, 9th Revision 
(ICD-9).) 
Limitation  The Medicare outpatient mental health treatment 
limitation. Statutory limitation of 62.5 percent of the 
Medicare Physician Fee Schedule amount on mental 
health services. 
Mental disorder  Includes 281 diagnoses listed in the International 
Classification of Diseases (ICD-9) under Section 5, 
Mental Disorders (290-319). 
Psychiatric Pharmacologic  AMA defines psychiatric pharmacologic management 
Management  (CPT 90862) as a psychiatric service consisting of 
pharmacologic management, including prescription, use, 
and review of medication with no more than minimal 
medical psychotherapy. 
Psychiatric procedures  Includes 42 procedures listed in AMAs Current 
Procedural Terminology (CPT) 2003, under Medicine, 
Psychiatry. 
Reimbursement   The amount Medicare pays to the practitioner for 
(Medicare payment)  services. 
Service area  Includes 57 geographic areas represented by 1 of the  
19 carriers in 2003. Most service areas follow State lines; 
however, three States (e.g., California, Missouri. and New 
York) are divided into multiple service areas. 
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  A P P E N D I X   B  

Table 8  Alzheimers-Related Disorders 
Diagnosis Code 
and Names for  ICD-9  DSM-III-R 
Alzheimers- Code  ICD-9 Diagnosis Name  code  DSM-III-R Diagnosis Name 
Related   Dementia of the Alzheimer's type, 
290.0  Senile dementia uncomplicated  290.00 
Disorders:  senile onset, uncomplicated 
Complete list 
Dementia of the Alzheimer's type, 
290.10  Presenile dementia uncomplicated  290.10 
based upon to  presenile onset, uncomplicated. 
CMS guidance 
Dementia of the Alzheimer's type, 
on 42 CFR 290.11  Presenile dementia with delirium  290.11 
presenile onset, with delirium 
  410.155. 
Presenile dementia with delusional  Dementia of the Alzheimer's type, 
290.12  290.12 
features  presenile onset, with delusions 
Presenile dementia with depressive  Dementia of the Alzheimer's type, 
290.13  290.13 
features  presenile onset, with depressed mood 
Senile dementia with delusional  Dementia of the Alzheimer's type, 
290.20  290.20 
features  senile onset, with delusions 
Senile dementia with depressive  Dementia of the Alzheimer's type, 
290.21  290.21 
features  senile onset, with depressed mood 
Dementia of the Alzheimer's type, 
290.3  Senile dementia with delirium  290.30 
senile onset, with delirium 
290.40  Vascular dementia uncomplicated  290.40  Multi-infarct dementia, uncomplicated 
290.41  Vascular dementia with delirium  290.41  Multi-infarct dementia, with delirium 
290.42  Vascular dementia with delusions  290.42  Multi-infarct dementia, with delusions 
Vascular dementia with depressed 
290.43  290.43  Multi-infarct dementia, with depression 
mood 
Source:  Office of Inspector General analysis of The Medicare Claims Processing Manual Publication, 100-4, Chapter 12, 
section 210.1(D)(1); AMA, International Classification of Diseases, 9th Revision (ICD-9);  and the American Psychiatric 
Association, Diagnostic and Statistical Manual of Mental Disorders Third Edition  Revised (DSM-III-R), 2005. 
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  A P P E N D I X   C  

Incorrect Application of the Limitation for Patients with Alzheimers Disease 
Table 9  or Related Disorders (from a 1-Percent Sample of Cliams) 
Diagnoses of  Total  Total 
Alzheimers  Beneficiary  Beneficiary 
or Related  Liability  Liability  Medicare 
HCPCS  Beneficiaries  Total Allowed  (by Carriers)  (Correct)  Underpayment 
Disorders: 
Incorrect  90862  508  $78,127  $39,063  $15,625  $23,438 
application  90870  1  $97  $49  $19  $29 
of the  96151  1  $24  $12  $5  $7 
limitation for  99203  3  $294  $147  $59  $88 
claims  99204  6  $764  $382  $153  $229 
received in  99205  1  $162  $81  $32  $49 
2004.  99211  1  $26  $13  $5  $8 
99212  34  $1,490  $745  $298  $447 
99213  263  $17,638  $8,819  $3,528  $5,291 
99214  184  $19,665  $9,833  $3,933  $5,900 
99215  39  $5,206  $2,603  $1,041  $1,562 
99217  1  $77  $38  $15  $23 
99218  1  $73  $36  $15  $22 
99220  1  $170  $85  $34  $51 
99231  1  $96  $48  $19  $29 
99232  1  $51  $26  $10  $15 
99243  1  $84  $42  $17  $25 
99263  1  $62  $31  $12  $18 
99282  2  $58  $29  $12  $17 
99283  4  $264  $132  $53  $79 
99284  4  $509  $255  $102  $153 
99285  3  $457  $228  $91  $137 
99301  9  $908  $454  $182  $272 
99302  9  $829  $415  $166  $249 
99303  18  $2,205  $1,103  $441  $662 
99311  187  $13,980  $6,990  $2,796  $4,194 
99312  277  $38,412  $19,206  $7,682  $11,523 
99313  106  $14,826  $7,413  $2,965  $4,448 
99315  2  $120  $60  $24  $36 
99316  1  $74  $37  $15  $22 
99322  1  $51  $26  $10  $15 
99323  1  $76  $38  $15  $23 
99331  5  $283  $142  $57  $85 
99332  15  $1,932  $966  $386  $579 
99333  7  $414  $207  $83  $124 
99344  1  $173  $86  $35  $52 
99348  3  $346  $173  $69  $104 
99349  3  $352  $176  $70  $106 
99350  3  $538  $269  $108  $161 
Total from 
1 percent sample  1460  $200,912  $100,456  $40,182  $60,274 
Total projected  146,000  $20,091,000  $10,046,000  $4,018,000  $6,027,000 
 Source:  Office of Inspector General analysis of 1-percent sample of calendar year 2004 Medicare claims, 2005. 
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Agency Comments 
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This report was prepared under the direction of Paul A. Gottlober, 
Regional Inspector General for Evaluation and Inspections in the San 
Francisco regional office, and Deborah W. Harvey, Assistant Regional 
Inspector General.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Steven Zerebecki, Project Leader 
Robert Gibbons, Lead Analyst 
Silvia Chin, Program Analyst 
China Tantameng, Program Analyst 
Thomas Purvis, Program Analyst 
Doris Jackson, Program Specialist 
Tricia Davis, Director, Medicare Branch 
  OEI-09-04-00221  COPAYMENTS FOR MENTAL HEALTH SERVICES  28