Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Physical And Occupational Therapy in Nursing Homes 
Cost of Improper Billings to Medicare 
JUNE GIBBS BROWN 
Inspector General 
AUGUST 1999 
OEI-09-97-00122  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 
protect the integrity of the Department of Health and Human Services programs as well as the 
health and welfare of beneficiaries served by them.  This statutory mission is carried out through a 
nationwide program of audits, investigations, inspections, sanctions, and fraud alerts.  The 
Inspector General informs the Secretary of program and management problems and recommends 
legislative, regulatory, and operational approaches to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's San Francisco regional office prepared this report under the direction of Kaye D. Kidwell, 
Regional Inspector General, and Paul A. Gottlober, Deputy Regional Inspector General.  Principal 
OEI staff included: 
REGION  HEADQUARTERS 
Deborah Harvey, Project Leader  Susan Burbach, Program Specialist 
Robert Gibbons, Program Analyst  Jennifer Antico, Program Specialist 
Carrie Lozano, Program Analyst  Stuart Wright, Program Specialist 
Lori Stickel, Program Analyst  Barbara Tedesco, Statistician 
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  E X E C U T I V E   S U M M A R Y  
PURPOSE 
To determine how much Medicare paid for improperly billed and undocumented physical and 
occupational therapy in skilled nursing facilities. 
BACKGROUND 
All Medicare-certified skilled nursing facilities are required to assess each patients status and

needs, including the medical necessity for physical and occupational therapy.  Medicare

coverage guidelines state that therapy must be reasonable, necessary, specific, and effective

treatment for the patients condition.

The Medicare charges for physical and occupational therapy to patients in skilled nursing

facilities have increased over the past few years.  The 1997 Medicare charges for physical and

occupational therapy were approximately $7.9 billion, an increase of almost 18 percent over

the 1996 charges of approximately $6.7 billion.

The Health Care Financing Administration, the Federal agency that administers the Medicare

program, implemented salary equivalency guidelines for physical therapy in 1975 to ensure that

the agency did not reimburse excessive hourly contracted amounts.  While skilled nursing

facilities may pay a therapy contractor any amount for physical therapy, they are required to

apply the salary equivalency guidelines to those contracted amounts when they submit their

cost reports.  Occupational therapy was not subjected to salary equivalency guidelines until

April 1998.  Before that time, skilled nursing facilities routinely marked up charges from their

occupational therapy contractors, and Medicare reimbursement included the mark-up.

We conducted on-site medical review at a random sample of 24 skilled nursing facilities

nationwide.  Several teams of physical and occupational therapists reviewed the 

March 1998 medical records of a national random sample of 218 Medicare patients.  The

medical reviewers determined the medical necessity of the therapy provided to the sampled

patients before the implementation of the prospective payment system for skilled nursing

facilities which began on July 1, 1998 and the cap on Part B therapy which began on 

January 1, 1999.  Assuming that March 1998 is a typical month, we projected Medicare

reimbursement for medically unnecessary and undocumented therapy to the 12-month period

ending June 30, 1998.

In a companion report entitled Physical and Occupational Therapy in Nursing Homes:

Quality of Care and Medical Necessity for Medicare Patients (OEI-09-97-00121), we

explained the reasons and extent of improperly billed therapy.  In that report, we noted that 

1 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  13 percent of therapy was improperly billed, and an additional 4 percent was not documented 
in the patients medical records. 
FINDINGS 
Medicare reimbursed skilled nursing facilities almost $1 billion for improperly 
billed physical and occupational therapy 
Medicare reimbursed skilled nursing facilities for improperly billed therapy primarily because 
the therapy was not medically necessary and therapy was provided by staff who did not have 
the appropriate skill for the patients medical condition. 
Medicare reimbursed skilled nursing facilities almost $331 million for 
undocumented physical and occupational therapy 
The time documented for therapy in the therapy ledgers and therapy charts in patients medical 
records often did not match the time billed to Medicare for therapy.  Also, some therapy charts 
in patients records did not include the actual time therapists and assistants spent with patients. 
In fact, some SNFs had such poor documentation that it was virtually impossible to verify the 
amount of therapy that patients received within a week. 
Skilled nursing facility mark-up of occupational therapy exceeded $342 million 
Because salary equivalency guidelines had not been implemented for occupational therapy until 
April 1998, Medicare paid skilled nursing facilities as much as 86 percent more than their 
contractors charged them for each unit of therapy.  The mark-up between contractor invoices 
and skilled nursing facilities reimbursement exceeded $342 million. 
CONCLUSION AND RECOMMENDATION 
Our findings concerning unnecessary and undocumented therapy, as well as the mark-ups on 
occupational therapy, were not identified prior to the implementation of the prospective 
payment system.  This has resulted in inflated base year costs upon which both the Federal and 
the facility-specific rates were based.  Therefore, should any consideration be given to 
modifying the prospective payment system, we believe that the inappropriate costs identified in 
this report should be considered. 
In addition to implications for modifying the prospective payment system, our findings have 
medical necessity implications.  Under the new payment system, patients may continue to 
receive unnecessary (and harmful) therapy and be placed in upcoded Resource Utilization 
Groups.  An additional financial incentive may be to underutilize therapy and deprive patients 
of needed rehabilitation.  Similarly, medical appropriateness will continue to be an issue under 
2 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  Part B with possible overutilization for patients who do not need therapy and underutilization 
for patients whose therapy needs exceed the cap.  Therefore, we recommend: 
HCFA should adequately fund Medicare contractors to perform medical reviews 
of therapy. 
AGENCY RESPONSE 
We received comments on the draft report from the Health Care Financing Administration. 
The agency concurred with the reports conclusions.  The Health Care Financing 
Administration believes that the recently implemented prospective payment system for skilled 
nursing facilities has helped to eliminate some incentives to provide inappropriate or 
unnecessary therapy.  The agency will continue to aggressively monitor the potential impact on 
the access and quality of care of therapy for Medicare beneficiaries. 
The full text of the Health Care Financing Administrations comments appears in appendix C. 
3 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  TT AA BB LL EE     OO FF     CCOONNTTEENNTTSS 
PAGE

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

Cost of improperly billed therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

Cost of undocumented therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

SNF mark-up of occupational therapy  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

CONCLUSION AND RECOMMENDATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

AGENCY COMMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

A:  Calculation of Average Therapy Reimbursement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

B:  Confidence Intervals for Selected Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

C:  Agency Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

4 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  I N T R O D U C T I O N  
PURPOSE 
To determine how much Medicare paid for improperly billed and undocumented physical and 
occupational therapy in skilled nursing facilities. 
BACKGROUND 
Medicare Coverage and Reimbursement of Physical and Occupational Therapy 
Medicare coverage guidelines state that therapy must be reasonable, necessary, specific, and 
effective treatment for the patients condition.  All Medicare-certified skilled nursing facilities 
(SNF) are required to assess each patients status and needs, including the need for physical 
and occupational therapy.  The Health Care Financing Administration (HCFA), the Federal 
agency that administers the Medicare program, requires that therapy be prescribed in a written 
treatment plan that describes the specific therapeutic interventions, the frequency of visits, and 
the duration of therapy.  Therapy must be ordered by a physician and require the skills of a 
licensed or certified therapist.  While therapy generally is expected to result in the full or partial 
restoration of function, this outcome is not required by Medicare. 
The Medicare program provides coverage of therapy services under both Parts A and B for 
SNF patients.  Patients are eligible for Part A benefits if they are transferred to a SNF after a 
minimum 3-day covered stay in an acute care hospital.  Part B covers services for SNF 
patients who have exhausted their Part A benefits or did not have a qualifying hospital stay. 
In 1997, SNF Medicare charges for physical and occupational therapy were approximately 
$7.9 billion, an increase of almost 18 percent over the 1996 charges of approximately 
$6.7 billion.  As shown in the chart below, most therapy charges were for Part A therapy rather 
than for Part B therapy. 
Part A Charges Comprise the Majority of Medicare Therapy Claims 
1997 SNF Therapy Charges 
Medicare 
Coverage 
Physical  Occupational 
Part A  $3.3 billion  $2.9 billion 
Part B  $900 million  $800 million 
Source: Health Care Financing Administration, 1998 
5 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  Medicare does not pay for physical and occupational therapy when: 
<  the therapy is performed repetitively to maintain a level of function, 
<  the patients restoration potential is insignificant in relation to the therapy required to 
achieve such potential, 
<  it has been determined that the treatment goals will not materialize, and 
<  the therapy performed is considered to be a general exercise program. 
In September 1996, HCFA clarified its payment policy that Medicare will pay only for skilled 
therapy that involves direct patient care.  Medicare will not pay for indirect services such as 
medical record documentation, care planning, and telephone calls except when they are 
aggregated with other overhead costs and are included in the cost report that each SNF must 
file with its Medicare fiscal intermediary. 
How SNFs Document and Bill for Therapy 
Prior to July 1, 1998, skilled therapy was billed in a fixed-time increment called a unit.  One 
unit equaled 15 minutes of therapy.  Each therapy session would be composed of various 
therapeutic interventions or activities that the therapist or assistant completed with a patient. 
For example, if a patient completed 45 minutes of therapy in one session, the SNF billed for 
three units of therapy.  If the same patient received an hour of therapy in the morning and 
another hour in the afternoon, the SNF billed four units in each session for a total of eight units 
of therapy for the day. 
Therapists document their services in various ways, including departmental ledgers, which are 
maintained in the therapy department, and therapy charts (often called grids), which are 
included in each patients medical record.  Ledgers generally are weekly or monthly summaries 
of therapy rendered to all patients, usually separated by the type of reimbursement that the 
SNF receives for each patient.  Therapy grids often duplicate the ledger information with 
checked boxes for each intervention, the total units, and the therapists name.  If the patient 
received therapy twice in one day, the interventions are  checked on the morning and 
afternoon grids with units listed at the end of the day. 
Types of SNF Therapy Contracts 
Most therapy for SNF patients is provided by therapists who are employees of the SNF or 
therapists who work for independent companies that have contracts, or are under 
arrangement, with SNFs.  The SNFs may provide some therapy directly and some under 
arrangement.  The SNFs submit Medicare claims on behalf of their staff or their contractors. 
Fiscal intermediaries pay SNFs for therapy throughout the year based on an interim rate which 
is subject to revision after the annual cost report is finalized. 
6 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  Medicare Salary Equivalency Guidelines 
The costs for physical and occupational therapy billed by SNFs are subjected to hourly salary

equivalency guidelines.  Salary equivalency is the prevailing hourly salary rate1 plus the

standard fringe benefit and expense factor.  This rate includes an adjustment for geographical

areas and is updated periodically.2  The HCFA implemented salary equivalency guidelines to

ensure that it did not reimburse SNFs for excessive contracted therapy costs.  While SNFs may

charge any amounts that are considered to be reasonably related to therapy costs, fiscal

intermediaries apply salary equivalency guidelines to therapy costs claimed on SNF cost

reports.  The HCFA implemented salary equivalency guidelines for physical therapy in 1975. 

Salary equivalency guidelines for occupational therapy were not implemented until 

April 1998, i.e., 23 years later.

Legislation for SNF Therapy 
The Balanced Budget Act of 1997 significantly changed how SNFs are reimbursed for all 
services, including physical and occupational therapy.  All SNF cost reports filed after 
July 1, 1998 are subjected to a prospective payment system.  Under this system, SNFs receive 
a facility-specific per diem rate, which includes therapy, for each patient who is in a Part A 
covered stay.3  The facility-specific per diem is based on the adjudicated cost report for fiscal 
year 1995, and the SNF will receive a blended rate over a 3-year transition period that blends a 
portion of the facility-specific per diem and the Federal per diem rate.  The legislation also 
included a $1,500 annual cap for Medicare Part B patients, whether or not they reside in SNFs. 
Occupational therapy is limited to $1,500 annually, while physical therapy and speech language 
pathology share the same $1,500 annual cap.  The cap was effective January 1, 1999. 
METHODOLOGY 
Sampled SNF Selection 
From the Medicare Common Working File, we extracted all March 1998 physical and 
occupational therapy claims (both Parts A and B) submitted by SNFs to fiscal intermediaries 
for payment.  We limited the extract to SNFs in the continental United States.  We reviewed 
therapy rendered to patients before the Health Care Financing Administration implemented the 
SNF prospective payment system on July 1, 1998.  We purposely selected claims submitted 
1Prevailing salary is the hourly salary rate based on the 75th percentile of salary ranges paid by 
therapy companies in the same geographical area, by type of therapy, to full-time therapists. 
242 Code of Federal Regulations, Part 413, Section 413.106. 
3Health Care Financing Administration, Program Memorandum for Intermediaries A-97-17, 
December 1997. 
7 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  before July 1, 1998 to maintain consistency in SNF and fiscal intermediary policies and 
procedures for the 12 months prior to the change in payment systems. 
We stratified the SNFs into four strata by (1) regions of the United States and (2) the total 
physical and occupational therapy charges for March 1998.  Within each stratum, we grouped 
the SNFs into clusters such that the SNFs were in the same geographic area and the sum of 
physical and occupational therapy charges per cluster was fairly constant. 
We then randomly selected two SNF clusters per stratum.  Within each SNF cluster, we 
randomly selected 3 SNFs, resulting in a total sample of 24 SNFs.  Within each SNF, we 
randomly selected 10 patients who received physical and/or occupational therapy during March 
1998.  If a SNF had fewer than 10 patients who received therapy in that month, we reviewed 
all of them. 
Calculations for the confidence intervals account for all levels of clustering and stratification. 
The 95 percent confidence intervals for the statistics in this report are listed in appendix B. 
On-Site Medical Review 
We conducted on-site medical review at 24 SNFs for 218 sampled patients who received 
physical and occupational therapy in March 1998.  The review period was before HCFA 
implemented the SNF prospective payment system and salary equivalency guidelines for 
occupational therapy.  While on-site, we: 
< reviewed the medical records to determine if each therapy session was medically necessary, 
unnecessary, or undocumented; 
< reviewed therapy ledgers that documented therapeutic interventions and time spent with 
patients; 
< requested copies of the Medicare bills for sampled patients; 
< obtained copies of contracts between SNFs and therapy contractors that were in effect in 
March 1998; and 
< obtained the Medicare cost-to-charge ratios that fiscal intermediaries apply to physical and 
occupational therapy charges. 
The medical review was conducted by several teams of licensed or certified physical and 
occupational therapists.  The cost estimates in this report are based on the non-statistical 
projections from March 1998 which we extrapolated to a 12-month period ending 
June 30, 1998, based on the assumption that March 1998 is a typical month and represents 
31/365 of a year.  See appendix B for more details. 
This report is one in a series of reports on physical and occupational therapy for Medicare SNF 
patients.  A companion report, Physical and Occupational Therapy in Medicare Nursing 
Facilities: Quality of Care and Medical Necessity for Medicare Patients (OEI-09-97-00121), 
details the extent and reasons for improperly billed and undocumented therapy.  In that report, 
8 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  we noted that 13 percent of therapy was billed improperly, and an additional 4 percent was not 
documented in the patients medical records. 
Our review was conducted in accordance with the Quality Standards for Inspections issued by 
the Presidents Council on Integrity and Efficiency. 
9 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  F I N D I N G S  
Medicare reimbursed SNFs almost $1 billion for improperly 
billed physical and occupational therapy 
Assuming that March 1998 is a representative month of the 12-month period ending 

June 30, 1998, Medicare reimbursed SNFs approximately $955 million for 49 million units of

improperly billed physical and occupational therapy.4  Of the $955 million for improperly billed

therapy, approximately $882 million was for Part A therapy and $74 million for Part B

therapy.5  Medicare SNF patients received a total of 292 million units of therapy.  The

following table describes the cost to Medicare and the major reasons why the therapy was

billed improperly:

Cost of Unnecessary Units 
by Therapy 
Major Reasons 
Physical  Occupational 
Patients received medically unnecessary therapy  $360 million  $451 million 
Patients received therapy from staff with 
$100 million  $ 45 million 
inappropriate skill 
Source: Office of Evaluation and Inspections, 1999 
SNFs received approximately $811 million for medically unnecessary therapy 
Of the $955 million of improperly billed therapy, approximately 85 percent was billed for 
therapy that was not medically necessary.  Therapy was not necessary because, among other 
reasons, therapy was not based on the patients medical condition and some SNFs billed 
medical record documentation as skilled therapy time. 
The SNFs routinely received payment for therapy that was not tailored to their patients 
medical needs.  This included situations where the patients already had achieved the treatment 
goals, the treatment goals were unattainable, therapy was not discontinued at the appropriate 
time, and therapists billed routine maintenance services as skilled therapy.  Several patients 
received therapy B.I.D., or twice a day, regardless of medical necessity.  The B.I.D. pattern 
was a standard practice at several SNFs, especially if the therapy contractor was part of a large 
4This reimbursement was the amount SNFs charged on the cost reports multiplied by the 
facility-specific cost-to-charge ratio for physical or occupational therapy. 
5The totals do not total $955 million due to rounding. 
10 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  national therapy company rather than a local therapy contractor or rather than therapists 
employed by the SNF. 
A few SNFs billed the documentation of medical records as if it were a reimbursable skilled 
service.  The therapy records at one sampled SNF routinely included checked boxes on 
patients therapy grids for documentation completed during therapy sessions.  In another 
facility, an assistant charged Medicare one unit (15 minutes) as skilled therapy to document 
that the patient had refused therapy one afternoon.  In fact, the patient continued to refuse 
therapy for 21 additional sessions, and the SNF continued to charge Medicare one unit for 
documentation each time the patient refused therapy. 
SNFs received approximately $145 million for therapy provided by staff with 
inappropriate skill 
Medicare reimbursed SNFs for improperly billed physical and occupational therapy provided 
by staff who did not have the appropriate skill for the patients medical condition.  Examples 
include (1) occupational therapists providing therapy that physical therapists should have 
provided, (2) therapists providing therapy that assistants should have provided, and (3) both 
physical therapist assistants and occupational therapy assistants working beyond the scope of 
their State licenses. 
Nationally, Medicare reimbursed SNFs almost $331 million for 
undocumented physical and occupational therapy 
Approximately 13 million units of therapy were deemed undocumented when (1) the number of 
units on the therapy ledgers did not match the units billed to Medicare, (2) necessity of therapy 
was not documented in the patients medical records, and (3) medical reviewers could not 
determine who provided therapy to the patients. 
Some SNFs had such poor documentation that it was virtually impossible to verify the total 
units of therapy that patients received within a week.  Therapy ledgers and grids often did not 
include the number of units spent with patients in individual sessions.  The grids had lists of 
interventions with checked boxes only.  Because of this, medical reviewers could not determine 
the medical necessity of the sessions that (1) had identical interventions and checked boxes, (2) 
had wide variations in the total units for therapy on the Medicare bill, and (3) lacked narrative 
explanations of changes in the patients treatment to justify the variation in units.  Also, some 
ledgers were missing or were not available due to changes in SNF ownership. 
Medical reviewers could not use some ledgers or therapy grids to determine who provided 
therapy because the names, initials, and/or certification levels were missing.  These data are 
critical in determining if patients had received treatment from staff with skills appropriate to 
their medical needs. 
11 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  SNF mark-up for occupational therapy exceeded $342 million 
Because salary equivalency guidelines had not been implemented for occupational therapy until 
April 1998, Medicare paid SNFs as much as 86 percent more than their contractors charged 
them for each unit of therapy.  The average reimbursement for one unit (15 minutes) of 
occupational therapy was $22.33 (as shown in appendix A) with a range of slightly less than $3 
to almost $39.  The practice of marking-up contractor costs is routine, but the percentage of 
mark-up varies from as little as 4 percent to as much as 86 percent.  This, at least in part, 
explains the extreme variations in reimbursement per unit. 
Under the new prospective payment system, SNFs are reimbursed based on per diem rates for 
all costs related to SNF services under Part A.  The HCFA calculated the per diem rates from 
aggregated national data including allowable costs from SNF cost reports in fiscal year 1995, 
patient case mix, and geographic variation in wages.  Under the SNF prospective payment 
system, SNFs are paid based on the patients assessment upon admission and classification into 
one of the Resource Utilization Groups.  Since salary equivalency guidelines for occupational 
therapy did not apply to costs included on the fiscal year 1995 cost reports, SNF mark-up for 
occupational therapy is included in the Federal per diem rates.  The mark-up between 
occupational therapy contractor invoices and SNFs reimbursement for therapy claimed on the 
Medicare cost reports exceeded $342 million for cost report periods ending prior to April 1, 
1998 (assuming March 1998 is a representative month of the 12-month period ending March 
31, 1998).6 
6We excluded the therapy units that were unnecessary and undocumented, prior to calculating the 
amount Medicare reimbursed SNFs for the mark-up. 
12 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  C O N C L U S I O N   A N D   R E C O M M E N D A T I O N  
As noted in our methodology, the period we reviewed was prior to the implementation of the 
SNF prospective payment system, the salary equivalency guidelines for occupational therapy, 
and the cap for Part B therapy.  Our findings concerning the cost of unnecessary and 
undocumented therapy, as well as the mark-ups on occupational therapy, were not identified 
prior to the implementation of the prospective payment system.  This has resulted in inflated 
base year costs upon which both the Federal and the facility-specific rates were based. 
Therefore, should any consideration be given to modifying Federal Rates or re-basing the 
prospective payment system, we believe that the inappropriate costs identified in this report 
should be considered. 
In addition to the implications for modifying rates under the prospective payment system, our 
findings have implications for the need to assure that therapy services are medically 
appropriate.  Under the new payment system, patients may continue to receive unnecessary 
(and potentially harmful) therapy and be placed in upcoded Resource Utilization Groups.  An 
additional financial incentive may be for facilities to underutilize therapy services which would 
deprive patients of needed rehabilitation services.  Similarly, medical appropriateness will 
continue to be an issue under Part B with possible overutilization for patients who do not need 
therapy and underutilization for patients whose therapy needs exceed the cap.  Therefore, we 
recommend: 
HCFA should adequately fund Medicare contractors to perform medical reviews of 
therapy. 
AGENCY RESPONSE 
We received comments on the draft report from the Health Care Financing Administration. 
The agency concurred with the reports conclusions.  The Health Care Financing 
Administration believes that the recently implemented prospective payment system for skilled 
nursing facilities has helped to eliminate some incentives to provide inappropriate or 
unnecessary therapy.  The agency will continue to aggressively monitor the potential impact on 
the access and quality of care of therapy for Medicare beneficiaries. 
The full text of the Health Care Financing Administrations comments appears in appendix C. 
13 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX A 
Average Therapy Reimbursement

The following table shows the average (mean) reimbursement per 15-minute therapy 
intervention.  While the average reimbursement for occupational therapy appears to be higher 
than for physical therapy, this difference, based on a T-test, is not statistically significant at the 
95 percent (or even 90 percent) confidence level.  The statistics in this table are limited to 
therapy activities.  We excluded both therapy evaluations,7 which sometimes were reimbursed 
at a higher rate, and therapy reevaluations,8 which sometimes were reimbursed at a lower rate. 
REIMBURSEMENT PER 15-MINUTE THERAPY INTERVENTION 
95 percent confidence interval 
Average (mean) reimbursement 
Therapy Type 
per 15-minute therapy intervention 
Lower  Upper 
Physical therapy  $16.74  $13.95  $19.53 
Occupational therapy  $22.33  $14.72  $29.93 
Source: Office of Evaluation and Inspections, 1999 
7An initial examination when the therapist gathers patient data and makes clinical judgments to 
establish the treatment plan. [Source: American Physical Therapy Associations Guide to Physical 
Therapist Practice (1998)] 
8A follow-up examination when the therapist updates the patients status because of new clinical 
indications, patients failure to respond to planned therapeutic interventions, or patients failure to progress 
from baseline data. [Source: American Physical Therapy Associations Guide to Physical Therapist 
Practice (1998)] 
14 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX B 
Confidence Intervals for Selected Statistics

The following tables show the point estimates and 95 percent confidence intervals for selected 
statistics, in the order that they appear in the report.  These calculations account for all levels 
of clustering and stratification as described in the methodology. 
Point  95 Percent 
Statistic 
Estimate  Confidence Interval 
Amount Medicare reimbursed SNFs for physical and 
$490 million  $375 million - $606 million 
occupational therapy that was provided during March 1998 
Amount Medicare reimbursed SNFs for physical and 
occupational therapy that was provided for a 12-month period  $5.8 billion  ** 
ending June 30, 1998 
Number of physical and occupational therapy units provided 
25 million  16 million - 34 million 
Medicare SNF patients during March 1998 
Number of physical and occupational therapy units provided 
Medicare SNF patients for a 12-month period ending  292 million  ** 
June 30, 1998 
Amount Medicare reimbursed SNFs for improperly billed 
physical and occupational therapy that was provided during  $81 million  $44 million - $119 million 
March 1998 
Amount Medicare reimbursed SNFs for improperly billed 
physical and occupational therapy that was provided for a  $955 million  ** 
12-month period ending June 30, 1998 
Number of improperly billed physical and occupational 
therapy units provided Medicare SNF patients during  4.2 million  2.3 million - 6.0 million 
March 1998 
Number of improperly billed physical and occupational 
therapy units provided Medicare SNF patients for a  49 million  ** 
12-month period ending June 30, 1998 
Number of undocumented units provided Medicare SNF 
1.1 million  0.7 million - 1.5 million 
patients during March 1998 
Number of undocumented units provided Medicare SNF 
13 million  ** 
patients for a 12-month period ending June 30, 1998 
15 
Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX B 
Point  95 Percent Confidence 
Statistic 
Estimate  Interval 
Amount Medicare reimbursed SNFs for undocumented 
physical and occupational therapy that was provided during  $28 million  $19 million - $37 million 
March 1998 
Amount Medicare reimbursed SNFs for undocumented 
physical and occupational therapy that was provided for a  $331 million  ** 
12-month period ending June 30, 1998 
Amount Medicare reimbursed SNFs for mark-up of 
$29 million  $7 million - $51 million 
occupational therapy that was provided during March 1998 
Amount Medicare reimbursed SNFs for mark-up of 
occupational therapy that was provided for a 12-month period  $342 million  ** 
ending March 31, 1998 
Source: Office of Evaluation and Inspections, 1999 
**NOTE:	 These estimated projections from March 1998 to a 12-month period are based on the assumption 
that March 1998 is a typical month.  We tested this assumption by examining SNF Medicare 
charges for physical and occupational therapy.  For example, the SNFs submitted $685 million in 
physical and occupational therapy charges during March 1998 and $7.85 billion during the 12 
months ending March 31, 1998.  This ratio ($685 million/$7.85 billion) is approximately equivalent 
to the ratio (31/365) that we used in projecting to a 12-month period.  Because our sample was 
limited to March 1998, we are unable to calculate 95 percent confidence intervals for these 12-
month estimates. 
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Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX C 
Agency Comments

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Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX C 
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Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122  APPENDIX C 
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Cost of Improperly Billed Physical/Occupational Therapy  OEI-09-97-00122