Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare Payments for Psychiatric 
Services in Nursing Homes: 
A Follow-up 
January 2001 
OEI-02-99-00140  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 New York Regional Office prepared this report under the direction of John I. Molnar, 
Regional Inspector General, and Renee C. Dunn, Deputy Regional Inspector General.  Principal 
OEI staff included: 
REGION  HEADQUARTERS 
Demetra Arapakos, Project Leader
 Bambi Straw, Program Specialist

Patricia Banta 
 Brian Ritchie, Director Technical Support

Lucille Cop, RN
 Scott Horning, Technical Support Staff

Miriam Gareau
 Barbara Tedesco, Technical Support Staff

To obtain copies of this report, please call the New York Regional Office at (212) 264-2000. 
Reports are also available on the World Wide Web at our home page address: 
http://www.hhs.gov/oig/oei  E X E C U T I V E   S U M M A R Y  
PURPOSE 
To assess the appropriateness of Medicare Part B payments for psychiatric services in 
nursing homes. 
BACKGROUND 
This inspection, a follow-up to an Office of Inspector General report issued in May 1996 
entitled Mental Health Services in Nursing Facilities (OEI-02-91-00860), was 
conducted to determine what changes, if any, have occurred with Medicare reimbursement 
for psychiatric services in nursing homes.  In the earlier report, the Inspector General 
found that nearly half of all Medicare psychiatric services in nursing facilities were either 
medically unnecessary (32 percent) or questionable (16 percent).  The report also 
identified inadequate utilization guidelines and a lack of carrier policies and screens 
specific to nursing facilities. 
The Nursing Home Reform Act of 1987 mandates that each nursing home resident have a 
comprehensive initial and periodic assessment using a standard form called the Minimum 
Data Set, which includes a mental health evaluation and establishes the need for 
psychiatric services.  These services include initial testing and evaluation, individual 
psychotherapy, pharmacological management, and group therapy.  Claims for psychiatric 
services are processed and paid for by Medicare carriers that contract with the Health 
Care Financing Administration.  Medicare payments for psychiatric services in nursing 
homes totaled approximately $211 million in 1998 and $194 million in 1999. 
Using a stratified random sample of 450 nursing home psychiatric services provided in the 
first 6 months of 1999, we combined 3 methods for this inspection: a medical record 
review, a beneficiary billing history review, and an analysis of carrier policies. 
FINDINGS 
Over one third of Medicare payments for psychiatric services in nursing homes 
are inappropriate 
Our review found that 27 percent of psychiatric services provided in nursing homes are 
i 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  medically unnecessary.  These services may represent as much as $22.6 million of 
inappropriate payments made in 1999 for the total Medicare population.  More than half 
of unnecessary services are provided to individuals whose cognitive limitations make them 
unable to benefit from the psychiatric intervention, and about half have an inappropriate 
frequency and/or duration.  Additionally, many medically unnecessary services do not 
appear to stabilize or improve patients conditions. 
Additionally, we found that 9 percent of services are lacking any psychiatric 
documentation.  These services may represent as much as $8.2 million of inappropriate 
payments made in 1999 for the total Medicare population.  These are services for which 
there is no psychiatric documentation in the patients nursing home records.  Lastly, 
another 3 percent of services are questionable which may represent as much as $1.8 
million in inappropriate payments made in 1999 for the total Medicare population.  Some 
of these are services with incomplete documentation, while others are questionable 
because of the patients cognitive function. 
Psychological testing is the most problematic of the nursing home services 
reviewed 
More than one third of psychological tests (39 percent) are medically unnecessary.  These 
tests are often either too long, too frequent, or are not needed by the patient.  Also, nearly 
one third of psychological tests being billed to HCFA under the testing code 96100 use 
instruments that our medical reviewer considers questionable.  These are mostly 
questionnaires that are self-administered with no special scoring or need for professional 
interpretation. 
Most carrier policies now specifically address psychiatric services in nursing 
homes; however, utilization guidelines are inconsistent and unclear 
Since the prior Office of Inspector General study in 1995, more carriers have developed 
specific policies for psychiatric services provided in nursing homes.  However, these 
policies are not always consistent or precise.  Reimbursement guidelines are often broad; 
they do not clearly address appropriate diagnosis codes, treatment protocols, and 
parameters for frequency and duration of services.  Also, some policies include specific 
examples of testing instruments while others do not.  Lastly, carrier policies specifically 
address the Minimum Data Set for individual psychotherapy services only. 
RECOMMENDATIONS 
Since the first Office of Inspector General report was issued, Medicare continues to pay 
ii 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  for some inappropriate nursing home psychiatric services. 
In order to address the factors identified in this report that lead to inappropriate 
reimbursement, we recommend that the billing process for psychiatric services in 
nursing homes be strengthened. 
The Health Care Financing Administration may want to consider the following options: 
C  Work with carriers to develop guidelines for the appropriate frequency and 
duration of psychiatric services. 
C  Work with carriers and mental health providers to identify the specific instruments 
that can be appropriately billed as psychological testing. 
C	 Encourage carriers to take advantage of the Minimum Data Set, particularly its 
assessment of patient cognitive level, by using it to assess the appropriateness of 
reimbursement for psychiatric services. 
We believe that implementing these recommendations would result in potential savings of 
as much as $30 million a year. 
Comments 
We received comments on the draft report from the Health Care Financing Administration 
and they concur with our recommendations.  Specifically, they will share our report with 
contractors and the carrier clinical workgroup on psychiatric services and work with them 
to strengthen the billing process for psychiatric services in nursing homes.  The Health 
Care Financing Administrations comments are in Appendix D. 
iii 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  T A B L E   O F   C O N T E N T S  
PAGE

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

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

FINDINGS 
Inappropriate payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Problematic psychological testing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Carrier policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

APPENDICES

A: Confidence intervals for key variables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

B: Confidence intervals for dollar projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

C: Non-respondent analysis  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

D: Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

iv 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  I N T R O D U C T I O N  
PURPOSE 
To assess the appropriateness of Medicare Part B payments for psychiatric services in 
nursing homes. 
BACKGROUND 
This inspection, a follow-up to an Office of Inspector General (OIG) report issued in May 
1996 entitled Mental Health Services in Nursing Facilities (OEI-02-91-00860), was 
conducted to determine what changes, if any, have occurred with Medicare reimbursement 
for psychiatric services in nursing homes.  In the earlier report, the Inspector General 
found that nearly half of all Medicare psychiatric services in nursing facilities were either 
medically unnecessary (32 percent) or questionable (16 percent).  The report also 
identified several vulnerabilities in billings for these services, including inadequate 
utilization guidelines and a lack of carrier policies and screens specific to nursing homes. 
The first OIG report also raised the concern that some nursing home residents may not be 
receiving the mental health services they need.  While this continues to be a concern, an 
assessment of whether nursing home residents are receiving all needed mental health 
services is outside the scope of this study. 
Mental Illness in the Elderly 
As with the general population, older adults may have any of several mental disorders. 
The most prevalent disorders among the elderly include Alzheimers disease and other 
dementias, delirium, depression, cognitive complications of neurologic disorders (such as 
strokes), and anxiety disorders.  A 1999 article in The American Journal of Geriatric 
Psychiatry entitled The Impact of OBRA 87 on Psychiatric Services in Nursing Homes 
reports that the prevalence of mental illness among nursing home residents is particularly 
high, where two of three residents have diagnosable mental disorders and one fourth have 
depression.  Among nursing home residents, mental illness can complicate other medical 
illnesses and interfere with nursing and other health care.  A variety of psychiatric services 
are available to treat mental disorders, including individual psychotherapy, group 
psychotherapy, and pharmacologic management. 
1 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Nursing Home Reform Act 
The comprehensive Nursing Home Reform Act (PL 100-203), enacted with the Omnibus 
Budget Reconciliation Act (OBRA) of 1987, expanded the requirements that nursing 
facilities had to meet for Medicare certification.  The Nursing Home Reform Act requires 
pre-admission screening and annual resident reviews (PASARR) to determine: whether 
patients have a mental illness or mental retardation; whether they need active treatment; 
whether they need the level of nursing care provided by a nursing home; and whether the 
nursing facility can provide these needed services.  Beyond the initial review, these 
reviews do not need to occur annually unless there is a significant change in the physical 
or mental condition of a resident who is mentally ill or retarded. The Act also requires 
that residents be given a full range of services to address their psycho-social needs and 
behavioral problems. 
The Nursing Home Reform Act also mandates that each nursing home resident have a 
comprehensive initial and periodic assessment using a standard form called the Minimum 
Data Set (MDS).  The resident assessment addresses cognitive patterns, mood and 
behavior patterns, psycho-social well-being, and special treatments and procedures.  A 
team of facility-based staff, together with the attending or consulting physician, reviews 
the assessment and develops a Resident Assessment Protocol (RAP).  The RAP summary 
addresses 18 potential problem areas, including delirium, cognitive loss, communication, 
psycho-social well-being, mood state, behavioral symptoms, and psychotropic drug use. 
The resident assessment should be used to support the need for psychiatric services. 
Medicare Coverage of Psychiatric Services 
Section 1862 (a)(1)(A) of the Social Security Act states that all Medicare Part B services, 
including psychiatric services, must be reasonable and necessary for the diagnosis or 
treatment of an illness or injury or to improve the functioning of a malformed body 
member.  Payment is generally prohibited for medical services that are only for 
prevention, palliation, research, or experimentation. 
Psychiatric services are classified into 1 of 50 different codes in the Common Procedure 
Coding System HCFA uses for billing.  They include initial testing and evaluation, 
individual psychotherapy, pharmacological management, and group therapy.  Many codes 
specify the length of time the service should be provided and the place of service. 
The types of provider billing for psychiatric services have changed over the past several 
years.  In 1990, the Medicare Part B psychiatric benefit was expanded to allow clinical 
psychologists and certified social workers, as well as psychiatrists, to bill for psychiatric 
services.  However, beginning in 1999, certified social workers are no longer allowed to 
bill for psychiatric services in skilled nursing facilities. 
2 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Medicare Carriers 
Claims for psychiatric services are processed and paid for by Medicare carriers that 
contract with the Health Care Financing Administration (HCFA).  While all carriers must 
follow basic Medicare guidelines, each develops its own policy for screening and payment 
purposes.  Additionally, they develop specific medical criteria which must be met in order 
for the service to be considered necessary.  Carrier policies generally require that 
documentation exist on the patients capacity to participate in and benefit from any 
therapy being provided.  Carriers generally consider psychiatric services to be 
inappropriate if they are medically unnecessary, if they are not documented in the patients 
medical records, or if they do not meet coverage guidelines. 
Trends in Medicare Reimbursement 
Following the expansion of the Medicare Part B psychiatric benefit in 1990, Medicare 
payments for psychiatric services in nursing facilities increased significantly in the early 
1990s.  More recently, Medicare reimbursement for these services declined from 
approximately $221 million in 1996 to approximately $207 million in 1997, but increased 
again to around $211 million in 1998. In 1999, Medicare payments for psychiatric services 
in nursing homes totaled approximately $194 million. 
A few top services account for the majority of Medicare allowances for nursing home 
psychiatric services.  They include individual psychotherapy, group psychotherapy, 
diagnostic interview, pharmacologic management, and psychological testing. 
Related OIG Work 
The Office of Inspector General has completed other studies related to psychiatric 
services.  For example, one series of reports was recently completed on services provided 
in community mental health centers and outpatient departments of both acute care and 
psychiatric hospitals.  Also, one OIG study is currently being conducted which examines 
Medicare Part B psychiatric services provided in physicians offices, as well as other 
settings outside of nursing homes.  Lastly, another study is looking at mental health 
services provided to Medicaid nursing home residents between the ages of 22 and 64. 
METHODOLOGY 
We combined three methods for this inspection: a medical record review, a beneficiary 
billing history review, and an analysis of carrier policies. 
3 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Sample 
We limited our sample to five of the top seven codes for nursing home psychiatric 
services.  These five codes are: 90818 (individual psychotherapy, 45 minutes); 90816 
(individual psychotherapy, 25 minutes); 90817 (individual psychotherapy with medical 
evaluation and management); 90853 (group psychotherapy); and 96100 (psychological 
testing).  These five codes accounted for the large majority (91 percent) of all Medicare 
Part B nursing home psychiatric payments in 1998.  They were also identified in the first 
OIG study as being among the most problematic codes. 
From a 1 percent sample of the National Claims History File, we selected a national 
stratified random sample of 450 line items from the first 6 months of 1999.  We stratified 
these line items into the following 3 strata: 161 individual psychotherapy services; 143 
group psychotherapy services; and 146 psychological testing services, which is the 
universe of psychological testing services provided in the one percent file during our 
sampling time frame.  We limited our sample to place-of-service codes 31 (nursing 
facility) and 32 (skilled nursing facility). 
Medical record review 
For each of the line items in our sample, we identified the beneficiary and the nursing

facility where the service was provided.  The 450 line items in our sample were provided

to 274 different beneficiaries in 251 different nursing homes.  From each of these nursing

homes, we requested the beneficiarys medical records, including any psychiatric

assessments.  We collected records between January and April 2000. 

We received a response for 365 services, for an overall response rate of 81 percent (see

Appendix C for a non-respondent analysis).  Of these 365: 

C  for 356 services, the nursing home provided a medical record; and

C  for 9 services, the nursing home indicated they had no record of the patient.

We used a medical record review contractor to review the medical records.  We worked

with the contractor and with one of the carrier medical directors to develop a screening

instrument for the initial screening of the records.  The screening instrument was based

upon this carriers policies for psychiatric services and Medicare coverage guidelines.  The

American Association for Geriatric Psychiatry (AAGP) also commented on the draft

screening instrument.  A Masters level psychologist then screened the records and passed

any which failed the initial review to a psychiatrist or Ph.D. psychologist, who then made a

final determination on medical necessity.  (See Appendices A and B for confidence

intervals on key estimates and dollar projections). 

4 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Many of the initial medical records from nursing homes did not include any specific 
psychiatric documentation.  In all of these cases, we called the nursing home and 
specifically asked for documentation on the psychiatric service(s) provided.  Even after 
this follow-up, we did not receive mental health documentation for all of the services in 
our sample.  For these cases, the medical review contractor was not always able to make a 
determination on the medical necessity of the service based solely on the information 
provided in the medical record. 
Beneficiary billing history review 
For each of the beneficiaries identified in our sample, we obtained their complete Medicare 
psychiatric billing history for the sampling time frame of the first 6 months of 1999.  Using 
a structured review sheet, we reviewed the histories to determine any additional 
psychiatric services being provided, place of service, and the types of providers rendering 
the service(s).  Since we did not sample by beneficiary, the results of this billing history 
review cannot be generalized to the entire Medicare population. 
Analysis of carrier policies 
Lastly, we requested written policies for nursing home psychiatric services from all of the 
32 carriers identified in our sample, which resulted in 17 different policies.  Using a 
structured review sheet, we evaluated each of the policies to determine what coverage 
guidelines and medical criteria carriers use when reimbursing for psychiatric services. 
We conducted this inspection in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
5 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  F I N D I N G S
Over one third of Medicare payments for psychiatric services
in nursing homes are inappropriate
.
Our review found that 39 percent of nursing home psychiatric services are either medically
unnecessary, have no mental health documentation, or are questionable.  
See Chart 1 below.
Chart 1 
Nursing Home Psychiatric Services: 
Medical Record Review
                                                    
Source: medical record review 
Twenty-seven
percent of services are medically unnecessary
Twenty-seven percent of psychiatric services provided in nursing homes are medically
unnecessary.  These services may have represented as much as $22.6 million in
inappropriate payments in 1999 for the total Medicare population.  (This estimate is 
6
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140 based on our sample from the first 6 months of 1999 which projected $11.3 million in 
inappropriate payments.  It also assumes similar billing activity during the second half of 
1999.) 
Our review found two main keys that determine a lack of medical necessity: the patients 
cognitive level and the frequency and/or duration of the service.  First, more than half of 
all unnecessary services are provided to individuals who have limited cognitive ability and 
therefore may not benefit from the psychiatric intervention.  Services are being given to 
patients with, for example, advanced dementia, severe agitation, delusions, and paranoia. 
In some cases, the patients thinking is so disordered that he or she is not able to 
effectively communicate with the provider of the service.  In one example, a patient with 
advanced dementia and depressive psychosis, who was unable to communicate verbally or 
non-verbally, was reportedly receiving full length individual psychotherapy sessions twice 
a week. 
Second, half of all unnecessary services have an inappropriate frequency and/or duration. 
Inappropriate frequency means that a service is provided too many times.  A typical 
example of this is the same type of service (such as individual or group therapy) being 
repeated more than once on the same day.  Inappropriate duration means either the length 
of the service or the course of the treatment is too long.  In some instances, the therapy 
session is longer than the patients attention span.  In other instances, patients are 
receiving individual psychotherapy for more than 6 months without any established need 
for the extended length of treatment. 
In addition to the reasons discussed above, many medically unnecessary psychiatric 
services do not appear to stabilize or improve patients conditions.  One third of 
unnecessary services are being provided to patients who do not have the potential to 
benefit functionally from the psychiatric intervention: e.g., the intervention is not 
maintaining stability, preventing further decline, ameliorating behavioral disturbances, or 
relieving distressing symptoms.  Further, there is often no reasonable expectation that the 
patient is capable of making a change as a result of the service and no evidence that the 
therapeutic goal has or can be achieved. 
An additional nine percent of services have no psychiatric documentation 
Nine percent of all services lack any psychiatric documentation.  These are services for 
which there is no documentation in the patients nursing home record for the psychiatric 
intervention payed for by Medicare.  These services may represent as much as $8.2 million 
in payment that were inappropriately made in 1999 for the total Medicare population. 
(This estimate is based on our sample from the first 6 months of 1999 which projected 
$4.1 million in inappropriate payments.  It also assumes billing activity was similar during 
both the first and second half of 1999.) 
7 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Even in those clinical records that do have psychiatric documentation, it is not always 
complete.  This documentation is often missing treatment goals, patient response and 
progress, the amount of time spent with the provider, or the estimated duration of 
treatment and/or number of sessions ordered. 
Another three percent of services are medically questionable 
Three percent of psychiatric services are medically questionable.  This represents $1.8 
million that Medicare may have inappropriately paid in 1999.  (This estimate is based on 
our sample which projected $900,00 in questionable payments for the first 6 months of 
1999.  It also assumes billing activity was similar during both the first and second half of 
1999.)  Some of these are services for which our reviewer was unable to make a final 
determination on medical necessity due to incomplete documentation, while others are 
questionable because of the patients cognitive function. 
Psychological testing is the most problematic of the nursing 
home psychiatric services reviewed 
More than one third of psychological tests are medically unnecessary 
Thirty-nine percent of testing is medically unnecessary.  Psychological tests are used as an 
aid in the diagnosis and evaluation of mental illness or neuropsychological abnormalities. 
The testing code we reviewed, 96100, includes the psycho-diagnostic assessment of 
personality, psycho-pathology, emotionality, and intellectual abilities, with accompanying 
interpretation and report.  Of the five codes in our sample, psychological testing is the 
only one which is generally provided by a psychologist rather than by a psychiatrist and is 
the only service that can be billed for multiple hours in the same day. 
Excessive length and frequency and the lack of patient need are the main 
problems with psychological testing 
Psychological tests are often either too long or too frequent.  A test is considered too long 
when its length is not appropriate for the nature of the referral or for the patients level of 
impairment, motivation, endurance, or ability to cooperate.  Many of the tests we 
reviewed lasted 6 or more hours or were given to patients who lacked the ability to 
undergo extensive testing.  Furthermore, based on carrier policies, our reviewer 
considered a test too frequent when it is administered within 1 year of a previous test and 
the patient has not experienced a suspected change in mental illness or neuropsychological 
abnormality.  In one case, a provider appears to routinely administer psychological testing 
to patients in a particular nursing home every 3 months. 
8 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Additionally, testing is not always needed by the patient.  First, the patient may be unable 
to benefit from the testing due to memory impairment, confusion, delusions, or dementia. 
Second, a clinical interview rather than a psychological test may be sufficient to assess the 
patient.  Lastly, some testing is not being used to diagnose a suspected mental illness or to 
evaluate change in an already established mental illness, both of which are required by 
Medicare. 
Use of questionable testing instruments is common 
One third of psychological tests being billed to HCFA under the testing code 96100 use 
instruments that our medical reviewer considers questionable.  These instruments are 
questionnaires that are often self-administered with no special scoring or need for 
professional interpretation.  Often, the medical reviewer notes that these tests should have 
been billed as psychological evaluations, under code 90801, rather than as psychological 
testing. 
Our reviewer identified a number of such questionable instruments that are billed under 
code 96100.  These include the Geriatric Depression Scale, Templer Death Anxiety Exam, 
Abnormal Involuntary Movement Scale, and the Satisfaction with Life scale.  For 
example, the short form Geriatric Depression Scale includes 15 yes/no questions, such as 
Are you basically satisfied with your life? and Do you feel life is empty?  If patients 
answer yes to five or more of these questions, they may be considered depressed. 
Further, the Satisfaction with Life Scale asks patients to rate their agreement, on a scale 
from one to seven, with five statements that include, I am satisfied with life and If I 
could live my life over, I would change nothing.  The answers are then summed and a 
lower score indicates a possible need for psychiatric services. 
Most carrier policies now specifically address psychiatric 
services in nursing homes; however, utilization guidelines 
are inconsistent and unclear 
Carrier policies have improved since the prior OIG study 
Since the prior OIG study was completed in 1995, more carriers now have specific 
policies for psychiatric services provided in nursing homes.  In 1995, only three carrier 
policies directly addressed psychiatric services in nursing homes.  In comparison, most of 
the policies we reviewed (13 of 17) directly address these services.  Furthermore, 11 of 
the 13 policies have specific sections for individual or groups of psychiatric service codes. 
9 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Also, carrier policies now include more general information to guide reimbursement.  A 
majority provide a description for each of the codes in our sample.  Most additionally 
incorporate specific requirements for medical documentation.  For example, most require 
that patients have a treatment plan and that documentation of patients mental health 
symptoms be included in their medical records.  Lastly, most policies discuss place of 
service codes and the types of providers allowed to bill for psychiatric services, including 
explanations of incident to providers. 
However, utilization guidelines are not always precise 
Despite the improvements noted above, our review of carrier policies reveals a lack of 
consistency and clarity.  To begin with, a majority of policies do not provide a list of 
diagnosis codes that support the medical need for the services in our sample.  In some 
instances, the reimbursement guidelines offered are very broad.  For example, while most 
of the policies for group therapy provide a list of activities that cannot be billed under this 
code (such as socialization and recreational activities), only half offer a list of activities 
that can be appropriately billed under the group therapy code.  Policies are also vague on 
the duration and frequency of services. One policy states, The degree of functional 
impairment should be a factor in determining frequency and duration of the therapeutic 
services.  Claims submitted for an unusual frequency or duration ... may result in a delay ... 
or denial, but it does not offer additional guidelines on what constitutes unusual 
frequency or duration.  Also, only half of the policies call for justification of longer 
individual psychotherapy visits. 
As discussed in the previous finding, psychological testing was the most problematic of 
the codes in our sample and carrier policies for this code are particularly lacking in 
specificity and consistency.  Some policies include specific examples of appropriate testing 
instruments, while others do not.  The policies also do not always clearly address the 
number of hours that can be reasonably billed under the psychological testing code. 
Further, carrier policies differ on what is deemed appropriate.  For example, in one policy, 
the Beck Depression Inventory is listed as an acceptable test, while another policy 
specifically excludes this test. 
Lastly, carrier policies only specifically address the Minimum Data Set (MDS) for 
individual psychotherapy services.  All nursing home residents receive a comprehensive 
assessment using a form called the MDS.  The MDS includes an evaluation of their mental 
health status and should support their need for psychiatric services.  Carrier policies 
require that certain sections of the MDS relating to mental health status be filled out in a 
specific way in order to support the need for individual psychotherapy services. 
10 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  R E C O M M E N D A T I O N S  
Since the first Office of Inspector General report was issued, Medicare continues to pay 
for some inappropriate nursing home psychiatric services. 
In order to address the factors identified in this report that lead to inappropriate 
reimbursement, we recommend that the billing process for psychiatric services in 
nursing homes be strengthened. 
The Health Care Financing Administration may want to consider the following options: 
C  Work with carriers to develop guidelines for the appropriate frequency and 
duration of psychiatric services. 
C  Work with carriers and mental health providers to identify the specific instruments 
that can be appropriately billed as psychological testing. 
C	 Encourage carriers to take advantage of the Minimum Data Set, particularly its 
assessment of patient cognitive level, by using it to assess the appropriateness of 
reimbursement for psychiatric services. 
We believe that implementing these recommendations would result in potential savings of 
as much as $30 million a year. 
Comments 
We received comments on the draft report from the Health Care Financing Administration 
and they concur with our recommendations.  Specifically, they will share our report with 
contractors and the carrier clinical workgroup on psychiatric services and work with them 
to strengthen the billing process for psychiatric services in nursing homes.  The Health 
Care Financing Administrations comments are in Appendix D. 
11 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  APPENDIX A 
CONFIDENCE INTERVALS FOR KEY VARIABLES

We calculated confidence intervals for five key variables.  The point estimate and 95% confidence 
interval are given for each. 
CONFIDENCE 
KEY VARIABLE  POINT ESTIMATE  INTERVAL 
Medically unnecessary services  27%  +/- 7.2% 
Services with no mental health 
documentation  9%  +/- 4.8% 
Questionable services  3%  +/- 2.1% 
Medically necessary services  61%  +/- 7.8% 
Medically unnecessary
psychological testing  39%  +/- 9.1% 
12 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  APPENDIX B 
CONFIDENCE INTERVALS FOR DOLLAR PROJECTIONS 
We calculated confidence intervals for our dollar projections.  The projected total and 95% 
confidence interval are given for each of the following: 
CONFIDENCE 
KEY ESTIMATE  PROJECTED TOTAL  INTERVAL 
Medically unnecessary
services  $11,303,058.35  +/- $3,152,785.07 
Services with no mental 
health documentation  $  4,149,730.04  +/- $2,054,295.24 
Questionable services  $  920,814.33  +/- $780,994.88 
13 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  APPENDIX C 
NON-RESPONDENT ANALYSIS

We tested for the presence of any non-response bias in our medical record review.  For 
this analysis, a psychiatric service for which we did not receive a response is a non-
respondent. 
To test for non-response bias in our medical record review, we obtained information from 
a 1 percent file of the HCFAs National Claims History for all 450 line items in our 
sample.  Of the 450 services, we received a response for 365 services, for an overall 
response rate of 81 percent.  The following table illustrates the number of responses 
received and the response rate by strata. 
RESPONSES  RESPONSE 
STRATA  RECEIVED  RATE 
1 (Codes 90816, 90817, 90818)  125  78 % 
2 (Code 90853)  127  89 % 
3 (Code 96100)  113  77 % 
We analyzed 3 variables for the 450 services in our sample: gender, race, and place of 
service.  These categorical variables were tested using Chi-square with the appropriate 
degrees of freedom.  In order for the results to be statistically significant at the 95 percent 
confidence level, the Chi-square value must be higher than 3.84 with 1 degree of freedom. 
The results of this analysis are presented in Tables A, B, and C.  The Chi-square values 
given in the tables provide a test of the difference between the distribution of respondents 
and of non-respondents for the variable of interest.  Also provided in the tables are the 
response rates by the different values of the variables. 
Tables A, B, and C show no statistically significant differences between respondents and 
non-respondents for gender, race, and place of service.  Given the results of this analysis, 
we believe that the inspection findings fairly represent the appropriateness of Medicare 
reimbursement for psychiatric services in nursing homes. 
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Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  Table A 
GENDER BY RESPONSE 
Non-
Respondents  respondents  Total  Response rate 
Male  158  (43%)  31  (36%)  189  84 % 
Female  207  (57%)  54  (64%)  261  79 % 
Total  365  85  450  81 % 
Chi-square = 1.31  Degree of freedom = 1 
Table B 
RACE BY RESPONSE 
Non-
Respondents  respondents  Total*  Response rate 
White  280  (78%)  68  (81%)  348  80 % 
Other  80  (22%)  16  (19%)  96  83 % 
Total  360  84  444  81 % 
Chi-square = .405  Degree of freedom = 1  * No race reported for 6 services 
Table C 
PLACE OF SERVICE BY RESPONSE 
Non-
Respondents  respondents  Total  Response rate 
Nursing facility  185  (51%)  50  (59%)  235  79 % 
Skilled nursing
facility 
180  (49%)  35  (41%)  215  84 % 
Total  365  85  450  81 % 
Chi-square = 1.83  Degree of freedom = 1 
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Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  APPENDIX D 
In this appendix, we present in full the comments from the Health Care Financing Administration. 
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Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140  19 
Medicare Psychiatric Services in Nursing Homes  OEI-02-99-00140