The Centers for Medicare & Medicaid Services (CMS) Web site address referenced on 

page 1 and page 4 of the following report has changed. The new address is: 

http://www.cms.hhs.gov/TherapyServices/

 
""'ClS 

DEPARTMENT OF HEALTH &. HUMAN SERVICES	 Office of Inspector General 

":."410 Washington, D. C. 20201

MAY, i 1 2006 

TO:	 Leslie V. Norwalk


Deputy Administrator


Centers for Medicare & Medicaid Services


FROM: Stuart Wright 


Deputy Inspector General


for Evaluation and Inspections


SUBJECT:	 Physical Therapy Biled by Physicians 

In 2002, the Office of Inspector General (OIG) initiated work associated with Medicare 

payments for physical therapy. In October 2003, we reported interim results to your office 

detailing aberrant biling patterns by certain physicians and carrier efforts to target physicians 

physical therapy claims. Since the issuance of our 2003 memorandum, we have completed the 

results of our medical review of claims paid by Medicare in the first 6 months of 2002 and we 

have updated our claims data analysis of physicians who show aberrant biling patterns for 

physical therapy claims. 

Based on a simple random sample of 70 physical therapy line items biled by physicians and 

rendered in the first 6 months of2002, we found that 91 percent of physical therapy biled by 

physicians and allowed by Medicare during the first 6 months of 2002 did not meet program 

requirements, resulting in $136 milion in improper payments. In addition, we analyzed 

Medicare claims data from 2002 to 2004 and identified aberrances in physicians biling patterns 

and unusually high volumes of claims. Finally, based on our review, we identified a number of 

issues associated with physical therapy biled by physicians under the "incident to" rule. 

During the course of our review, the Centers for Medicare & Medicaid Services (CMS) took 

actions that addressed many of our findings. First, in November 2004, CMS issued a final rule to 

address the skil level of staff that provides physical therapy "incident to" physician services. 

Additionally, in May 2005, CMS issued a change request that clarifies CMS policy with respect 

to physical therapy services (Publication 100- , Transmittal 36, Change Request 3648). 

Finally, CMS recently posted provider education materials regarding physical therapy services 

on its Web site (ww.cms.hhs.gov/providers/therapyO. In light of these changes, we have 

decided not to issue a report that would include formal recommendations to CMS. Instead, we 

are transmitting this summary of our review in the event that the information wil be useful 

CMS' s review of the physical therapy benefit and future considerations of the "incident to" rule. 

BACKGROUND 

Physical therapy is the treatment of functional limitations to prevent the onset and/or slow the 

progression of physical impairments after an ilness or injury. Physical therapy includes: 

(1) examining patients with impairments, functional limitations, disabilities, or other healthrelated conditions to determine a diagnosis, prognosis, and intervention; (2) alleviating 
Page 2 – Leslie V. Norwalk 

impairments and functional limitations by designing, implementing, and modifying therapeutic 

interventions; and (3) preventing injury, impairment, functional limitation, and disability, 

including the promotion and maintenance of fitness, health, and quality of life.1 Common 

treatments performed in physicians’ offices include therapeutic procedures, manual therapy, 

electrical stimulation, and ultrasound therapy. 

Physical therapy billed directly by physicians represented approximately $158 million out of a 

total of approximately $528 million for physical therapy claims billed to the Part B carriers and 

allowed by Medicare in the first 6 months of 2002. Medicare allows physicians to submit claims 

for physical therapy that they do not perform personally, as long as the services are an “integral, 

although incidental, part of the physicians’ personal professional services in the course of 

diagnosis or treatment of an injury or illness.”2 The total allowed for physicians’ physical 

therapy claims has increased from $353 million in 2002 to $509 million in 2004, and the number 

of physicians who billed for more than $1 million in physical therapy has more than doubled, 

from 15 to 38 in the same 2-year period. 

General provisions of the Social Security Act (the Act) govern Medicare reimbursement of all 

services, including physical therapy. Section 1862(a)(1)(A) of the Act states that 

“. . . no payment may be made [under the Medicare title for services that] are not reasonable and 

necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a 

malformed body member.” 

Specific coverage requirements for physical therapy are in section 1861(p) of the Act, which 

requires that: 

• The patient must be under the care of a physician (a doctor of medicine, osteopathy, 

optometry, or podiatric medicine). 

• The services must be furnished under a plan of care. The plan of care indicates the type, 

amount, frequency, and duration of the services. 

• The plan of care must be recertified periodically by a physician. 

The implementing regulations at 42 CFR §§ 410.60 and 410.61 restate these coverage 

requirements and further specify that the plan of care must include the diagnosis and anticipated 

goals of the therapy that a physician must recertify every 30 days. Section 2218 of the Medicare 

Carriers Manual3 states that the plan of care must contain: 

• the patient’s significant past history; 

• patient’s diagnoses that require physical therapy; 

• related physician orders; 

• therapy goals and potential for achievement; 

1

 For a more complete definition of physical therapy, see American Physical Therapy Association, “Model Definition of Physical 

Therapy for State Practice Acts in the Guide to Physical Therapy Practice,” 1997, chapter 1, p. 2. 2

 Centers for Medicare & Medicaid Services, Medicare Carriers Manual, section 2050.1. 3

 Online Centers for Medicare & Medicaid Services Manual System, Publication 100-2, chapter 15, section 220.2.
Page 3 – Leslie V. Norwalk 

• any contraindications; 

• patient’s awareness and understanding of diagnoses, prognosis, treatment goals; and 

• when appropriate, the summary of treatment provided and results achieved during 

previous periods of physical therapy services. 

Section 1833(e) of the Act requires that providers furnish “such information as may be necessary 

in order to determine the amounts due” to receive Medicare payment. Related regulations at 

42 CFR §§ 411.15(k) and 424.5(a)(6) reflect these provisions of Federal law. 

Section 1861(s)(2)(A) of the Act provides for Medicare coverage of services and supplies 

furnished “incident to” the professional services of a physician. This section defines covered 

medical and other health services as “. . . services and supplies (including drugs and biologicals 

which are not usually self-administered by the patient) furnished as incident to a physician’s 

professional service, of kinds which are commonly furnished in physicians’ offices and are 

commonly either rendered without charge or included in the physicians’ bills.” The 

implementing regulations at 42 CFR §§ 410.10(b) and 410.26 restate this language. Section 

2050 of the Medicare Carriers Manual4 provides examples of services and supplies covered 

under the “incident to” rule. Examples of services include taking blood pressures and 

temperatures, giving injections, and changing dressings. Examples of supplies include gauze, 

ointments, bandages, and oxygen. 

The “incident to” rule allows physicians to bill for physical therapy performed by any 

nonphysician staff (including, but not limited to, licensed physical therapists). The rule allows 

physician reimbursement for physical therapy at the full physician fee schedule amount for 

physical therapy provided by nonphysician staff, if the services are: 

• commonly furnished in a physician’s office and are an integral, although incidental, part 

of the physician’s covered services; 

• included in a treatment plan for an injury or illness, where the physician personally 

performs the initial service and is involved actively in the course of treatment; and 

• furnished under the direct supervision of a physician.5 

Section 1862(a)(20) of the Act permits payment for therapy services furnished “incident to” a 

physician’s professional services only if the practitioner meets the standards and conditions that 

would apply to such therapy services if they were furnished by a therapist, with the exception of 

the licensing requirement. Under the “incident to” rule, licensed physical therapists need not 

perform the services, and Medicare currently does not require licensure or certification of staff 

that perform “incident to” physical therapy. However, in all other settings, including nursing 

homes, independently practicing physical therapists’ offices, and rehabilitation facilities, 

Medicare requires that only licensed physical therapists can render physical therapy. In addition, 

licensed physical therapist assistants, performing within their scope of practice, may render 

Medicare physical therapy under the direct supervision of a physical therapist. 

4 Ibid., sections 60.1-60.4. 5

 Direct supervision means that the physician must be present within the office suite and immediately available to render 

assistance in person, if necessary. Physicians do not need to be present in the room when the services are rendered. The incident

to” rule does not limit the number of services physicians can bill concurrently (42 CFR § 410.26). 
Page 4 – Leslie V. Norwalk 

Training, licensure, and direct billing for physical therapists 

Physical therapists are college-educated and State-licensed health care professionals. To qualify 

for a State physical therapy license, candidates must have completed a post-baccalaureate 

professional education program from an accredited institution.6 Generally, the education 

includes a 4-year college degree and at least 2 additional years of full-time study in physical 

therapy. Therapists must pass a State-administered national examination in order to practice. 

Additional requirements may vary according to individual State practice acts. For example, in 

California, physical therapists must complete an additional 18 weeks of clinical experience under 

the supervision of a licensed physical therapist to become licensed. 

To bill Medicare directly, physical therapists must be licensed by the State in which they practice 

and must adhere to Medicare’s coverage guidelines for outpatient physical therapy. Physical 

therapists can provide services in their own offices, a physician’s office, a nursing home, a 

hospital, or a rehabilitation facility. When physical therapy is rendered “incident to” physicians’ 

professional services, unlicensed individuals can render the services. 

In November 2004, CMS issued a final rule to address the skill level of staff that provides 

physical therapy “incident to” physicians’ services. CMS now requires that staff providing these 

services must meet the same standards and conditions as qualified therapists, with the exception 

of the licensing requirement. For example, unlicensed staff furnishing “incident to” physical 

therapy services must meet the existing training standards for licensed physical therapists. In 

May 2005, CMS issued a change request (Publication 100-02, Transmittal 34, Change Request 

3648) that reorganizes and clarifies current CMS policy with respect to physical therapy services. 

The change request includes: 

• clarification of conditions of coverage for physical therapy services; 

• descriptions of plan of care, certification, and recertification requirements; 

• description of reasonable and necessary requirements; 

• description of supervision requirements for physical therapy services; and 

• clarification of “incident to” physical therapy services. 

In addition, CMS has posted provider education materials regarding physical therapy services on 

its Web site (www.cms.hhs.gov/providers/therapy/). 

Previous Office of Inspector General Work 

OIG began reviewing Medicare rehabilitation therapy (including physical therapy) in 1994. Our 

evaluations, which have focused on therapy provided in physicians’ offices and nursing homes, 

found that significant compliance and quality of care problems persist, including overutilization, 

services rendered by unskilled staff, and services billed that do not meet Medicare’s coverage 

rules. 

6

 Graduates from 1960 to the present must have graduated from an institution accredited by the Commission on Accreditation in 

Physical Therapy Education (CAPTE). Beginning in 2002, the CAPTE limited its accreditation to only those programs offering a 

post-baccalaureate degree in physical therapy. 
Page 5 – Leslie V. Norwalk 

In 1994, OIG reported that approximately 78 percent of physical therapy rendered in physicians’ 

offices did not represent true physical therapy, as defined by Medicare.7 The services were 

mostly palliative in nature or did not represent the complexity required by Medicare’s coverage 

guidelines. 

In 1999, OIG issued two reports8 addressing therapy provided to Medicare beneficiaries in 

skilled nursing facilities during 1998, prior to implementation of the prospective payment 

system. We found that while most nursing home patients were proper candidates for physical 

and occupational therapy, approximately 13 percent of the services were billed improperly. 

These improper billings represented almost $1 billion reimbursed to nursing homes in 1998. 

In 2001, OIG issued two reports9 addressing physical therapy for nursing home patients. We 

found that the $1,500 financial limitation on therapy in 1999 did not prevent nursing home 

patients from receiving necessary and appropriate services. We also found that, despite the 

limitation, 14 percent of the therapy (representing $28 million during the first 6 months of 1999) 

was not medically necessary. 

METHODOLOGY 

We used multiple methodologies to accomplish our objectives: 

1. medical review of a random sample of claims, 

2. analysis of Medicare claims and billing patterns, and 

3. interviews with physicians in our sample and Medicare carrier personnel. 

For this review, we selected a simple random sample of 70 physical therapy line items billed by 

physicians and rendered in the first 6 months of 2002. We eliminated two line items from our 

sample because one line item was for respiratory therapy and a physician we could not locate 

submitted the other. The total allowed amount in our sample of 68 line items was $2,176.62. 

We selected the line items from the population of all line items billed by physicians with service 

dates between January 1 and June 30, 2002.10 We selected line items in order to project our 

findings to the total Medicare allowed amounts for physicians’ physical therapy during the 

sample timeframe. 

A line item is a single current procedural terminology (CPT) code within the claim; however, it 

may reflect multiple units of the same procedure. For example, CPT 97110 represents a 

therapeutic procedure, one or more areas, each 15 minutes. The line items ranged from one to 

7 Office of Inspector General, “Physical Therapy in Physicians’ Offices,” OEI-02-90-00590. 

8

 Office of Inspector General, “Physical and Occupational Therapy in Nursing Homes: Medical Necessity and Quality of Care”

(OEI-09-97-00121) and “Physical and Occupational Therapy in Nursing Homes: Cost of Improper Billings” (OEI-09-97-00122), 

both issued in August 1999. 9

 Office of Inspector General, “Physical, Occupational, and Speech Therapy for Medicare Nursing Home Patients: Medical 

Necessity, Cost, and Documentation Under the $1,500 Caps” (OEI-09-99-00560) and “Physical, Occupational, and Speech 

Therapy for Medicare Nursing Home Patients: Medical Necessity and Quality of Care Based on the Treatment Diagnosis” (OEI09-99-00563), both issued in August 2001. 10 The total population of line items is 5,669,575 representing $164.4 million.
Page 6 – Leslie V. Norwalk 

three units each (15 to 45 minutes). Each line item, regardless of the number of units, is 

weighted equally when we report aggregate claim percentages. We used the actual allowed 

amount for each line item, which reflects the number of units for each CPT code to estimate total 

allowed Medicare dollars. A claim may contain multiple line items with multiple units. 

Throughout this report, we use the term “claim” to refer to single physical therapy line items (a 

single CPT code). 

We requested complete medical records from the physicians for each beneficiary for the dates 

reflecting the physical therapy episode of care during which the sampled claim was rendered. In 

addition, we requested the Medicare billing records, physician and staff schedules for each day 

the beneficiary received medical services, and all licenses and credentials for the staff that 

provided services to the beneficiary. The episodes of care varied in length and occurred from 

July 2001 through December 2002. We made four requests for the records. We received 

54 valid responses (79 percent). The confidence intervals at the 95 percent level are in 

Appendix A. 

We contracted with licensed physical therapists to review each service according to a standard 

protocol, which was based on Medicare coverage guidelines and requirements. The review 

instrument solicited information about the beneficiary’s physical therapy as a whole and about 

the individual sampled service in particular. This enabled the reviewers to determine if the 

services billed to Medicare were covered and properly documented. This level of information 

would not generally be available to carriers unless they were to conduct a comprehensive 

medical review of a particular physician or patient.11 After completing their review, the 

contractors returned the completed instruments to us for data entry. We analyzed the medical 

review results using the statistical software packages SAS and SUDAAN. 

When we requested medical records from a physician and received no response after four 

requests, we considered the claim undocumented. This is consistent with 42 CFR 

§ 424.5(a)(6), which states that Medicare providers must furnish to the Medicare carriers 

sufficient information to determine whether or not payment is due. In our final written request to 

the physicians, we informed them that if we did not receive the requested documentation, we 

would not be able to confirm the appropriateness of payment, and we would refer the matter to 

the appropriate Medicare carrier for resolution. Carriers could collect overpayments from the 

physicians and determine if fraud or abuse investigations are warranted. 

Data Analysis and Interviews 

We analyzed all physicians’ Medicare Part B physical therapy claims for 2002, 2003, and 2004. 

We analyzed and reviewed physicians’ billing patterns. Our analysis included: 

• total allowed amounts for physicians’ physical therapy; 

• total allowed amounts for physical therapy per physician; 

• total allowed amounts for physical therapy per beneficiary; 

• geographic dispersion of Medicare’s physical therapy; and 

11 We recognize that our methodological approach differs from that of CMS’s Comprehensive Error Rate Testing (CERT) 

program. The CERT paid claims error rate is based on the review of a single claim, while our review elicited information about 

the beneficiaries’ episode of physical therapy care in addition to an evaluation of the individual sampled service. 
Page 7 – Leslie V. Norwalk 

• relationships among physicians, including physicians who share the same beneficiaries 

with other physicians. 

We interviewed, in person and by telephone, selected Medicare Part B carriers that have 

conducted reviews and investigations of physicians’ physical therapy claims. The carriers 

provided summaries of their work, including the total dollar amounts for therapy that was paid 

inappropriately. 

We conducted telephone interviews with 32 of the 54 physicians who responded to our medical 

record request and consented to an interview. We asked to what extent they personally render 

physical therapy and who on their staff render physical therapy. 

2002 MEDICAL REVIEW RESULTS 

Ninety-one percent of physical therapy billed by physicians and allowed by Medicare 

during the first 6 months of 2002 did not meet program requirements, resulting in $136 

million in improper payments. During the first 6 months of 2002, Medicare allowed 

approximately $158 million for physical therapy billed by physicians (Table 1). Based on our 

medical review, 26 percent of the therapy during this period was not medically necessary, and 

34 percent was undocumented. Fifty-seven percent of the services were furnished under 

incomplete plans of care or had no plan of care documented. All of the services that were not 

medically necessary also were furnished under incomplete plans of care or had no plans of care 

documented. 

Table 1: Improper Payments for Physical Therapy Billed by Physicians 

Type of error 

Sample Projected 

Services 

Allowed 

Amount 

Services 

(Percent) 

Allowed Amount 

(Millions) 

Not medically necessary 18 $455.65 26% $33.0 

Undocumented: 

 -Nonresponse 14 466.58 * *

 -Missing documentation 9 209.56 * * 

Total undocumented 23 $676.14 34% $49.0 

Incomplete/No plan of care: 

 -Incomplete plan of care 23 $802.40 34% $58.2

 -No plan of care 16 $397.50 24% $28.8 

Total incomplete/no plan of care 39 $1,199.90 57% $87.0 

Overlapping errors 

 (Both not medically necessary and incomplete/no plan 

of care) 

(18) ($455.65> <26%> <$33.0> 

Total 62 $1,876.04 91% $136.0 

Source: Medical Review of Physical Therapy Billed by Physicians January to June 2002. 

* Indicates the n for that cell is too small to reliably project. Totals may not equal the sum of individual rows due to 

rounding. 
Page 8 – Leslie V. Norwalk 

Not medically necessary. Pursuant to section 1862(a)(1)(A) of the Act, services that are not 

reasonable and necessary are not covered by Medicare. Twenty-six percent of the physical 

therapy billed by physicians and allowed in the first 6 months of 2002, totaling $33 million, did 

not meet Medicare criteria for medical necessity. Medical reviewers found that there were no 

objective bases for care, no identified outcomes, and/or no change in the patients’ conditions to 

justify ongoing therapy. 

Undocumented. Physicians did not provide substantiating documentation for approximately 

34 percent of the services billed to Medicare. Despite repeated requests, we did not receive the 

medical records related to 14 of the services in our sample. The physicians who billed for an 

additional nine of the services provided us with records that did not substantiate that any service 

was rendered on the date claimed. Based on these findings, we estimate that Medicare may have 

allowed approximately $49 million during the first 6 months of 2002 for undocumented physical 

therapy services billed by physicians. Although some cases of missing documentation may be 

attributable to billing errors (e.g., putting the wrong date on the claim form), others might 

represent services not rendered. In any case, claims for services that lack sufficient 

documentation to show that care was provided do not meet the requirements of section 

1833(e) of the Act. 

No plan/incomplete plan of care. Separate from the completely undocumented services 

previously discussed, 57 percent of physical therapy services were furnished without a plan of 

care or under an incomplete plan of care, contrary to the requirements of section 1861(p) of the 

Act. Approximately 24 percent of the services were furnished under no plan of care, and 

34 percent were furnished under incomplete plans.12 The incomplete plans did not contain 

information concerning the amount, frequency, or duration of the therapy, and/or physician 

certification. When projected to the national population of therapy billed by physicians, we 

estimate the services furnished without a plan of care or under an incomplete plan of care 

represent $87 million that Medicare allowed during the first 6 months of 2002. 

Overlapping errors. All of the services that were not medically necessary also were furnished 

under incomplete plans of care or had no plans of care documented. 

Because of inadequate documentation, reviewers had difficulty assessing the quality of the 

therapy services. Reviewers could not assess the quality of care for 33 of the 

54 records they reviewed. However, 12 records contained enough documentation for the 

reviewers to question the quality of care and note that some services “lacked an objective basis 

for care.” They also noted that massage therapy alone, which was the only service provided in 

three cases, is not considered “a skilled intervention or restorative care.” 

Most medical records did not indicate the skill level of the individual who rendered the therapy. 

The reviewers could not determine the skill level of the staff who rendered physical therapy in 

32 of the 54 records. Persons with the appropriate skill levels, including physicians, physical 

therapists, and physical therapist assistants appear to have rendered the services in 18 of the 

54 records. Persons who lacked appropriate skill levels,13 such as an acupuncturist, a “certified 

12 These approximations total 58 percent due to rounding. 13 According to the judgment of our medical reviewers. 
Page 9 – Leslie V. Norwalk 

disability examiner,” a massage therapist, and a physical therapist aide, appear to have rendered 

the services for four of the claims. 

Of the 32 physicians we interviewed, 24 told us that their staff render some or all of the physical 

therapy for which they bill Medicare. According to these physicians, therapy in their offices is 

rendered by: 

• podiatrists, 

• chiropractors, 

• physical therapists, 

• physical therapist assistants, 

• massage therapists, and 

• physical therapist aides. 

Fourteen of the physicians we interviewed reported that they personally render some or all of the 

therapy for which they bill; however, we could not verify through Medicare claims data what 

proportion of the physicians’ physical therapy claims were rendered personally by the physician. 

Some physicians in our sample billed Medicare for extensive physical therapy without 

developing a plan of care. Twenty-three of the fifty-four beneficiaries in our sample received 

physical therapy with no plan of care. These beneficiaries received a mean average of 30 days of 

physical therapy in 2002 from the physicians in our sample. Medicare allowed a mean average 

of $2,691 for each beneficiary for physical therapy from the physicians in our sample. In total, 

physicians for these 23 beneficiaries billed physical therapy for more than 8,000 beneficiaries in 

2002 for which Medicare allowed approximately $7.8 million. 

One beneficiary in our sample received 15 months of physical therapy for lumbago and 

osteoarthritis, for which Medicare allowed $39,126. The beneficiary’s physician did not 

document a plan of care and did not establish medical necessity for the services. The physician, 

a general practitioner, billed physical therapy to Medicare for 672 patients in 2002, an average of 

27 patients per day. In 2002, Medicare allowed $752,531 for this physician’s physical therapy 

claims. 

ANALYSIS OF PHYSICIAN BILLING PATTERNS FOR PHYSICAL THERAPY 

We identified aberrances in physicians’ billing patterns and unusually high volumes of claims 

that suggest physical therapy is vulnerable to abuse. Using 100 percent of Medicare’s claims 

data for 2002, 2003, and 2004, we analyzed physicians’ billing patterns for physical therapy. 

The following are examples of what we found that raise questions about physicians’ physical 

therapy billing patterns: 

• Approximately 4 percent of all physicians who submitted physical therapy claims

account for more than half of all allowed claims in 2004 (Table 2). 

• Medicare allowed between $1 million and $7.6 million in physical therapy claims for 

each of 15 physicians in 2002, 29 physicians in 2003, and 38 physicians in 2004. (See 

Appendix B.) 
Page 10 – Leslie V. Norwalk 

• For an additional 992 physicians, Medicare allowed more than $100,000 each in physical 

therapy claims alone in 2004. 

• One hundred thirty-four physicians each billed Medicare for physical therapy for more 

than 500 patients in 2004. In contrast, the median number of patients receiving physical 

therapy for the entire physician population (that rendered physical therapy in 2004) is 

eight. Of the 134 physicians, 97 shared at least 50 of their patients with another of the 

134 physicians who also billed physical therapy for the same patient. 

• We identified 13,090 beneficiaries whom Medicare allowed at least $5,000 each in 

physical therapy billed by physicians in 2004. In contrast, for the entire beneficiary 

population, Medicare allowed a median of $305 each for physical therapy billed by 

physicians in 2004. 

• The aberrances in billing patterns we observed cannot be explained by the specialties of 

providers who bill for excessive services. For example, only 4 of the 51 physicians who 

billed Medicare more than $1 million for physical therapy in 2002, 2003, or 2004 were 

physical medicine and rehabilitation or osteopathic manipulative therapy specialists. 

(See Appendix B.) 

Table 2: Selected Statistics for Physical Therapy Billed by Physicians in 2004 

 by Categories of Medicare Allowed Amounts 

Allowed 

per physician 

$1 to 

$99,999 

$100,000 to 

$499,999 

$500,000 to 

$999,999 

$1 million 

or more 

Total physicians 23,777 885 107 38 

Percent of physicians 95.85% 3.57% 0.43% 0.15% 

Percent of allowed physical therapy 38.85% 34.26% 13.92% 12.97% 

Median allowed per physician $987 $163,127 $623,091 $1,419,803 

Source: Office of Inspector General analysis of Medicare claims data, 2005. 

THE “INCIDENT TO” RULE 

Physicians are not required to indicate on their claims if services were rendered “incident to” 

their professional services, and thus, the claims appear as if the physician personally rendered the 

services. Therefore, in our medical review and our analysis of billing patterns, we could not 

measure the proportion of physicians’ claims that were rendered “incident to” nor could we 

determine whether qualified therapists rendered the service. 

Under the “incident to” rule, a physician can bill for an unlimited amount of physical therapy 

rendered at the same time, as long as the physician is “directly supervising” the staff rendering 

the services. However, based on the medical record documentation provided by the sampled 

physicians, we could not confirm that physicians directly supervised the provision of the service 

because they are not required to document “direct supervision” of therapy. In our analysis of 

billing patterns, we found that some physicians are billing physical therapy for dozens of 

beneficiaries daily, but we could not determine how many receive therapy at the same time, and 

therefore could not determine whether direct supervision for all of these services was physically 

possible. For example, 1 physician in our sample billed Medicare for physical therapy for an 
Page 11 – Leslie V. Norwalk 

average of 51 patients per day in 2002. Among all physicians who billed Medicare for physical 

therapy in 2002,14 110 billed at least once for more than 50 patients per day. 

Finally, under Medicare, although staff that render physical therapy “incident to” physicians’ 

services need not be licensed, they are required to adhere to the same standards of care15 as 

independently practicing physical therapists. However, because physicians’ medical records 

were documented inadequately, we could not confirm their compliance with these standards of 

care. 

CONCLUSION AND ITEMS FOR CONSIDERATION 

Under the “incident to” rule, Medicare allows physicians to bill for physical therapy that is 

rendered either by the physicians themselves or by their staff. Until 2005, staff who rendered 

physical therapy in physicians’ offices did not have to be trained or licensed. In 2005, CMS 

implemented a regulation that requires staff who render physical therapy in physicians offices 

have the same training as licensed physical therapists. They still do not need to be licensed. In 

addition, under the “incident to” rule, there is no limit on the number of therapy staff that 

physicians can supervise concurrently. These conditions represent a vulnerability that could 

partially account for the noncovered and undocumented care described above and could be 

placing beneficiaries at risk of receiving services that do not meet professionally recognized 

standards of care. Therefore, we believe that the requirements for physical therapy rendered in 

physicians’ offices, including licensure, should not differ with the requirements for therapy 

rendered in other settings, such as independently practicing physical therapists’ offices and 

nursing homes. 

In addition, given the vulnerabilities identified in our medical review as well as our analysis of 

physician billing patterns for physical therapy, CMS should consider revisions, clarifications, 

and further study of the “incident to” rule to ensure that Medicare beneficiaries are receiving 

skilled services from appropriately trained and licensed staff and that the services meet 

professionally recognized standards of care. Under separate cover, we will forward information 

on the noncovered and undocumented services identified in our sample to CMS for appropriate 

action. 

We plan to continue to monitor Medicare payments for physical therapy and will conduct 

additional reviews in this area as warranted. 

If you have any questions about this summary of our review, please do not hesitate to call me or 

one of your staff may contact Tricia Davis, Director, Medicare and Medicaid Branch, at (410) 

786-3143 or through e-mail [Tricia.Davis@oig.hhs.gov]. 

14 This includes, but is not limited to, the physicians who appeared in our random sample of claims. 15 Effective June 6, 2005, CMS requires that staff providing physical therapy “incident to” physicians’ services must be graduates 

of a qualified program of training in physical therapy. (Online CMS Manual System, Publication 100-02, chapter 15, section 

230.5. Accessed November 21, 2005.) 
Page 12 – Leslie V. Norwalk 

APPENDIX A 

Confidence Intervals for Selected Statistics 

95 Percent Confidence Intervals 

Selected Statistics Estimates 

Estimated Allowed 

Services 

(percent) 

Estimated Allowed 

Dollars 

(in millions) 

Estimates 

Point 

Estimate 

Dollar 

Estimate 

(in millions) Lower Upper Lower Upper 

What Medicare allowed 100% $157.8 $148.5 $167.1 

Inappropriately paid services 91.2% $136.0 84.4% 98.0% $115.8 $156.3

 -Not medically necessary 26.4% $33.0 15.9% 37.0% $15.7 $50.4

 -Undocumented services 33.8% $49.0 22.5% 45.2% $29.2 $68.8

 -Incomplete or no plan of care 57.4% $87.0 45.5% 69.2% $64.2 $109.8 

Source: Office of Inspector General analysis of Medicare claims data, 2005. 
Page 13 – Leslie V. Norwalk 

APPENDIX B 

Physician Profiles: Physicians Allowed More Than $1 Million for Physical 

Therapy Claims in 2001 and 2002 

Physician Total Part B 

Allowed Physical Therapy Claims 

Part B Beneficiary 

Statistics (2004) 

No. Specialty 

1 Internal Medicine 

2 

Osteopathic Manipulative 

Therapy 

3 Pediatric Medicine

4 Family Practice 

5 Internal Medicine 

6 Internal Medicine 

7 Family Practice 

8 Obstetrics/Gynecology

9 Family Practice 

10 Internal Medicine 

11 Internal Medicine 

12 

Physical Medicine and 

Rehabilitation 

13 Family Practice 

14 General Practice 

15 Family Practice 

16 Family Practice 

17 General Practice 

18 Internal Medicine 

19 Family Practice 

20 Internal Medicine 

21 Internal Medicine 

22 Family Practice 

23 General Practice 

24 

Physical Medicine and 

Rehabilitation 

25 Internal Medicine 

26 General Surgery 

27 Family Practice 

28 Family Practice 

29 General Practice 

30 Family Practice 

31 Internal Medicine 

2002 2003 2004 

Total 

Beneficiaries 

Who Received 

Physical 

Therapy 

Average 

Allowed 

Physical 

Therapy Claims 

Per Beneficiary 

$ 1,876,782 $ 2,067,335 $ 3,901,621 389 $ 10,030 

$ 163 $ 1,727,941 $ 3,873,463 221 $ 17,527 

$ - $ 260,663 $ 3,569,459 138 $ 25,866 

$ 378,670 $ 742,025 $ 3,160,019 328 $ 9,634 

$ 137,437 $ 2,355,194 $ 2,991,062 251 $ 11,917 

$ 174,925 $ 1,379,520 $ 2,770,288 198 $ 13,991 

$ 414,089 $ 2,943,860 $ 2,745,495 131 $ 20,958 

$ - $ - $ 2,304,814 185 $ 12,458 

$ 1,282,524 $ 7,629,540 $ 2,021,617 456 $ 4,433 

$ 1,414,012 $ 1,698,609 $ 1,775,549 400 $ 4,439 

$ - $ - $ 1,765,782 103 $ 17,144 

$ 377,629 $ 1,328,291 $ 1,683,338 699 $ 2,408 

$ - $ 549,832 $ 1,675,719 980 $ 1,710 

$ - $ 152,757 $ 1,671,809 899 $ 1,860 

$ 5,395 $ 6,368 $ 1,620,016 577 $ 2,808 

$ 809,255 $ 150,485 $ 1,604,205 717 $ 2,237 

$ 421,882 $ 610,184 $ 1,578,111 751 $ 2,101 

$ 638,291 $ 1,609,510 $ 1,496,640 278 $ 5,384 

$ 1,354,725 $ 2,237,009 $ 1,445,758 112 $ 12,909 

$ 519,960 $ 1,010,853 $ 1,393,847 62 $ 22,481 

$ 2,016,524 $ 1,631,839 $ 1,338,885 510 $ 2,625 

$ 945,352 $ 1,665,354 $ 1,319,578 1564 $ 844 

$ 452,046 $ 1,183,474 $ 1,278,525 742 $ 1,723 

$ 99,221 $ - $ 1,273,308 622 $ 2,047 

$ 327,561 $ 1,068,519 $ 1,247,487 585 $ 2,132 

$ 290,313 $ 755,328 $ 1,234,159 841 $ 1,467 

$ 1,170,425 $ 1,234,733 $ 1,222,831 663 $ 1,844 

$ 1,432,369 $ 1,762,887 $ 1,214,077 925 $ 1,313 

$ - $ 51,062 $ 1,149,140 464 $ 2,477 

$ - $ 3,613 $ 1,122,661 869 $ 1,292 

$ 1,097,949 $ 1,110,347 $ 1,116,834 311 $ 3,591 
Page 14 – Leslie V. Norwalk 

APPENDIX B 

Physician Profiles: Physicians Allowed More Than $1 Million for Physical 

Therapy Claims in 2001 and 2002 (continued) 

Total Part B Part B Beneficiary Physician Allowed Physical Therapy Claims Statistics (2004) 

Average 

Total Allowed 

Beneficiaries Physical 

Who Received Therapy Claims 

No. Specialty 2002 2003 2004 Physical Therapy Per Beneficiary 

32 General Practice $ - $ 2,252 $ 1,110,650 702 $ 1,582 

33 General Practice $ 160,478 $ 56,733 $ 1,099,092 527 $ 2,086 

34 General Practice $ 756,197 $ 1,004,757 $ 1,072,267 648 $ 1,655 

Osteopathic Manipulative 

35 Therapy $ 108 $ 360,466 $ 1,043,992 84 $ 12,428 

36 Internal Medicine $ 109,675 $ 477,074 $ 1,039,833 331 $ 3,141 

37 Ophthalmology $ 652,059 $ 1,097,927 $ 1,022,585 267 $ 3,830 

38 Internal Medicine $ 50,956 $ 287,431 $ 1,003,409 670 $ 1,498 

39 Internal Medicine $ 1,167,398 $ 1,201,513 $ 939,284 450 $ 2,087 

40 Internal Medicine $ 115,999 $ 1,029,026 $ 873,985 341 $ 2,563 

41 Internal Medicine $ 1,073,827 $ 514,978 $ 563,536 386 $ 1,460 

42 General Practice $ 921,636 $ 1,090,810 $ 525,272 565 $ 930 

43 Internal Medicine $ 1,203,828 $ 2,056,425 $ 301,632 343 $ 879 

44 Family Practice $ 407,647 $ 2,124,714 $ 300,544 217 $ 1,385 

45 Internal Medicine $ 1,283,553 $ 230,010 $ 100,357 129 $ 778 

46 General Practice $ 1,725,638 $ 1,318,579 $ 80,004 711 $ 113 

47 General Practice $ 732,566 $ 1,165,387 $ 52,367 55 $ 952 

48 Internal Medicine $ 1,088,169 $ 808 $ 5,368 12 $ 447 

49 Family Practice $ 589,697 $ 1,382,912 $ 131 1 $ 131 

50 General Practice $ 1,878,761 $ - $ - 0 $ -

51 Internal Medicine $ 2,362 $ 1,605,499 $ - 0 $ -

Averages $ 595,510 $ 1,055,442 $ 1,315,178 439 $ 5,129

Totals $ 31,562,055 $ 55,938,437 $ 69,704,410 18,887 

Source: Office of Inspector General analysis of Medicare claims data, 2005.