Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

NOVEMBER 2000 

OEI-09-99-00550 

Monitoring Part B Therapy for SNF Patients 
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 Paul A. Gottlober, 

Regional Inspector General. Principal OEI staff included: 

REGION HEADQUARTERS 

Steven P. Zerebecki, Lead Analyst Susan Burbach, Program Specialist

Robert Gibbons, Program Analyst

Deborah Harvey, Program Analyst 

Tom Purvis, Program Analyst

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 
June Gibbs Brown

Inspector General

Monitoring Part B Therapy for Skilled Nursing Facilities Patients (OEI-09-99-00550)

Michael M. Hash

Acting Administrator

Health Care Financing Administration

We are continuing to monitor the effects of the Balanced Budget Act of 1997 (BBA) and the

Balanced Budget Refinement Act of 1999 (BBRA) on therapy provided to Medicare beneficiaries

in skilled nursing facilities (SNFs). As you are aware, the BBRA suspended the Medicare

reimbursement caps on Part B physical, occupational, and speech therapy that were imposed by

the BBA. In addition, the BBRA mandates that the Department of Health and Human Services

conduct focused medical reviews on Part B therapy and provide reports to Congress in the years

2001 and 2002. We continue to gather and analyze information and data that will assist the

Health Care Financing Administration (HCFA) in responding to the congressional mandate. 

SUMMARY 

The implementation of monetary caps on therapy in SNFs coincided with a dramatic decrease in 

Part B therapy charges during 1999. However, preliminary reports indicate that we should expect 

a rebound in SNF Part B therapy charges in 2000 and 2001, based in part on the moratorium on 

the caps and persistent shortcomings in contractor oversight of billing practices and medical 

necessity of Part B therapy. We recommended that HCFA immediately ensure that the fiscal 

intermediaries conduct adequate medical reviews of Part B therapy in SNFs while improving 

therapy providers’ understanding of billing procedures and the medical necessity guidelines. 

BACKGROUND 

Recent Office of Inspector General Work 

In August 1999, the Office of Inspector General released two reports concerning physical and 

occupational therapy rendered to Medicare patients in SNFs. We found that during the 12-month 

period before the implementation of the SNF prospective payment system, Medicare paid nursing 

homes approximately $811 million for medically unnecessary therapy, $145 million for therapy 

provided by staff with inappropriate skills, and $331 million for undocumented therapy. These 

payments represent 22 percent of the $5.8 billion Medicare paid for Part A and B therapy in the 

12-month period. During the same 12 months, nursing home mark-ups of occupational therapy 

exceeded $342 million. For Part B alone, $74 million was improperly billed for physical therapy 

that was medically unnecessary or provided by inappropriately skilled staff. 
Page 4 — Michael M. Hash 

In October 1999, we responded to a request from HCFA to analyze Medicare claims data and 

determine how the Part B caps would have affected beneficiaries in 1998, 1 year prior to 

implementation of the caps. We concluded that between 22.4 and 29.1 percent of the 

beneficiaries who received SNF Part B therapy in 1998 would have exceeded the caps (i.e., a 

$1500 limit for occupational therapy and a $1500 combined limit for physical and speech 

therapy). We found that patients in proprietary, free-standing, or chain-owned SNFs would be 

more likely to exceed the caps than patients in nonprofit, independently-owned, or hospital-based 

SNFs. In addition, we found that patients with hip fractures or strokes would be more likely to 

exceed the caps. 

Current Office of Inspector General Work 

Based on the findings of our 1999 studies and the BBRA provisions concerning Medicare 

therapy, we continue to monitor services for SNF beneficiaries. In consultation with HCFA, we 

are: 

! analyzing data collected during our on-site medical record reviews of a random sample of 

SNF beneficiaries who received therapy in 1999, 

! comparing paid claims data for SNF therapy in 1998 and 1999, 

! assessing Medicare fiscal intermediaries’ (FI) involvement in medical reviews of SNF 

therapy, 

! surveying a random sample of SNF administrators to assess the effects of the 1999 

therapy caps on their patients and facilities, and 

! comparing the payment policies of Medicare to non-Medicare payers. 

We recently completed the comparative analysis of 1998 and 1999 Medicare Part B therapy 

claims data and the assessment of FIs’ medical reviews of SNF therapy. The results of these 

studies are as follows: 

DRAMATIC DECREASE COUPLED WITH UNCERTAINTY ABOUT MEDICARE 

CLAIMS FOR THERAPY 

Claims data indicate a dramatic decrease in therapy charges for 1999. We compared the 

Medicare Part B therapy charges for SNF patients for Calendar Year 1998 to Calendar Year 

1999. By analyzing data from a 1 percent sample of the Medicare Common Working File, we 

found that Part B therapy charges declined significantly — approximately 75 percent — in 1999. 

As shown on the next page, not only did therapy charges decrease, but the total number of 

beneficiaries decreased. This suggests that some patients received less therapy than they might 

have without the cap, received therapy that was not billed for or was paid for by insurers other 

than Medicare, or received maintenance therapy from nonskilled nursing home staff that 

previously would have been billed as skilled therapy. The latter scenario is supported by our 
Page 5 — Michael M. Hash 

recent interviews with nursing home administrators and by our current on-site reviews of therapy 

in SNFs. The dramatic decrease may also be explained, in part, by the requirement that, as of 

January 1999, reimbursement is based on Medicare Part B fee schedules. As more data become 

available from HCFA, we will conduct a more detailed analysis of the claims for Calendar Year 

1999. 

Part B Physical, Occupational, and Speech Therapy 

Total Charges from Skilled Nursing Facilities 

Comparison of Calendar Year 1998 to Calendar Year 1999 

Year Total Charges Total Beneficiaries Total charges 

per beneficiary 

1998 $1,840,666,245 619,600 $2,971 

1999 $451,438,004 532,100 $848 

Percent Change 1998-1999 -75.5% -14.1% -71.5% 

The permanency of the decrease is uncertain. While the caps and fee schedules appear to have 

contributed to the dramatic decline in charges, we believe that the suspension of the caps in 2000 

and 2001 will result in rising therapy charges and questionable billing practices, similar to those 

we observed in 1998. We have received preliminary reports that after January 1, 2000 some 

therapy providers returned to “business as usual,” indicating that the Medicare program may 

again incur high levels of medically unnecessary and improperly billed and documented therapy 

claims in 2000 and 2001. In addition, fiscal intermediaries report that while they do not have the 

resources and guidance from HCFA to conduct adequate medical reviews of Part B therapy, they 

commonly find medically unnecessary and excessive therapy in SNFs during their general reviews. 

FISCAL INTERMEDIARIES: MEDICAL REVIEW OF PART B THERAPY 

In preparation for our on-site medical reviews of Part B therapy conducted in SNFs, we assessed 

the extent to which Medicare FIs are conducting medical reviews of and providing training to 

providers of Part B therapy. In January and February of 2000, we used a standardized discussion 

guide to conduct telephone interviews with staff from all 33 Medicare FIs. In addition, we 

collected and reviewed provider education materials from selected FIs. 

Fiscal intermediaries rarely target Part B therapy for focused medical review. Only four FIs 

have conducted focused medical reviews on therapy in SNFs. The remainder reviewed therapy 

during general medical reviews of SNFs that were conducted as a result of claims data analysis. 

Under the SNF prospective payment system (PPS), FIs are required to perform medical reviews 

of a random sample which represents 1 to 3 percent of all SNF PPS claims. Focused medical 

review of SNF claims cannot exceed 20 percent of an FI’s total medical review budgeted 

workload. While FIs are not required by HCFA to focus on SNF Part B therapy claims for 

medical review, they can include the claims as part of their discretionary focused medical reviews. 
Page 6 — Michael M. Hash 

Nineteen FIs indicated that they will continue reviewing therapy claims as part of their general 

oversight of SNFs. Nine FIs remarked that they will not conduct focused medical reviews of 

Part B therapy unless HCFA directs them to do so. They said that reviews are labor intensive, 

and HCFA has instructed them to examine only providers with evidence of “egregious” problems. 

Based on their reviews of SNF PPS claims, however, some FIs contend that focused medical 

reviews of Part B therapy are warranted. 

When they focus on therapy, fiscal intermediaries commonly find medically unnecessary 

and excessive services in nursing homes. Almost three-fourths of the FIs found medically 

unnecessary and/or excessive therapy claims during their general reviews. Their findings ranged 

from the inappropriate billing of “maintenance” therapy to the abusive overutilization of therapy 

on patients diagnosed with dementia or Alzheimer’s disease. In the latter example, the FIs found 

that the patients clearly could not benefit from the therapy provided to them. Dementia patients 

in particular either were not able to complete their courses of therapy or could not benefit from it. 

As a result, FIs denied these claims. 

During their general reviews, several FIs found instances of excessive therapy in nursing homes. 

In some cases, physicians had written orders for therapy without examining the patients. In other 

cases, nursing homes were billing for therapy following a “standing order” for all admissions. In 

these facilities, therapy is routinely conducted without a physician’s examination and/or order and 

regardless of the patients’ needs. For example, one FI reported receiving complaints from the son 

of a 100-year-old beneficiary for whom therapy was ordered upon her admission to the nursing 

home. The letter prompted the FI to conduct a medical review of the more than $3000 in therapy 

that the SNF had billed for her. The FI found that the medical record did not contain 

examinations by the physician who ordered the therapy. The beneficiary had the same functional 

level for several years prior to her admission (she had not walked in years), did not benefit from 

the occupational therapy she received, and had no speech or swallowing problems to justify the 

speech therapy ordered. Following the initial evaluations, the beneficiary told the SNF staff she 

did not want any further therapy. All claims for her subsequent occupational and speech therapy 

were denied. 

Most fiscal intermediaries had no role in ensuring that providers complied with the Part B 

therapy caps. Four FIs had systems in place to identify beneficiaries who had claims in excess of 

the $1500 therapy caps in 1999. No other FIs were monitoring the caps, and none had identified 

providers who had billed in excess of the caps. Some FIs mentioned that they were acting in 

compliance with HCFA’s program memorandum dated October 1998. The guidance indicated 

that SNFs were to monitor billing themselves and to ensure that they did not submit therapy 

claims that exceeded the per beneficiary caps. 

Three FIs identified providers who had billed in excess of the therapy caps in 1999. Based on 
Page 7 — Michael M. Hash 

HCFA’s guidance,1 however, they are not planning to seek reimbursement for the overpayments. 

One FI had implemented edits in its payment system and had denied claims that were in excess of 

the caps. Another FI was in the process of identifying the beneficiaries who had received services 

in excess of the caps, but ceased its efforts when the moratorium on the caps was announced. 

This FI identified approximately 15,000 beneficiaries who had received therapy in excess of the 

caps. The third FI identified only one beneficiary who had received therapy in excess of the caps. 

While most FIs have informed providers that the caps on therapy have been suspended, 

few offer specific training on billing practices for Part B therapy. All but two FIs have 

informed their providers that the caps on Part B therapy have been suspended until 2002. Most 

issued provider bulletins in January or February 2000. Several FIs notified their providers via 

their monthly newsletters. 

Less than half of the FIs have offered or plan to offer training programs to SNFs on billing 

practices for Part B therapy. Of the 14 FIs who have offered training in the past, most held 

occasional workshops that focused on PPS for SNFs and included information about Part B 

therapy billing. Several FIs mentioned that they conduct training programs on an ad hoc basis: 

when providers request the training, when billing problems arise, or when a SNF becomes a 

Medicare provider. 

CONCLUSIONS 

Based on our interviews with the 33 Medicare fiscal intermediaries and previous Office of 

Inspector General work showing medically unnecessary and improperly documented therapy 

services, it is clear to us that problems still exist with Medicare Part B therapy provided in SNFs. 

We are concerned about the need for proper billing of Part B therapy provided in SNFs as well as 

improved quality of care and patient safety. Our interviews with the FIs and our current field 

work in SNFs have increased our concern about the need for medical reviews of Part B therapy. 

Therefore, we recommend that HCFA: 

1. immediately ensure that fiscal intermediaries conduct adequate focused medical 

reviews of Part B therapy in SNFs and 

2. continue to work to improve SNFs’ and therapy providers’ understanding of proper 

billing procedures and the medical necessity guidelines for Part B therapy in SNFs. 

While these recommendations are consistent with those from our 1999 reports on therapy, based 

on our ongoing work we wish to re-emphasize their urgency and elaborate on their 

implementation. The recommendations could be accomplished by promptly issuing the additional 

medical review guidelines for Part B physical, occupational, and speech therapy services that were 

1 In its December 1999 Program Memorandum to Intermediaries/Carriers (Transmittal AB-99-101), 

HCFA cautioned FIs to “be judicious in your use of resources” to ensure that providers complied with the 1999 

caps on therapy. 
Page 8 — Michael M. Hash 

mentioned in the December 1999 program memorandum to the FIs. In addition, HCFA could 

instruct all FIs to: a) provide SNFs and therapy providers with adequate training on Part B billing 

procedures and b) reemphasize to SNFs and therapy providers the importance of the medical 

necessity guidelines for physical, occupational, and speech therapy. 

We understand that HCFA has entered into a program safeguard contract for therapy. According 

to HCFA, one of the contractor’s responsibilities will be to develop protocols for future medical 

reviews of Part B therapy in SNFs. While we fully support a program safeguard initiative, the 

initiative does not address the immediate program vulnerabilities described in this report and our 

1999 reports. Focused medical reviews, conducted by the intermediaries, would help safeguard 

the program until the program safeguard contractor has developed, and HCFA has implemented, 

a refined protocol for future reviews. We therefore urge HCFA to utilize its current resources to 

conduct immediate medical reviews of Part B therapy. 

We hope that you find this information and our conclusions useful. 
Page 9 — Michael M. Hash 

AGENCY COMMENTS 
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