Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

January 2001 

OEI-02-99-00140 

Medicare Payments for Psychiatric 

Services in Nursing Homes: 

A Follow-up 
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 

Demetra Arapakos, Project Leader

Patricia Banta 

Lucille Cop, RN

Miriam Gareau

HEADQUARTERS 

Bambi Straw, Program Specialist

Brian Ritchie, Director Technical Support

Scott Horning, Technical Support Staff

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 
EXECUTIVE SUMMARY 

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 

Medicare Psychiatric Services in Nursing Homes i 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 patient’s 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 patient’s 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 

Medicare Psychiatric Services in Nursing Homes ii 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 Administration’s comments are in Appendix D. 

Medicare Psychiatric Services in Nursing Homes iii OEI-02-99-00140 
TABLE OF CONTENTS 

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

Medicare Psychiatric Services in Nursing Homes iv OEI-02-99-00140 
INTRODUCTION 

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 Alzheimer’s 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. 

Medicare Psychiatric Services in Nursing Homes 1 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. 

Medicare Psychiatric Services in Nursing Homes 2 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 patient’s 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 patient’s 

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. 

Medicare Psychiatric Services in Nursing Homes 3 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 beneficiary’s 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 carrier’s policies for psychiatric services and Medicare coverage guidelines. The

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

screening instrument. A Master’s 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). 

Medicare Psychiatric Services in Nursing Homes 4 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 President’s Council on Integrity and Efficiency. 

Medicare Psychiatric Services in Nursing Homes 5 OEI-02-99-00140 
Medicare Psychiatric Services in Nursing Homes 6 OEI-02-99-00140

FINDINGS

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. 

inappropriate payments in 1999 for the total Medicare population. 

These services may have represented as much as $22.6 million in

(This estimate is 
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 patient’s 

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 patient’s 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 patient’s 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 patient’s 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.) 

Medicare Psychiatric Services in Nursing Homes 7 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 patient’s 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 patient’s 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. 

Medicare Psychiatric Services in Nursing Homes 8 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. 

Medicare Psychiatric Services in Nursing Homes 9 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. 

Medicare Psychiatric Services in Nursing Homes 10 OEI-02-99-00140 
RECOMMENDATIONS 

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 Administration’s comments are in Appendix D. 

Medicare Psychiatric Services in Nursing Homes 11 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. 

KEY VARIABLE POINT ESTIMATE INTERVAL 

CONFIDENCE 

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% 

Medicare Psychiatric Services in Nursing Homes 12 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: 

KEY ESTIMATE PROJECTED TOTAL INTERVAL 

CONFIDENCE 

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 

Medicare Psychiatric Services in Nursing Homes 13 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 nonrespondent. 

To test for non-response bias in our medical record review, we obtained information from 

a 1 percent file of the HCFA’s 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 

STRATA RECEIVED 

1 (Codes 90816, 90817, 90818) 125 

2 (Code 90853) 127 

3 (Code 96100) 113 

RESPONSE 

RATE 

78 % 

89 % 

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. 

Medicare Psychiatric Services in Nursing Homes 14 OEI-02-99-00140 
Table A 

GENDER BY RESPONSE 

Respondents respondents Total Response rate 

NonMale 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 

Respondents respondents Total* Response rate 

NonWhite 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 

Respondents respondents Total Response rate 

NonNursing 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 

Medicare Psychiatric Services in Nursing Homes 15 OEI-02-99-00140 
APPENDIX D 

In this appendix, we present in full the comments from the Health Care Financing Administration. 

Medicare Psychiatric Services in Nursing Homes 16 OEI-02-99-00140 
Medicare Psychiatric Services in Nursing Homes 17 OEI-02-99-00140 
Medicare Psychiatric Services in Nursing Homes 18 OEI-02-99-00140 
Medicare Psychiatric Services in Nursing Homes 19 OEI-02-99-00140