Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

AUGUST 1999 

OEI-09-97-00122 

Physical And Occupational Therapy in Nursing Homes 

Cost of Improper Billings to Medicare 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's San Francisco regional office prepared this report under the direction of Kaye D. Kidwell, 

Regional Inspector General, and Paul A. Gottlober, Deputy Regional Inspector General. Principal 

OEI staff included: 

REGION HEADQUARTERS 

Deborah Harvey, Project Leader Susan Burbach, Program Specialist 

Robert Gibbons, Program Analyst Jennifer Antico, Program Specialist 

Carrie Lozano, Program Analyst Stuart Wright, Program Specialist 

Lori Stickel, Program Analyst Barbara Tedesco, Statistician 

To obtain copies of this report, please call the San Francisco Regional Office at 415-437-7900. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY 

PURPOSE 

To determine how much Medicare paid for improperly billed and undocumented physical and 

occupational therapy in skilled nursing facilities. 

BACKGROUND 

All Medicare-certified skilled nursing facilities are required to assess each patient’s status and

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

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

treatment for the patient’s condition.

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

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

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

the 1996 charges of approximately $6.7 billion.

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

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

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

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

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

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

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

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

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

nationwide. Several teams of physical and occupational therapists reviewed the 

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

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

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

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

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

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

ending June 30, 1998.

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

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

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

Cost of Improperly Billed Physical/Occupational Therapy 1 OEI-09-97-00122 
13 percent of therapy was improperly billed, and an additional 4 percent was not documented 

in the patients’ medical records. 

FINDINGS 

Medicare reimbursed skilled nursing facilities almost $1 billion for improperly 

billed physical and occupational therapy 

Medicare reimbursed skilled nursing facilities for improperly billed therapy primarily because 

the therapy was not medically necessary and therapy was provided by staff who did not have 

the appropriate skill for the patient’s medical condition. 

Medicare reimbursed skilled nursing facilities almost $331 million for 

undocumented physical and occupational therapy 

The time documented for therapy in the therapy ledgers and therapy charts in patients’ medical 

records often did not match the time billed to Medicare for therapy. Also, some therapy charts 

in patients’ records did not include the actual time therapists and assistants spent with patients. 

In fact, some SNFs had such poor documentation that it was virtually impossible to verify the 

amount of therapy that patients received within a week. 

Skilled nursing facility mark-up of occupational therapy exceeded $342 million 

Because salary equivalency guidelines had not been implemented for occupational therapy until 

April 1998, Medicare paid skilled nursing facilities as much as 86 percent more than their 

contractors charged them for each unit of therapy. The mark-up between contractor invoices 

and skilled nursing facilities’ reimbursement exceeded $342 million. 

CONCLUSION AND RECOMMENDATION 

Our findings concerning unnecessary and undocumented therapy, as well as the mark-ups on 

occupational therapy, were not identified prior to the implementation of the prospective 

payment system. This has resulted in inflated base year costs upon which both the Federal and 

the facility-specific rates were based. Therefore, should any consideration be given to 

modifying the prospective payment system, we believe that the inappropriate costs identified in 

this report should be considered. 

In addition to implications for modifying the prospective payment system, our findings have 

medical necessity implications. Under the new payment system, patients may continue to 

receive unnecessary (and harmful) therapy and be placed in upcoded Resource Utilization 

Groups. An additional financial incentive may be to underutilize therapy and deprive patients 

of needed rehabilitation. Similarly, medical appropriateness will continue to be an issue under 

Cost of Improperly Billed Physical/Occupational Therapy 2 OEI-09-97-00122 
Part B with possible overutilization for patients who do not need therapy and underutilization 

for patients whose therapy needs exceed the cap. Therefore, we recommend: 

HCFA should adequately fund Medicare contractors to perform medical reviews 

of therapy. 

AGENCY RESPONSE 

We received comments on the draft report from the Health Care Financing Administration. 

The agency concurred with the report’s conclusions. The Health Care Financing 

Administration believes that the recently implemented prospective payment system for skilled 

nursing facilities has helped to eliminate some incentives to provide inappropriate or 

unnecessary therapy. The agency will continue to aggressively monitor the potential impact on 

the access and quality of care of therapy for Medicare beneficiaries. 

The full text of the Health Care Financing Administration’s comments appears in appendix C. 

Cost of Improperly Billed Physical/Occupational Therapy 3 OEI-09-97-00122 
TABLE TABLE OF CONTENTS CONTENTS 

PAGE

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

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

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

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

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

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

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

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

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

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

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

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

Cost of Improperly Billed Physical/Occupational Therapy 4 OEI-09-97-00122 
INTRODUCTION 

PURPOSE 

To determine how much Medicare paid for improperly billed and undocumented physical and 

occupational therapy in skilled nursing facilities. 

BACKGROUND 

Medicare Coverage and Reimbursement of Physical and Occupational Therapy 

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

effective treatment for the patient’s condition. All Medicare-certified skilled nursing facilities 

(SNF) are required to assess each patient’s status and needs, including the need for physical 

and occupational therapy. The Health Care Financing Administration (HCFA), the Federal 

agency that administers the Medicare program, requires that therapy be prescribed in a written 

treatment plan that describes the specific therapeutic interventions, the frequency of visits, and 

the duration of therapy. Therapy must be ordered by a physician and require the skills of a 

licensed or certified therapist. While therapy generally is expected to result in the full or partial 

restoration of function, this outcome is not required by Medicare. 

The Medicare program provides coverage of therapy services under both Parts A and B for 

SNF patients. Patients are eligible for Part A benefits if they are transferred to a SNF after a 

minimum 3-day covered stay in an acute care hospital. Part B covers services for SNF 

patients who have exhausted their Part A benefits or did not have a qualifying hospital stay. 

In 1997, SNF Medicare charges for physical and occupational therapy were approximately 

$7.9 billion, an increase of almost 18 percent over the 1996 charges of approximately 

$6.7 billion. As shown in the chart below, most therapy charges were for Part A therapy rather 

than for Part B therapy. 

Part A Charges Comprise the Majority of Medicare Therapy Claims 

Medicare 

Coverage 

1997 SNF Therapy Charges 

Physical Occupational 

Part A $3.3 billion $2.9 billion 

Part B $900 million $800 million 

Source: Health Care Financing Administration, 1998 

Cost of Improperly Billed Physical/Occupational Therapy 5 OEI-09-97-00122 
Medicare does not pay for physical and occupational therapy when: 

< the therapy is performed repetitively to maintain a level of function, 

< the patient’s restoration potential is insignificant in relation to the therapy required to 

achieve such potential, 

< it has been determined that the treatment goals will not materialize, and 

< the therapy performed is considered to be a general exercise program. 

In September 1996, HCFA clarified its payment policy that Medicare will pay only for skilled 

therapy that involves direct patient care. Medicare will not pay for indirect services such as 

medical record documentation, care planning, and telephone calls except when they are 

aggregated with other overhead costs and are included in the cost report that each SNF must 

file with its Medicare fiscal intermediary. 

How SNFs Document and Bill for Therapy 

Prior to July 1, 1998, skilled therapy was billed in a fixed-time increment called a “unit.” One 

unit equaled 15 minutes of therapy. Each therapy session would be composed of various 

therapeutic interventions or activities that the therapist or assistant completed with a patient. 

For example, if a patient completed 45 minutes of therapy in one session, the SNF billed for 

three units of therapy. If the same patient received an hour of therapy in the morning and 

another hour in the afternoon, the SNF billed four units in each session for a total of eight units 

of therapy for the day. 

Therapists document their services in various ways, including departmental ledgers, which are 

maintained in the therapy department, and therapy charts (often called grids), which are 

included in each patient’s medical record. Ledgers generally are weekly or monthly summaries 

of therapy rendered to all patients, usually separated by the type of reimbursement that the 

SNF receives for each patient. Therapy grids often duplicate the ledger information with 

checked boxes for each intervention, the total units, and the therapist’s name. If the patient 

received therapy twice in one day, the interventions are checked on the “morning” and 

“afternoon” grids with units listed at the end of the day. 

Types of SNF Therapy Contracts 

Most therapy for SNF patients is provided by therapists who are employees of the SNF or 

therapists who work for independent companies that have contracts, or are “under 

arrangement,” with SNFs. The SNFs may provide some therapy directly and some under 

arrangement. The SNFs submit Medicare claims on behalf of their staff or their contractors. 

Fiscal intermediaries pay SNFs for therapy throughout the year based on an interim rate which 

is subject to revision after the annual cost report is finalized. 

Cost of Improperly Billed Physical/Occupational Therapy 6 OEI-09-97-00122 
Medicare Salary Equivalency Guidelines 

The costs for physical and occupational therapy billed by SNFs are subjected to hourly salary

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

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

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

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

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

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

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

Salary equivalency guidelines for occupational therapy were not implemented until 

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

Legislation for SNF Therapy 

The Balanced Budget Act of 1997 significantly changed how SNFs are reimbursed for all 

services, including physical and occupational therapy. All SNF cost reports filed after 

July 1, 1998 are subjected to a prospective payment system. Under this system, SNFs receive 

a facility-specific per diem rate, which includes therapy, for each patient who is in a Part A 

covered stay.3 The facility-specific per diem is based on the adjudicated cost report for fiscal 

year 1995, and the SNF will receive a blended rate over a 3-year transition period that blends a 

portion of the facility-specific per diem and the Federal per diem rate. The legislation also 

included a $1,500 annual cap for Medicare Part B patients, whether or not they reside in SNFs. 

Occupational therapy is limited to $1,500 annually, while physical therapy and speech language 

pathology share the same $1,500 annual cap. The cap was effective January 1, 1999. 

METHODOLOGY 

Sampled SNF Selection 

From the Medicare Common Working File, we extracted all March 1998 physical and 

occupational therapy claims (both Parts A and B) submitted by SNFs to fiscal intermediaries 

for payment. We limited the extract to SNFs in the continental United States. We reviewed 

therapy rendered to patients before the Health Care Financing Administration implemented the 

SNF prospective payment system on July 1, 1998. We purposely selected claims submitted 

1

Prevailing salary is the hourly salary rate based on the 75th percentile of salary ranges paid by 

therapy companies in the same geographical area, by type of therapy, to full-time therapists. 

2

42 Code of Federal Regulations, Part 413, Section 413.106. 

3

Health Care Financing Administration, Program Memorandum for Intermediaries A-97-17, 

December 1997. 

Cost of Improperly Billed Physical/Occupational Therapy 7 OEI-09-97-00122 
before July 1, 1998 to maintain consistency in SNF and fiscal intermediary policies and 

procedures for the 12 months prior to the change in payment systems. 

We stratified the SNFs into four strata by (1) regions of the United States and (2) the total 

physical and occupational therapy charges for March 1998. Within each stratum, we grouped 

the SNFs into clusters such that the SNFs were in the same geographic area and the sum of 

physical and occupational therapy charges per cluster was fairly constant. 

We then randomly selected two SNF clusters per stratum. Within each SNF cluster, we 

randomly selected 3 SNFs, resulting in a total sample of 24 SNFs. Within each SNF, we 

randomly selected 10 patients who received physical and/or occupational therapy during March 

1998. If a SNF had fewer than 10 patients who received therapy in that month, we reviewed 

all of them. 

Calculations for the confidence intervals account for all levels of clustering and stratification. 

The 95 percent confidence intervals for the statistics in this report are listed in appendix B. 

On-Site Medical Review 

We conducted on-site medical review at 24 SNFs for 218 sampled patients who received 

physical and occupational therapy in March 1998. The review period was before HCFA 

implemented the SNF prospective payment system and salary equivalency guidelines for 

occupational therapy. While on-site, we: 

< reviewed the medical records to determine if each therapy session was medically necessary, 

unnecessary, or undocumented; 

< reviewed therapy ledgers that documented therapeutic interventions and time spent with 

patients; 

< requested copies of the Medicare bills for sampled patients; 

< obtained copies of contracts between SNFs and therapy contractors that were in effect in 

March 1998; and 

< obtained the Medicare cost-to-charge ratios that fiscal intermediaries apply to physical and 

occupational therapy charges. 

The medical review was conducted by several teams of licensed or certified physical and 

occupational therapists. The cost estimates in this report are based on the non-statistical 

projections from March 1998 which we extrapolated to a 12-month period ending 

June 30, 1998, based on the assumption that March 1998 is a typical month and represents 

31/365 of a year. See appendix B for more details. 

This report is one in a series of reports on physical and occupational therapy for Medicare SNF 

patients. A companion report, Physical and Occupational Therapy in Medicare Nursing 

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

details the extent and reasons for improperly billed and undocumented therapy. In that report, 

Cost of Improperly Billed Physical/Occupational Therapy 8 OEI-09-97-00122 
we noted that 13 percent of therapy was billed improperly, and an additional 4 percent was not 

documented in the patients’ medical records. 

Our review was conducted in accordance with the Quality Standards for Inspections issued by 

the President’s Council on Integrity and Efficiency. 

Cost of Improperly Billed Physical/Occupational Therapy 9 OEI-09-97-00122 
FINDINGS 

Medicare reimbursed SNFs almost $1 billion for improperly 

billed physical and occupational therapy 

Assuming that March 1998 is a representative month of the 12-month period ending 

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

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

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

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

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

billed improperly:

Major Reasons 

Cost of Unnecessary Units 

by Therapy 

Physical Occupational 

Patients received medically unnecessary therapy $360 million $451 million 

Patients received therapy from staff with 

inappropriate skill $100 million $ 45 million 

Source: Office of Evaluation and Inspections, 1999 

SNFs received approximately $811 million for medically unnecessary therapy 

Of the $955 million of improperly billed therapy, approximately 85 percent was billed for 

therapy that was not medically necessary. Therapy was not necessary because, among other 

reasons, therapy was not based on the patient’s medical condition and some SNFs billed 

medical record documentation as skilled therapy time. 

The SNFs routinely received payment for therapy that was not tailored to their patients’ 

medical needs. This included situations where the patients already had achieved the treatment 

goals, the treatment goals were unattainable, therapy was not discontinued at the appropriate 

time, and therapists billed routine maintenance services as skilled therapy. Several patients 

received therapy “B.I.D.,” or twice a day, regardless of medical necessity. The B.I.D. pattern 

was a standard practice at several SNFs, especially if the therapy contractor was part of a large 

4

This reimbursement was the amount SNFs charged on the cost reports multiplied by the 

facility-specific cost-to-charge ratio for physical or occupational therapy. 

5

The totals do not total $955 million due to rounding. 

Cost of Improperly Billed Physical/Occupational Therapy 10 OEI-09-97-00122 
national therapy company rather than a local therapy contractor or rather than therapists 

employed by the SNF. 

A few SNFs billed the documentation of medical records as if it were a reimbursable skilled 

service. The therapy records at one sampled SNF routinely included checked boxes on 

patients’ therapy grids for documentation completed during therapy sessions. In another 

facility, an assistant charged Medicare one unit (15 minutes) as skilled therapy to document 

that the patient had refused therapy one afternoon. In fact, the patient continued to refuse 

therapy for 21 additional sessions, and the SNF continued to charge Medicare one unit for 

documentation each time the patient refused therapy. 

SNFs received approximately $145 million for therapy provided by staff with 

inappropriate skill 

Medicare reimbursed SNFs for improperly billed physical and occupational therapy provided 

by staff who did not have the appropriate skill for the patient’s medical condition. Examples 

include (1) occupational therapists providing therapy that physical therapists should have 

provided, (2) therapists providing therapy that assistants should have provided, and (3) both 

physical therapist assistants and occupational therapy assistants working beyond the scope of 

their State licenses. 

Nationally, Medicare reimbursed SNFs almost $331 million for 

undocumented physical and occupational therapy 

Approximately 13 million units of therapy were deemed undocumented when (1) the number of 

units on the therapy ledgers did not match the units billed to Medicare, (2) necessity of therapy 

was not documented in the patients’ medical records, and (3) medical reviewers could not 

determine who provided therapy to the patients. 

Some SNFs had such poor documentation that it was virtually impossible to verify the total 

units of therapy that patients received within a week. Therapy ledgers and grids often did not 

include the number of units spent with patients in individual sessions. The grids had lists of 

interventions with checked boxes only. Because of this, medical reviewers could not determine 

the medical necessity of the sessions that (1) had identical interventions and checked boxes, (2) 

had wide variations in the total units for therapy on the Medicare bill, and (3) lacked narrative 

explanations of changes in the patient’s treatment to justify the variation in units. Also, some 

ledgers were missing or were not available due to changes in SNF ownership. 

Medical reviewers could not use some ledgers or therapy grids to determine who provided 

therapy because the names, initials, and/or certification levels were missing. These data are 

critical in determining if patients had received treatment from staff with skills appropriate to 

their medical needs. 

Cost of Improperly Billed Physical/Occupational Therapy 11 OEI-09-97-00122 
SNF mark-up for occupational therapy exceeded $342 million 

Because salary equivalency guidelines had not been implemented for occupational therapy until 

April 1998, Medicare paid SNFs as much as 86 percent more than their contractors charged 

them for each unit of therapy. The average reimbursement for one unit (15 minutes) of 

occupational therapy was $22.33 (as shown in appendix A) with a range of slightly less than $3 

to almost $39. The practice of marking-up contractor costs is routine, but the percentage of 

mark-up varies from as little as 4 percent to as much as 86 percent. This, at least in part, 

explains the extreme variations in reimbursement per unit. 

Under the new prospective payment system, SNFs are reimbursed based on per diem rates for 

all costs related to SNF services under Part A. The HCFA calculated the per diem rates from 

aggregated national data including allowable costs from SNF cost reports in fiscal year 1995, 

patient case mix, and geographic variation in wages. Under the SNF prospective payment 

system, SNFs are paid based on the patient’s assessment upon admission and classification into 

one of the Resource Utilization Groups. Since salary equivalency guidelines for occupational 

therapy did not apply to costs included on the fiscal year 1995 cost reports, SNF mark-up for 

occupational therapy is included in the Federal per diem rates. The mark-up between 

occupational therapy contractor invoices and SNFs’ reimbursement for therapy claimed on the 

Medicare cost reports exceeded $342 million for cost report periods ending prior to April 1, 

1998 (assuming March 1998 is a representative month of the 12-month period ending March 

31, 1998).6 

6

We excluded the therapy units that were unnecessary and undocumented, prior to calculating the 

amount Medicare reimbursed SNFs for the mark-up. 

Cost of Improperly Billed Physical/Occupational Therapy 12 OEI-09-97-00122 
CONCLUSION AND RECOMMENDATION 

As noted in our methodology, the period we reviewed was prior to the implementation of the 

SNF prospective payment system, the salary equivalency guidelines for occupational therapy, 

and the cap for Part B therapy. Our findings concerning the cost of unnecessary and 

undocumented therapy, as well as the mark-ups on occupational therapy, were not identified 

prior to the implementation of the prospective payment system. This has resulted in inflated 

base year costs upon which both the Federal and the facility-specific rates were based. 

Therefore, should any consideration be given to modifying Federal Rates or re-basing the 

prospective payment system, we believe that the inappropriate costs identified in this report 

should be considered. 

In addition to the implications for modifying rates under the prospective payment system, our 

findings have implications for the need to assure that therapy services are medically 

appropriate. Under the new payment system, patients may continue to receive unnecessary 

(and potentially harmful) therapy and be placed in upcoded Resource Utilization Groups. An 

additional financial incentive may be for facilities to underutilize therapy services which would 

deprive patients of needed rehabilitation services. Similarly, medical appropriateness will 

continue to be an issue under Part B with possible overutilization for patients who do not need 

therapy and underutilization for patients whose therapy needs exceed the cap. Therefore, we 

recommend: 

HCFA should adequately fund Medicare contractors to perform medical reviews of 

therapy. 

AGENCY RESPONSE 

We received comments on the draft report from the Health Care Financing Administration. 

The agency concurred with the report’s conclusions. The Health Care Financing 

Administration believes that the recently implemented prospective payment system for skilled 

nursing facilities has helped to eliminate some incentives to provide inappropriate or 

unnecessary therapy. The agency will continue to aggressively monitor the potential impact on 

the access and quality of care of therapy for Medicare beneficiaries. 

The full text of the Health Care Financing Administration’s comments appears in appendix C. 

Cost of Improperly Billed Physical/Occupational Therapy 13 OEI-09-97-00122 
APPENDIX A 

Average Therapy Reimbursement

The following table shows the average (mean) reimbursement per 15-minute therapy 

intervention. While the average reimbursement for occupational therapy appears to be higher 

than for physical therapy, this difference, based on a T-test, is not statistically significant at the 

95 percent (or even 90 percent) confidence level. The statistics in this table are limited to 

therapy activities. We excluded both therapy evaluations,7 which sometimes were reimbursed 

at a higher rate, and therapy reevaluations,8 which sometimes were reimbursed at a lower rate. 

REIMBURSEMENT PER 15-MINUTE THERAPY INTERVENTION 

Therapy Type Average (mean) reimbursement 

per 15-minute therapy intervention 

95 percent confidence interval 

Lower Upper 

Physical therapy $16.74 $13.95 $19.53 

Occupational therapy $22.33 $14.72 $29.93 

Source: Office of Evaluation and Inspections, 1999 

7

An initial examination when the therapist gathers patient data and makes clinical judgments to 

establish the treatment plan. [Source: American Physical Therapy Association’s Guide to Physical 

Therapist Practice (1998)] 

8

A follow-up examination when the therapist updates the patient’s status because of new clinical 

indications, patient’s failure to respond to planned therapeutic interventions, or patient’s failure to progress 

from baseline data. [Source: American Physical Therapy Association’s Guide to Physical Therapist 

Practice (1998)] 

Cost of Improperly Billed Physical/Occupational Therapy 14 OEI-09-97-00122 
APPENDIX B 

Confidence Intervals for Selected Statistics

The following tables show the point estimates and 95 percent confidence intervals for selected 

statistics, in the order that they appear in the report. These calculations account for all levels 

of clustering and stratification as described in the methodology. 

Statistic Point 

Estimate 

95 Percent 

Confidence Interval 

Amount Medicare reimbursed SNFs for physical and 

occupational therapy that was provided during March 1998 $490 million $375 million - $606 million 

Amount Medicare reimbursed SNFs for physical and 

occupational therapy that was provided for a 12-month period 

ending June 30, 1998 

$5.8 billion ** 

Number of physical and occupational therapy units provided 

Medicare SNF patients during March 1998 25 million 16 million - 34 million 

Number of physical and occupational therapy units provided 

Medicare SNF patients for a 12-month period ending 

June 30, 1998 

292 million ** 

Amount Medicare reimbursed SNFs for improperly billed 

physical and occupational therapy that was provided during 

March 1998 

$81 million $44 million - $119 million 

Amount Medicare reimbursed SNFs for improperly billed 

physical and occupational therapy that was provided for a 

12-month period ending June 30, 1998 

$955 million ** 

Number of improperly billed physical and occupational 

therapy units provided Medicare SNF patients during 

March 1998 

4.2 million 2.3 million - 6.0 million 

Number of improperly billed physical and occupational 

therapy units provided Medicare SNF patients for a 

12-month period ending June 30, 1998 

49 million ** 

Number of undocumented units provided Medicare SNF 

patients during March 1998 1.1 million 0.7 million - 1.5 million 

Number of undocumented units provided Medicare SNF 

patients for a 12-month period ending June 30, 1998 13 million ** 

Cost of Improperly Billed Physical/Occupational Therapy 15 OEI-09-97-00122 
APPENDIX B 

Statistic Point 

Estimate 

95 Percent Confidence 

Interval 

Amount Medicare reimbursed SNFs for undocumented 

physical and occupational therapy that was provided during 

March 1998 

$28 million $19 million - $37 million 

Amount Medicare reimbursed SNFs for undocumented 

physical and occupational therapy that was provided for a 

12-month period ending June 30, 1998 

$331 million ** 

Amount Medicare reimbursed SNFs for mark-up of 

occupational therapy that was provided during March 1998 $29 million $7 million - $51 million 

Amount Medicare reimbursed SNFs for mark-up of 

occupational therapy that was provided for a 12-month period 

ending March 31, 1998 

$342 million ** 

Source: Office of Evaluation and Inspections, 1999 

**NOTE: These estimated projections from March 1998 to a 12-month period are based on the assumption 

that March 1998 is a typical month. We tested this assumption by examining SNF Medicare 

charges for physical and occupational therapy. For example, the SNFs submitted $685 million in 

physical and occupational therapy charges during March 1998 and $7.85 billion during the 12 

months ending March 31, 1998. This ratio ($685 million/$7.85 billion) is approximately equivalent 

to the ratio (31/365) that we used in projecting to a 12-month period. Because our sample was 

limited to March 1998, we are unable to calculate 95 percent confidence intervals for these 12-

month estimates. 

Cost of Improperly Billed Physical/Occupational Therapy 16 OEI-09-97-00122 
APPENDIX C 

Agency Comments

Cost of Improperly Billed Physical/Occupational Therapy 17 OEI-09-97-00122 
APPENDIX C 

Cost of Improperly Billed Physical/Occupational Therapy 18 OEI-09-97-00122 
APPENDIX C 

Cost of Improperly Billed Physical/Occupational Therapy 19 OEI-09-97-00122