Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Medical Necessity of Physical and Occupational 

Therapy in Skilled Nursing Facilities 

California Probe Sample Results 

[Early Alert] 

JUNE GIBBS BROWN 

Inspector General 

APRIL1998 

OEI-09-97-00120 
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 IX HEADOUARTERS 

Robert Gibbons Susan Burbach 

Carrie Lozano 

Brad Rollin 

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 

The purpose of this inspection was to determine, through a probe sample, whether sufficient 

evidence of medically unnecessary physical and occupational therapy exists to warrant 

conducting a national study. 

BACKGROUND 

Many residents of Medicare-certified skilled nursing facilities (SNFs) receive physical and 

occupational therapy, whether they are covered under Medicare Part A or not. In fact, 

SNFs submitted claims totaling almost $7 billion for physical and occupational therapy in 1996. 

The amount that Medicare pays for these therapies has grown immensely since Congress passed 

nursing home reform legislation in 1987. These changes required SNFs to assess all residents’ 

needs on a regular basis. The increases in physical and occupational therapy outlays have caused 

the Office of Inspector General (OIG), General Accounting Office, and other oversight groups to 

examine these increases. 

Medicare guidelines delineate specific coverage criteria. All therapy services must be 

reasonable and necessary and speczjk and effective treatment for the patient’s condition. 

Services must be dictated by a written plan oftreatment that encompasses specific and 

measurable functional goals along with a reasonable estimate of when those goals will be 

attained. The plan of treatment should describe the specific therapeutic services that will be 

utilized, the frequency of visits, and the duration of services. Services must be ordered by a 

physician and require the skills of a qualified therapist. 

Almost all therapy services are billed by SNFs to fiscal intermediaries. In general, SNFs either 

contract with rehabilitation agencies for services or use in-house staff. The Balanced Budget Act 

of 1997 significantly changes how SNFs will be reimbursed for physical and occupational 

therapy. For Part A beneficiaries, it requires that HCFA implement a prospective payment 

system for SNFs that incorporates therapy services, to be phased in over several years. The Act 

requires that the prospective payment rates be based on SNFs’ 1995 allowable costs plus an 

estimate of the amounts that would have been payable under Part B for certain services, such as 

physical and occupational therapy. The HCFA also will implement a $1,500 annual cap on 

therapy services for Part B beneficiaries, whether or not they reside in SNFs. The legislation also 

requires that all Part B ancillary services provided by SNFs be billed to Medicare by the 

SNFs under a consolidated billing program. 

Probe Sample Methodology 

For the probe, we selected a stratified random sample of six SNFs in California that are 

administered by Blue Cross of California or Mutual of Omaha. In collaboration with a medical 

i 
review contractor, we conducted on-site reviews of their medical records for a random sample of 

Medicare beneficiaries for whom these intermediaries processed claims during August 1997. We 

assessed a total of 80 records to determine the extent to which patients received physical and/or 

occupational therapy in accordance with Medicare guidelines. 

FINDINGS 

Medically unnecessary physical and occupational therapy services at sampled facilities ranged 

from less than 4 to more than SOpercent 

More than one-quarter of therapy services were medically unnecessary at five out of the six 

SNFs. The remaining facility, which had less than 4 percent medically unnecessary services, 

had recently been under prepayment review by its fiscal intermediary. Most unnecessary 

therapies were the result of skilled therapy services being provided although the medical records 

did not document the need for the services based on Medicare guidelines. In other cases, the 

patient’s file was missing, failed to contain a physician order, or did not include any evidence 

that therapy had been provided. The rates of medically unnecessary services were slightly higher 

for occupational therapy than for physical therapy. 

Multiple factors account for the high volume of medically unnecessary services 

t Skilled services are frequently provided when non-skilled services would be more 

appropriate. 

Some beneficiaries simply require help building strength and endurance--which can be 

provided by nursing staff--but receive skilled physical and occupational therapy instead. 

In other cases, therapists fail to cease therapy or transition patients to a nursing program 

within an appropriate amount of time. 

b Therapists sometimes ignore the beneficiary’s prior level of function and set unrealistic 

goals. 

We identified several cases where the therapist listed goals that included performing 

independent activities of daily living that the beneficiary had not performed for several 

years, because the beneficiary had a full-time caregiver or was a resident of a nursing 

home. In other cases, the therapist seemed to overestimate a patient’s ability to recover 

from a debilitating illness. 

t The frequency of therapy is sometimes excessive. 

Some SNF patients in our sample received therapy comparable to patients in acute 

rehabilitation--up to 5 hours per day, according to medical records and ledgers. Most 

alarming were instances where exceptionally frail patients or people with Alzheimer’s 

ii 
disease or advanced senility and dementia received 4 to 5 hours of therapy per day for 

several weeks. 

Other observations raise additional concerns about how therapy services are provided 

F Time billed for therapy exceeds the actual time that services are provided. 

We observed billed time being inflated by including time to transport or ambulate the 

patient to a therapy area and when patient fatigue required that a therapist halt a session. 

t Recurring hospitalization may trigger unnecessary therapy services. 

Long-term SNF residents who are hospitalized frequently receive unnecessary therapy 

when they return to the SNF. We found that patients who were hospitalized with medical 

problems other than orthopedic (e.g. hip fracture or replacement) or neurological 

conditions (e.g. stroke) were more likely to receive medically unnecessary services. 

Summary of SNFsreviewedby the OIG 

Percentage 

Facility Medically Summary 

Unnecessary 

#l 80.3 

#2 43.3 

#3 54.3 

#4 27.5 

#5 3.7 

#6 62.6 

CONCLUSION 

Facility recently changed ownership, but the contracted rehabilitation 

agency remains. Facility exemplifies all of the issues described in this 

report. 

Appropriate candidates and good use of therapists time, but services 

continue beyond the point where skilled therapy is necessary. 

Therapists appear to spend much less time with patients than they bill for. 

Typical issues of inappropriate candidates and excessive frequency and 

duration. 

Expensive therapy management contract adds to the costs. 

Until recently, the fiscal intermediary was reviewing 100 percent of this 

facility’s claims prior to paying them, based on concerns about the medical 

necessity of its therapy services. 

Facility bills inappropriately for routine assessments and team conferences. 

In addition, therapist goals were inappropriate, and therapy did not cease 

when appropriate. 

Our probe sample findings detail some significant concerns about how therapy services are 

provided to SNF patients. We found that, with the exception of one facility, more than a quarter 

. . . 111 
and as many as 80 percent of recent therapy services are medically unnecessary in sampled 

SNFs. With almost $7 billion in therapy charges nationally in 1996 and the upward trend not 

abating, we believe that Medicare is paying significant amounts for medically unnecessary 

physical and occupational therapy. 

The Balanced Budget Act, with its implementation of a prospective payment system for 

Part A beneficiaries and a $1,500 cap on therapy services for Part B beneficiaries, creates an 

appropriate structure to control the cost of therapy services. At the same time, we believe that 

the cost formulas being used to develop the prospective payment rates and Part B cap could be 

significantly compromised by the volume of medically unnecessary services. 

During 1998, we will conduct a full national study to quantify the extent of medically 

unnecessary services and to develop baseline data to compare therapy utilization before and after 

implementation of the Balanced Budget Act. 

iv 
TABLE OF CONTENTS 

EXECUTIVE SUMMARY 

PAGE 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..l 

PROBE SAMPLE FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 

l Medically unnecessary therapies at sampled facilities ranged from 4 to 80 percent ........ 8 

l Multiple factors account for high volume of medically unnecessary services ............. 9 

. Other observations raise additional concerns ..................................... 10 

SUMMARYTABLE.. ........................................................ 12 

CONCLUSION ............................................................ ..13 
INTRODUCTION 

PURPOSE 

The purpose of this inspection was to determine, through a probe sample, whether sufficient 

evidence of medically unnecessary physical and occupational therapy exists to warrant 

conducting a national study. 

BACKGROUND 

Medicare (Parts A and B) 

Congress enacted Medicare in 1965 to provide health services to the elderly and disabled. The 

program consists of two distinct parts. The first part is hospital insurance or Part A. 

Part A covers services furnished by providers, i.e., hospitals, home health agencies, and skilled 

nursing facilities. The second part, supplementary medical insurance or Part B, covers a wide 

range of medical services and supplies. These include physician services, outpatient hospital 

services, diagnostic laboratory tests, x-rays, ambulance services, and durable medical equipment. 

The Health Care Financing Administration (HCFA) administers Medicare and contracts with 

private insurance companies to process and pay claims. Contractors that process Part A claims 

are referred to asfiscal intermediaries. Contractors that process Part B claims are called 

carriers.’ Some contractors have both fiscal intermediary and carrier components. The 

HCFA provides substantial guidance to fiscal intermediaries and carriers on applicable laws, 

regulations, national polices, fee schedules, and other requirements. 

Skilled Nursing Facilities 

This inspection focuses on patients in Medicare-certified skilled nursing facilities (SNFs). All 

SNFs must meet the requirements of Section 1819 of the Medicare law. The facility must, for 

example, (1) provide 24-hour nursing service under policies developed by physicians, registered 

nurses, or other professionals; (2) develop health plans for each patient, under the supervision of 

a physician; (3) maintain clinical records on all patients; and (4) meet a number of conditions to 

assure patients’ health and safety. 

1 An exception to this general rule is that fiscal intermediaries process Part B claims submitted by hospitals 

(for inpatient and outpatient services), home health agencies, and skilled nursing facilities. 

1 
Unlike other long-term care facilities, SNFs may be reimbursed under Part A as well as for any 

patients who receive Part B-covered services only. The Medicare program provides coverage 

under Part A for skilled nursing facility services but not for custodial care.2 

The Part A SNF benefit includes: 

b nursing care, 

b bed and board, 

b physical, occupational, or speech therapy, 

b medical social services, and 

b drugs, biologicals, supplies, appliances, and equipment for use in the facility. 

Medicare law stipulates that beneficiaries are eligible for Part A benefits if they are transferred to 

a SNF after a minimum 3-day covered stay in an acute hospital. The patient must require skilled 

nursing care, and a physician must order the services. Part A covers SNF services for up to 

100 days per “spell of illness.” The beneficiary is responsible for a copayment for the 

2 1st through 100th day of care. After 100 days, beneficiaries are not covered under the 

SNF benefit, but they may be covered for various services under Part B, even while they are 

receiving only custodial care. 

Most SNFs provide custodial care as well as skilled nursing services. The SNFs are responsible 

for meeting the needs of long-term patients who are eligible for Part B services only during their 

stay. 

Therapy Services for SNF Patients 

What are nhvsical and occunational therapy? 

According to the American Physical Therapy Association, physical therapy primarily involves 

(1) examining patients with impairments or functional limitations in order to determine a 

diagnosis and intervention and (2) designing, implementing, and modifying a program to 

alleviate those impairments. Among other things, physical therapists evaluate patients’ motor 

function, range of motion, posture, pain, gait, and balance. Common treatments include 

therapeutic exercise, functional training in activities of daily living, prescription and 

customization of prosthetic devices, and wound care. For example, physical therapy may include 

therapeutic exercises--such as knee extensions to restore injured joints--or walking on ramps, 

stairs, or curbs to improve walking ability impaired by injury or illness. 

2 Facilities that are certified by Medicare to provide skilled nursing services are referred to as skilled nursing 

facilities, even if most of their patients do not receive skilled nursing services. 

2 
According to Medicare guidelines, occupational therapy is: 

...medically prescribed treatment concerned with improving or restoring functions 

which have been impaired by illness or injury, or, where function has been 

permanently lost or reduced by illness or injury, to improve the individual’s ability 

to perform those tasks required for independent functioning [emphasis added]. 

Occupational therapy primarily focuses on compensatory techniques to improve a patient’s 

ability to complete activities of daily living. Some examples include teaching a patient who has 

lost the use of an arm how to pare potatoes and chop vegetables with one hand and designing, 

fabricating, and training a patient in the use of a device that would enable him to hold a utensil 

and feed himself independently. 

A SNF resident may receive more than one type of therapy. While Medicare regulations define 

common illnesses and injuries requiring therapy services, the regulations do not specifically bar 

therapy for illnesses or injuries that are not mentioned. 

Who nrovides nhvsical and occunational theranv services? 

A number of different entities provide physical and occupational therapy in SNFs. The 

SNPs frequently contract with rehabilitation agencies, certified outpatient rehabilitation facilities 

(CORPS), hospitals, or individuals to provide therapy services on-site. Rehabilitation agencies 

and CORPS provide most SNF therapy services by contracting with therapy professionals. In 

other instances, SNFs have therapy professionals on staff on-site or transport patients to 

outpatient therapy providers. 

Medicare regulations define most therapy providers: 

t Physical therapists must be graduates of an accredited physical therapy curriculum and 

be licensed by the State in which they practice. 

F Occupational therapists must be (1) graduates of a curriculum jointly accredited by the 

American Medical Association’s Committee on Allied Health Education and the 

American Occupational Therapy Association or (2) eligible for the National Registration 

Examination of the American Occupational Therapy Association. 

b Physical therapy assistants must be graduates from a 2-year college-level program 

approved by the American Physical Therapy Association and be licensed by the State in 

which they practice. Physical therapy assistants provide services to patients under the 

direct supervision of a physical therapist. Physical therapy assistants also supervise 

physical therapy aides and document treatment progress. 

w Occupational therapy assistants must be certified by the American Occupational 

Therapy Association. 

3 
t Physical therapy aides are non-licensed workers who perform designated routine tasks 

under the direct supervision of a physical therapist or physical therapy assistant.3 Their 

duties include assisting patients with robing and disrobing, positioning patients for 

treatments and tests, administering routine treatments such as hydrotherapy, hot packs, 

and paraffin baths, transporting patients to and from treatment areas, and cleaning the 

work area after treatment. 

What does Medicare cover? 

All SNFs are required by law to assess each patient’s status and needs, including the need for 

physical and occupational therapy. The Nursing Home Reform Act (P.L. lOO-203), which 

Congress passed as part of the Omnibus Budget Reconciliation Act of 1987 (OBRA 87), requires 

that SNFs assessthe needs of all residents within 14 days of admission and annually. This 

assessment is completed through the Resident Assessment Instrument which identifies a 

resident’s unique physical and mental health problems. According to the Act, problems 

identified through the assessment must be treated to attain or maintain “the highest practicable 

level” of functioning, taking into account the resident’s physical, mental, and psychosocial wellbeing. 

Coverage guidelines state that all therapy services must be reasonable and necessary and speczjk 

and effective treatment for the condition. The HCFA requires that therapy services be dictated by 

a written plan of treatment. The treatment plan must include specific and measurable functional 

goals along with a reasonable estimate of when those goals will be attained. It should describe 

the specific therapeutic services (modalities) that will be utilized, the frequency of visits, and the 

duration of services. Services must be ordered by a physician and require the skills of a qualified 

therapist. 

While therapies are generally expected to result in the full or partial restoration of function, this 

is not required. Coverage guidelines state: 

The fact that full or partial recovery is not possible or rehabilitation potential is 

not present is not the deciding factor. The deciding factor is based on whether the 

services are reasonable effective treatment for the patient’s condition and require 

the skills of a physical therapist, or whether they can be safely and effectively 

carried out by non-skilled personnel, without the physical therapist’s supervision. 

The guidelines state that therapists should document the reason why therapy is medically 

necessary and the goal of the treatment, even if the goal is not full or partial restoration of 

function. 

3 Supervisory requirements vary by State. 

4 
How does Medicare nav for theranv services for SNF natients? 

Almost all therapy services are billed by SNFs to fiscal intermediaries. In general, SNFs either 

contract with rehabilitation agencies for services or use in-house staff. 

A majority of SNFs contract and bill “under arrangement” for therapy services. Under these 

arrangements, SNFs contract with therapy service providers who bill the SNF for services. The 

SNFs submit claims to Medicare, typically marking up the amount claimed for overhead. Fiscal 

intermediaries reimburse services billed under arrangement on a cost basis. The costs for 

physical therapy services provided by rehabilitation agencies and billed by SNFs are subjected to 

hourly salary equivalency guidelines. The HCFA implemented salary equivalency guidelines for 

physical therapy in 1975 to ensure that it did not reimburse providers for excessive contracted 

therapy costs. While SNFs may charge amounts that are considered to be reasonably related to 

costs, the guidelines are applied to SNFs’ costs when they submit their cost report. 

Until recently, occupational therapy services were not subjected to salary equivalency guidelines. 

The HCFA recently published final salary equivalency guidelines for occupational therapy and 

also revised the physical therapy guideline amounts. 

When SNFs use staff therapists, the salaries and fringe benefits paid to those staff become the 

cost of providing the services and the basis for the amount claimed. These costs are not 

subjected to physical therapy salary equivalency guidelines. In rare cases, SNFs transport 

patients to other facilities for therapy or contract with a rehabilitation agency or other therapy 

provider that bills Medicare directly. 

Recent Increases in Outlays for Physical and Occupational Therapy 

In 1996, SNF charges for physical and occupational therapy services were approximately 

$6.7 billion. Most of the charges were for services provided under arrangement, and a majority 

of the charges were for beneficiaries covered by the SNF benefit: 

Part A chargescomprisethe majority of therapy claims 

1Beneficiary Coverage I 1996 Charges I 1996 Claims I 

1PartA I $5.3 billion I 2.2 million I 

IPart B I $1.4 billion I 1.1 million I 

After Congress passed OBRA 87, therapy service utilization increased significantly. According 

to the General Accounting Office (GAO), charges for occupational therapy grew 1,968 percent 

from 1989 to 1995, and charges for physical therapy grew 646 percent during that same period. 

This trend does not appear to be abating. The following table illustrates the increases in charges 

and claims for physical and occupational therapy from 1994 to 1996: 

5 
Chargesand claims for physical and occupationaltherapy continue to skyrocket 

Charges (percentage increase Claims (percentage increase Therapy between 1994 and 1996) between 1994 and 1996) 

1Physical Therapy I 62.8% I 41.2% I 

1Occupational Therapy 66.9% I 52.8% I 

Recent Work on Therapy in SNFs 

Two 1996 GAO reports describe other weaknesses in Medicare’s oversight of therapy services. 

Both reports describe the need for HCFA to rapidly implement salary equivalency guidelines for 

occupational therapy. The first report, “Medicare: Tighter Rules Needed to Curtail Overcharges 

for Therapy in Nursing Homes,” also states that it was impossible to determine how much time a 

therapist spent with a patient by reviewing claims. As a result, it is difficult to determine 

whether Medicare is being overbilled. The second report, “Early Resolution of Overcharges for 

Therapy in Nursing Homes is Unlikely,” reiterated these problems and concerns. 

The Balanced Budget Act of 1997 

The Balanced Budget Act of 1997 significantly changes how SNFs will be reimbursed for 

physical and occupational therapy. For Part A beneficiaries, it requires that HCFA implement 

a prospective payment system for SNFs that incorporates therapy services, to be phased in 

over several years. The Act requires that the prospective payment rates be based on 

SNFs’ 1995 allowable costs plus an estimate of the amounts that would have been payable 

under Part B for certain services, such as physical and occupational therapy. 

The HCFA also will implement a $1,500 annual cap on therapy services for Part B beneficiaries, 

whether or not they reside in SNFs. In addition, the legislation requires that all Part B ancillary 

services provided to SNF residents be billed to Medicare by the SNF under a consolidated billing 

program. 

Probe Sample Methodology 

For the probe, we selected a stratified random sample of six SNFs that (1) billed Medicare for 

more than $291,500 in therapy charges in 1996, (2) are in 11 selected counties in northern and 

southern California, and (3) are administered by either Blue Cross of California or Mutual of 

Omaha. In order to increase statistical precision, we divided large SNFs into multiple sampling 

units. We eliminated SNFs from our sample if we could not determine how they provided 

physical and occupational therapy from HCFA’s Online Survey Certification and Reporting 

system. 

Blue Cross of California and Mutual of Omaha provided us with claims that they had received or 

processed during August 1997 for these six facilities. We randomly selected 15 claims to review 

6 
at each site. We contracted with Inaba-Foto Associates to conduct the on-site medical review. 

Inaba-Foto Associates contracts with several fiscal intermediaries nationally to conduct medical 

review on therapy service claims. 

We evaluated medical records and therapy ledgers to assess compliance with the medical 

necessity criteria set forth in Medicare’s SNF manual. The review included determining 

whether: 

b the patient was a good candidate for physical and/or occupational therapy, i.e., he or she 

could benefit from the services; 

b the services were ordered by a physician; 

b the condition warranting the therapy was documented in the records; 

t the plan of treatment and therapist’s goals were appropriate; 

t the modalities and frequency and duration of treatment were clearly delineated and 

followed; 

b appropriate therapy staff performed the services; and 

t the records clearly documented the patient’s progress. 

We analyzed a total of 80 records--l4 or 15 records at each site except one SNF that had only 

8 claims processed during August 1997. We also observed therapy services being performed, 

interviewed SNF and therapy staff, and obtained copies of therapy service contracts. 

We determined the percentage of medically unnecessary therapy services in two ways. Four 

SNFs provided us with itemized ledgers which allowed us to determine how much the 

SNFs charged for medically unnecessary services. Two SNFs were unable to provide us with 

ledgers. For these SNFs, the percentage of medically unnecessary services is based on the 

percentage of visits documented in the medical record that were medically unnecessary. The 

table on page 8 notes how we determined the percentage of medically unnecessary services for 

each SNF. 

We believe that evaluating charges is the most accurate way to assessmedical necessity because 

it enables us to allow or disallow parts of services and to account for the difference in the length 

of a particular therapy service. It also enables us to make distinctions between therapy 

evaluations and regular therapy sessions. SNFs typically bill more for evaluations. 

In order to assess the effect of using different methods to determine the percentage of medically 

unnecessary services, we determined the percentage of medically unnecessary services using 

visits for the four SNFs that provided us with itemized ledgers. In all cases, we found that the 

percentages corresponded within a few percentage points of the percentages we found using the 

itemized charges. 

7 
PROBE SAMPLE FINDINGS 

Medically unnecessary physical and occupational therapy services at sampled 

facilities ranged from less than 4 to more than 80 percent 

As the table below illustrates, more than one-quarter of physical and occupational therapy 

services were medically unnecessary at five of the six SNFs we reviewed. The SNF with less 

than 4 percent medically unnecessary services recently had been under prepayment review by its 

fiscal intermediary: 

Ratesof medically unnecessaryservicesvary widely 

in sampledSNFs 

Percentage Percent that failed to Percentage with no 

Facility medically meet Medicare medical physician order or 

unnecessary necessity criteria documentation missing 

I #l I 80.3** I 65.1 I 15.1 

I #2 I 43.3* I 41.6 I 1.7 

I #3 I 54.3* I 54.0 I 0.3 

I #4 I 27.5* I 27.1 I 0.4 

I #5 I 3.7** I 3.1 I 0.5 

#6 62.6* 55.4 7.3 

* Percent medically unnecessary based on itemized charges in SNF ledgers 

** Percent medically unnecessary based on visits documented in medical records (ledgers not availat e) 

Some totals do not equal the overall percentage of medically unnecessary services due to rounding. 

The percentage of medically unnecessary services is based on instances where (1) we determined 

that the services failed to meet Medicare coverage criteria and (2) the patient’s file lacked the 

physician order or documentation that the services had been provided at all. 

While denial rates for both types of therapy were high, occupational therapy was more likely to 

be medically unnecessary than physical therapy at five of the six sites. The following chart 

illustrates this variation: 

8 
Ratesof medically unnecessaryserviceswere slightly higher 

for occupationaltherapy than physical therapy 

Percentage of 

OccupationalTherapy 

Medically Unnecessary 

#6 57.7* 

* Percent medically unnecessary based on itemized chaq 

** Percent medically unnecessary based on visits 

Multiple factors account for the high volume of medically unnecessary 

services 

While many factors account for the volume of unnecessary therapy, three major reasons emerged 

in our analysis of these services: (1) skilled services are frequently provided when non-skilled 

services would be more appropriate, (2) therapists sometimes ignore the beneficiary’s prior leve:l 

of function and set unrealistic goals, and (3) the frequency of therapy is sometimes excessive. 

Skilled services are frequently provided when non-skilled services would be more appropriate 

Some beneficiaries simply require help in building strength and endurance but receive skilled 

physical and occupational therapy instead. Assistance in building strength and endurance should 

be performed by nursing staff. Of the 80 beneficiaries we assessed, 14 did not require skilled 

services at all. These patients received thousands of dollars of physical and occupational therapy 

nonetheless. In these cases, the therapist’s role should have been only to design a program of 

routine therapy to be administered by nursing staff. 

Therapists fail to cease therapy or transition patients to a nursing program within an appropriate 

amount of time. Many of the beneficiaries who received medically unnecessary services 

received appropriate evaluations and some medically necessary services. However, patient 

records often did not support the need for on-going skilled therapy services. We estimate that 

26 of the 80 beneficiaries we reviewed should have been transitioned to routine nursing services 

after some skilled services had been provided. The therapist’s role should have changed from 

providing services to designing a nursing routine that would continue the patient’s improvement 

and help maintain the gains. 

9 
Therapists sometimes ignore the beneficiary’s prior level offunction and set unrealistic goals 

Therapists are required to design realistic short- and long-term therapeutic goals for patients. 

These are used to guide the course and ultimately judge the success of the treatment. If a 

therapist sets unrealistic goals, the patient will receive lengthy and unsuccessful treatments. In 

14 of our 80 cases, the therapist’s goals were unrealistic. These included goals of performing 

independent activities of daily living that the beneficiary had not performed for several years, 

because the beneficiary had a full-time caregiver or was a resident of a nursing home. In other 

cases, the therapist seemed to overestimate a patient’s ability to recover from a debilitating 

illness. 

The frequency of therapy is sometimes excessive 

Some SNF patients in our sample received therapy comparable to patients in acute 

rehabilitation--up to 5 hours per day, according to medical records and ledgers. In 7 out of 

the 80 cases, we deemed the frequency excessive. Most alarming were instances where 

exceptionally frail patients or people with Alzheimer’s disease or advanced senility and dementia 

received 4 to 5 hours of therapy per day for several weeks. It is unlikely that many of these 

patients could tolerate such intensive therapy. In general, we found that physical therapists were 

prone to routinely provide 2 or more hours of therapy per day when the beneficiary would have 

received the maximum benefit from 1 hour of physical therapy per day. 

Other observations raise additional concerns about how therapy is provided 

During our on-site visits, we also had some concerns with issues not directly related to our 

medical review. While observing therapy being performed, we found that the time billed for 

therapy frequently exceeds the actual time that services are provided. In addition, while 

reviewing the history of sampled patients, we observed that recurring hospitalization may trigger 

unnecessary therapy services. 

Time billed for therapy exceeds the actual time that services are provided 

Medicare guidelines state that time billed for therapy services must be for time spent providing 

skilled services. This does not include time spent on documentation, team conferences, or 

unskilled therapy such as simple ambulation. 

Most therapy ledgers that we reviewed showed four units (1 hour) of therapy being performed 

and billed per session. We did not observe any therapy that lasted anywhere close to an hour. 

The GAO report, “Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in 

Nursing Homes,” noted that it was impossible to determine how much time a therapist spent with 

a patient by reviewing claims. 

We did, however, observe that therapists inflated “billed time” by including time to transport or 

ambulate the patient to a therapy area. Time billed as skilled therapy included transferring the 

10 
patient to a wheelchair or walker as skilled therapy. Technically, this is skilled “bed transfer” 

therapy, but it might take another 5 to 10 minutes to ambulate or transport the patient to a therapy 

area, plus an additional 5 to 10 minutes to return the patient to his room. While the therapist 

might give some safety and gait instruction during transport or ambulation, these are not 

considered skilled services, according to Medicare guidelines. 

In addition, patient fatigue frequently requires that a therapist halt a session. Some patients are 

frail and cannot tolerate an hour of skilled therapy. Other patients become combative or 

uncooperative as a therapy session progresses. These instances may force a therapist to stop 

therapy before the allotted hour is up. While the therapist may attempt to complete the daily 

session later in the day, this is not always possible. 

Recurring hospitalization may trigger unnecessary therapy services 

Long-term SNF residents who are hospitalized frequently receive unnecessary therapy when they 

return to the SNF. We found that patients who were hospitalized with medical problems other 

than orthopedic (e.g., hip fracture or replacement) or neurological (e.g., stroke) conditions were 

more likely to receive medically unnecessary services. These patients typically were hospitalized 

for conditions such as dehydration, bowel obstruction, or the onset of congestive heart failure. 

We determined that these patients might (1) require a longer recovery time prior to initiating 

therapy, (2) require only unskilled services to build strength and endurance, or (3) not ever attain 

the level of physical health they possessed before hospitalization, due to the chronic nature of 

their illness. 

11 
SUMMARY TABLE 

The table below summarizes our primary findings at the six sampled facilities: 

Percentage 

Facility Medically Summary 

Unnecessary 

#l 80.3 

#2 43.3 

#3 54.3 

#4 27.5 

#5 3.7 

#6 62.6 

Facility recently changed ownership, but the contracted rehabilitation 

agency remains. Facility exemplifies all of the issues described in this 

report. 

Appropriate candidates and good use of therapists time, but services 

continue beyond the point where skilled therapy is necessary. 

Therapists appear to spend much less time with patients than they bill for. 

Typical issues of inappropriate candidates and excessive frequency and 

duration. 

Expensive therapy management contract adds to the costs. 

Until recently, the fiscal intermediary was reviewing 100 percent of this 

facility’s claims prior to paying them, based on concerns about the medical 

necessity of its therapy services. 

Facility bills inappropriately for routine assessments and team conferences. 

In addition, therapist goals were inappropriate, and therapy did not cease 

when appropriate. 

12 
CONCLUSION 

Our probe sample findings detail some significant concerns about how therapy services are 

provided to SNF patients. We found that, with the exception of one facility, more than a quarter 

and as many as 80 percent of recent therapy services are medically unnecessary in sampled 

SNFs. With almost $7 billion in therapy charges nationally in 1996 and the upward trend not 

abating, we believe that Medicare is paying significant amounts for medically unnecessary 

physical and occupational therapy. 

The Balanced Budget Act, with its implementation of a prospective payment system for 

Part A beneficiaries and a $1,500 cap on therapy services for Part B beneficiaries, creates an 

appropriate structure to control the cost of therapy services. At the same time, we believe that 

the cost formulas being used to develop the prospective payment rates and Part B cap could be 

significantly compromised by the volume of medically unnecessary services. 

During 1998, we will conduct a full national study to quantify the extent of medically 

unnecessary services and to develop baseline data to compare therapy utilization before and after 

implementation of the Balanced Budget Act. 

13