George F. Grob

Deputy Inspector General

for Evaluation and Inspections 

Skilled Nursing Facility Therapy Services Under Part B of Medicare (OEI-09-99-00490) 

Kathleen A. Buto, Deputy Director 

Center for Health Plans and Providers 

Health Care Financing Administration 

Based on our recent discussions and requests from your staff, we have completed some data 

runs and analysis relevant to the Part B therapy caps that were mandated by the Balanced 

Budget Act of 1997. 

We downloaded all of the Calendar Year 1998 Medicare skilled nursing facility (SNF) claims 

data for Part B bills for therapy rendered to nursing home residents. Although this is the year 

prior to the implementation of the therapy caps, we thought it would be valuable to see how 

the caps would have affected SNF patients had they been in effect during 1998. 

During 1998, Medicare was billed $1.92 billion in Part B therapy charges by SNFs who 

provided therapy with their own staff or under arrangement with therapy providers for 629,155 

SNF patients -- $870 million for physical therapy; $658 million for occupational therapy; and 

$393 million for speech therapy. 

In order to determine the effect of the various caps, we assumed an average cost-to-charge 

reimbursement ratio of .6. We based this assumption on cost-to-charge ratios that we had 

collected for 22 of the SNFs that were in the national sample for our recently-completed 

therapy inspection. 

RESULTS 

Current Therapy Caps. Based on our average cost-to-charge ratio assumption, we have 

prepared attached tables and charts (Chart 1 through Chart 4) which show that between 70.9 

and 77.6 percent of all beneficiaries in each category would not have exceeded any of the 

therapy caps and between 22.4 and 29.1 percent would have exceeded the caps had they been 

in place in 1998. These percentages do not include any adjustment for improper billings. 

Other Possible Caps. We have heard from several sources of interest in combining the 

current caps for physical/speech therapy and occupational therapy into a single cap. In order 

to see how a single cap would affect SNF patients, we prepared the attached charts and tables 
Page 2 - Kathleen A. Buto 

(Chart 5 and Chart 6) which show that approximately 35 percent of SNF Part B patients would 

exceed the current $1500 cap if it applied to all therapy services. If the combined cap were 

$3,000 then 17.1 percent would exceed it. The attached tables and graphs make it possible to 

quickly compute how many SNF patients would exceed caps established at other levels. 

SNF Types. We analyzed the data to determine if the type of SNF affected the percentage of 

patients who would exceed the cap. We found that patients in proprietary, free-standing, or 

chain-owned SNFs would be more likely to exceed the cap than patients in nonprofit, 

independently-owned, or hospital-based SNFs (Chart 7). 

By Diagnosis. Concern has been expressed that SNF patients who are hospitalized for strokes 

or hip fractures may require significantly more therapy than others. Therefore, we examined 

patients with these two diagnoses and found that approximately one-third of them would have 

exceeded the current cap. This is several percentage points more than the universe of patients 

when all diagnoses are considered together (Chart 8). 

ASSUMPTIONS AND LIMITATIONS 

As we have noted, our results are based on modeling of 1998 data, the year prior to 

implementation of the caps. In order to perform the modeling we had to make several other 

assumptions. A key assumption, mentioned above, was our need to calculate an average costto-charge ratio based on information that was readily available. We are in the process of 

ascertaining specific cost-to-charge ratios for each SNF that billed for Part B therapy in 1998, 

and will further refine our data based on the specific per facility ratios. 

Furthermore, our analysis is based on charges per facility and does not reflect the possibility 

that a patient may have, in rare instances, resided in different SNFs during 1998. Our results 

roughly approximate a cost per individual, per episode or per year. 

Another significant assumption is that all the services that were charged were medically 

necessary. In a recently completed inspection, we found that 13 percent of physical and 

occupational therapy in SNFs was improperly billed because the services were not medically 

necessary and/or therapy was provided by staff who did not have the appropriate skill for the 

patient’s medical condition. 

Our data does not include any therapy that was provided by therapy providers under agreement 

with a SNF and billed directly to a fiscal intermediary. We do not know the extent of these 

claims, but assume that they are a relatively rare occurrence since we did not find any in our 

recent field work. Also, our data does not include any services to SNF patients by therapists in 

independent practice who would bill the Medicare carrier and would have been subjected to a 

$900 limit which was in effect for their services in 1998. 
Page 3 - Kathleen A. Buto 

ADDITIONAL WORK 

We believe that there is a lot more information that can be gleaned from a careful analysis of 

the 1998 claims data, and we are continuing our analysis. For example, we are planning to 

analyze the data to determine, among other things, how various diagnoses affect the cap, how 

the cap affects individual SNFs, the effect of geographic location, demographic characteristics 

of patients who exceed the cap, and how the first quarter of 1999 compares with the first 

quarter of 1998. 

We are also beginning a study to determine the impact of the cap on access to medically 

necessary physical, occupational, and speech therapy provided to Medicare Part B patients in 

SNFs. This study will focus on SNF patients who received therapy from January 1, 1999 

through September 30, 1999. We anticipate the study will be completed during the Spring of 

2000. 

As we complete any additional analysis, we will discuss our assumptions and data analysis 

options with you and other Departmental staff as well as other interested parties. We hope we 

can provide you with the most meaningful and thorough independent data analysis possible. 

We hope that you find the attached data helpful. Please call me at (202) 619-0480, if you have 

any questions or comments. 

Attachments 
CHART 1

ESTIMATED* PHYSICAL THERAPY REIMBURSEMENT PER SNF STAY

Physical therapy reimbursement Number of stays Percent of stays 

Less than $1,500 309,509 73.9% 

$1,500 to $1,799 23,028 5.5% 

$1,800 to $2,099 17,653 4.2% 

$2,100 to $2,399 13,350 3.2% 

$2,400 to $2,699 10,156 2.4% 

$2,700 to $2,999 7,859 1.9% 

$3,000 to $3,299 6,292 1.5% 

$3,300 to $3,599 4,899 1.2% 

$3,600 to $3,899 3,937 0.9% 

$3,900 to $4,199 3,199 0.8% 

$4,200 to $4,499 2,670 0.6% 

$4,500 to $4,799 2,122 0.5% 

$4,800 to $5,099 1,843 0.4% 

$5,100 to $5,399 1,574 0.4% 

$5,400 to $5,699 1,299 0.3% 

$5,700 to $5,999 1,084 0.3% 

$6,000 or more 8,336 2.0% 

TOTAL 418,810 100.0% 

Percent of stays 

PT reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 2

ESTIMATED* OCCUPATIONAL THERAPY REIMBURSEMENT PER SNF STAY

Occupational therapy reimbursement Number of stays Percent of stays 

Less than $1,500 224,198 72.3% 

$1,500 to $1,799 17,571 5.7% 

$1,800 to $2,099 13,677 4.4% 

$2,100 to $2,399 10,526 3.4% 

$2,400 to $2,699 8,218 2.6% 

$2,700 to $2,999 6,549 2.1% 

$3,000 to $3,299 5,099 1.6% 

$3,300 to $3,599 4,054 1.3% 

$3,600 to $3,899 3,393 1.1% 

$3,900 to $4,199 2,632 0.8% 

$4,200 to $4,499 2,201 0.7% 

$4,500 to $4,799 1,823 0.6% 

$4,800 to $5,099 1,490 0.5% 

$5,100 to $5,399 1,298 0.4% 

$5,400 to $5,699 1,085 0.3% 

$5,700 to $5,999 886 0.3% 

$6,000 or more 5,566 1.8% 

TOTAL 310,266 100.0% 

Percent of stays 

OT reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 3

ESTIMATED* SPEECH THERAPY REIMBURSEMENT PER SNF STAY

Speech therapy reimbursement Number of stays Percent of stays 

Less than $1,500 170,497 77.6% 

$1,500 to $1,799 10,771 4.9% 

$1,800 to $2,099 8,178 3.7% 

$2,100 to $2,399 6,155 2.8% 

$2,400 to $2,699 4,848 2.2% 

$2,700 to $2,999 3,583 1.6% 

$3,000 to $3,299 2,819 1.3% 

$3,300 to $3,599 2,230 1.0% 

$3,600 to $3,899 1,805 0.8% 

$3,900 to $4,199 1,463 0.7% 

$4,200 to $4,499 1,141 0.5% 

$4,500 to $4,799 982 0.4% 

$4,800 to $5,099 766 0.3% 

$5,100 to $5,399 609 0.3% 

$5,400 to $5,699 558 0.3% 

$5,700 to $5,999 476 0.2% 

$6,000 or more 2,933 1.3% 

TOTAL 219,814 100.0% 

Percent of stays 

ST reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 4

ESTIMATED* COMBINED PHYSICAL AND SPEECH THERAPY

REIMBURSEMENT PER SNF STAY

Physical + speech therapy 

reimbursement 

Number of stays Percent of stays 

Less than $1,500 386,885 70.9% 

$1,500 to $1,799 29,325 5.4% 

$1,800 to $2,099 23,258 4.3% 

$2,100 to $2,399 18,023 3.3% 

$2,400 to $2,699 14,131 2.6% 

$2,700 to $2,999 11,354 2.1% 

$3,000 to $3,299 9,298 1.7% 

$3,300 to $3,599 7,474 1.4% 

$3,600 to $3,899 6,203 1.1% 

$3,900 to $4,199 5,197 1.0% 

$4,200 to $4,499 4,445 0.8% 

$4,500 to $4,799 3,674 0.7% 

$4,800 to $5,099 3,174 0.6% 

$5,100 to $5,399 2,686 0.5% 

$5,400 to $5,699 2,363 0.4% 

$5,700 to $5,999 1,999 0.4% 

$6,000 or more 15,908 2.9% 

TOTAL 545,397 100.0% 

Percent of stays 

Combined PT + ST reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 5

ESTIMATED* COMBINED PHYSICAL AND OCCUPATIONAL THERAPY

REIMBURSEMENT PER SNF STAY

Physical + occupational therapy 

reimbursement 

Number of stays Percent of stays 

Less than $1,500 359,122 65.7% 

$1,500 to $1,799 29,874 5.5% 

$1,800 to $2,099 24,111 4.4% 

$2,100 to $2,399 19,464 3.6% 

$2,400 to $2,699 15,970 2.9% 

$2,700 to $2,999 13,057 2.4% 

$3,000 to $3,299 11,082 2.0% 

$3,300 to $3,599 9,190 1.7% 

$3,600 to $3,899 7,977 1.5% 

$3,900 to $4,199 6,642 1.2% 

$4,200 to $4,499 5,695 1.0% 

$4,500 to $4,799 4,937 0.9% 

$4,800 to $5,099 4,366 0.8% 

$5,100 to $5,399 3,745 0.7% 

$5,400 to $5,699 3,335 0.6% 

$5,700 to $5,999 2,945 0.5% 

$6,000 or more 25,323 4.6% 

TOTAL 546,835 100.0% 

Percent of stays 

Combined PT + OT reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 6

ESTIMATED* COMBINED PHYSICAL, OCCUPATIONAL, AND SPEECH

THERAPY REIMBURSEMENT PER SNF STAY

Physical + occupational + speech 

therapy reimbursement 

Number of stays Percent of stays 

Less than $1,500 412,756 64.3% 

$1,500 to $1,799 34,200 5.3% 

$1,800 to $2,099 27,962 4.4% 

$2,100 to $2,399 22,786 3.6% 

$2,400 to $2,699 18,807 2.9% 

$2,700 to $2,999 15,468 2.4% 

$3,000 to $3,299 13,134 2.0% 

$3,300 to $3,599 11,098 1.7% 

$3,600 to $3,899 9,662 1.5% 

$3,900 to $4,199 8,157 1.3% 

$4,200 to $4,499 7,212 1.1% 

$4,500 to $4,799 6,067 0.9% 

$4,800 to $5,099 5,463 0.9% 

$5,100 to $5,399 4,829 0.8% 

$5,400 to $5,699 4,279 0.7% 

$5,700 to $5,999 3,849 0.6% 

$6,000 or more 36,128 5.6% 

TOTAL 641,857 100.0% 

Percent of stays 

Combined PT + OT + ST reimbursement category ($300 increments) 

*Based on a cost-to-charge ratio of .6 
CHART 7

EFFECT OF THERAPY CAP BY FACILITY CATEGORIES

Type of 

therapy 

For each category, percent of stays in which 

estimated part B therapy reimbursement reached $1,500 

SNF status SNF type of ownership SNF affiliation 

Forprofit Not-forprofit multifacility 

Part of 

chain 

Independently 

owned 

Freestanding Hospitalbased 

Physical 28.9% 19.5% 29.1% 21.4% 26.3% 15.6% 

Occupational 30.5% 20.8% 30.4% 23.4% 28.1% 10.4% 

Speech 24.5% 16.8% 24.8% 18.5% 22.7% 9.2% 

Physical + 

speech 32.0% 22.0% 32.3% 24.0% 29.4% 16.0% 

CHART 8

EFFECT OF THERAPY CAP FOR STROKE AND HIP FRACTURE DIAGNOSES 1

Type of therapy 

For beneficiaries with selected diagnosis, percent of stays in 

which estimated part B therapy reimbursement reached $1,500 

Stroke Hip fracture All diagnoses 

Physical 32.4% 32.3% 26.1% 

Occupational 32.8% 29.8% 27.7% 

Speech 29.5% 21.8% 22.4% 

Physical + speech 38.2% 34.6% 29.1% 

1For the “stroke” category, we included all beneficiaries whose SNF claim included an

ICD-9 diagnosis code beginning with 430, 431, 432, 433, 434, or 438. For “hip fracture,” we

used ICD-9 diagnoses beginning with 820.