Report to the Chairman, Committee on 

Finance, U.S. Senate 

United States Government Accountability Office

GAO 

August 2004 COMPREHENSIVE 

OUTPATIENT 

REHABILITATION 

FACILITIES 

High Medicare 

Payments in Florida 

Raise Program 

Integrity Concerns 

GAO-04-709 
www.gao.gov/cgi-bin/getrpt?GAO-04-709.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Leslie G. 

Aronovitz at (312) 220-7600. 

Highlights of GAO-04-709, a report to the 

Chairman, Committee on Finance, U.S. 

Senate 

August 2004

COMPREHENSIVE OUTPATIENT 

REHABILITATION FACILITIES 

High Medicare Payments in Florida Raise 

Program Integrity Concerns 

Comprehensive Outpatient 

Rehabilitation Facilities (CORF) 

are highly concentrated in Florida. 

These facilities, which provide 

physical therapy, occupational 

therapy, speech-language 

pathology services, and other 

related services, have been 

promoted as lucrative business 

opportunities for investors. Aware 

of such promotions, you raised 

concerns about whether Medicare 

could be vulnerable to overbilling 

for CORF services. In this report, 

focusing our review on Florida, we 

(1) compared Medicare’s 

outpatient therapy payments to 

CORFs in 2002 with its payments 

that year to other facility-based 

outpatient therapy providers and 

(2) assessed the program’s 

effectiveness in ensuring that 

payments to CORFs complied with 

Medicare rules. 

GAO recommends that CMS direct 

the Florida contractor to medically 

review a larger number of CORF 

claims. While CMS agreed with our 

findings, it noted that the 

contractor is already taking 

appropriate steps to monitor CORF 

claims. However, given that 

CORFs continued to bill 

significantly more per beneficiary 

than other outpatient therapy 

providers under the current level of 

scrutiny, we maintain that 

enlarging the number of CORF 

claims reviewed would promote 

compliance in this vulnerable area. 

In Florida, CORFs were by far the most expensive type of outpatient therapy 

provider in the Medicare program in 2002. Per-patient payments to CORFs 

for therapy services were 2 to 3 times higher than payments to other types of 

facility-based therapy providers. Higher therapy payments were largely due 

to the higher volume of services—more visits or more intensive therapy per 

visit—delivered to CORF patients. This pattern of relatively high CORF 

payments was evident in each of the eight metropolitan statistical areas 

(MSA) of the state where nearly all Florida CORFs operated and the vast 

majority of CORF patients were treated. A consistent pattern of high 

payments and service levels was also evident for patients in each of the 

diagnosis categories most commonly treated by CORFs. Differences in 

patient characteristics—age, sex, disability, and prior inpatient 

hospitalization—did not explain the higher payments that Florida CORFs 

received compared to other types of outpatient therapy providers. 

Steps taken by Medicare’s claims administration contractor for Florida have 

not been sufficient to mitigate the risk of improper billing by CORFs. After 

examining state and national trends in payments to CORFs in 1999, the 

contractor increased its scrutiny of CORF claims to ensure that Medicare 

payments made to CORFs were appropriate. It found widespread billing 

irregularities in Florida CORF claims, including high rates of medically 

unnecessary therapy services. Since late 2001, the contractor has intensified 

its review of claims from new CORF providers and required medical 

documentation to support certain CORF services considered at high risk for 

billing errors. It has also required that supporting medical records 

documentation be submitted with all CORF claims for about 650 

beneficiaries who had previously been identified as receiving medically 

unnecessary services. The contractor’s analysis of 2002 claims data for this 

limited group of beneficiaries suggests that, as a result of these oversight 

efforts, Florida CORFs billed Medicare for substantially fewer therapy 

services than in previous years. However, our analysis of all CORF therapy 

claims for that year indicates that the contractor’s program safeguards were 

not completely effective in controlling per-patient payments to CORFs 

statewide. With oversight focused on a small fraction of CORF patients, 

CORF facilities continued to provide high levels of services to beneficiaries 

whose claims were not targeted by the contractor’s intensified reviews. 
Page i GAO-04-709 Florida CORFs 

Letter 1

Results in Brief 3

Background 5

Florida CORFs Received Higher Average Therapy Payments, 

Despite Treating Similar Patients 8

Actions by the Florida Contractor Were Not Sufficient to Ensure 

Appropriate Payments to CORFs 13

Conclusions 18

Recommendation 18

Agency Comments and Our Evaluation 18

Appendix I Objectives, Scope, and Methodology 20 

Appendix II Comments from the Centers for Medicare & Medicaid 

Services 24 

Appendix III GAO Contact and Staff Acknowledgments 26 

GAO Contact 26

Acknowledgments 26

Tables 

Table 1: Therapy Payments and Units of Service Per Patient by 

Type of Provider, Florida, 2002 8

Table 2: Therapy Payments Per Patient by Type of Provider in 

Selected Florida MSAs, 2002 9

Table 3: Therapy Payments Per Patient by Provider Type for 

Selected Diagnosis Categories, Florida, 2002 10

Table 4: Units of Therapy Service Per Patient by Provider Type for 

Selected Diagnosis Categories, Florida, 2002 11

Table 5: Medicare Payments to Selected Florida CORFs for All 

Types of Services, 2002 17

Contents 
Page ii GAO-04-709 Florida CORFs 

Abbreviations 

CMS Centers for Medicare & Medicaid Services 

CORF Comprehensive Outpatient Rehabilitation Facility 

CWF Common Working File 

HHS OIG Department of Health and Human Services Office of 

 Inspector General 

MSA metropolitan statistical area 

NCH National Claims History File 

OPD outpatient department 

PIP-DCG Principal Inpatient Diagnostic Cost Group 

SNF skilled nursing facility 

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Page 1 GAO-04-709 Florida CORFs 

August 12, 2004 

The Honorable Charles E. Grassley 

Chairman 

Committee on Finance 

United States Senate 

Dear Mr. Chairman: 

Outpatient therapy services are a covered benefit under Medicare—the 

federal program that finances health services for approximately 40 million 

elderly and disabled individuals. Each year, about 9 percent of Medicare 

beneficiaries use outpatient therapy services—defined by the Medicare 

program as physical therapy, occupational therapy, and speech-language 

pathology services—to improve mobility and functioning.1

 To qualify for 

coverage of outpatient therapy services under Medicare, beneficiaries 

must be referred by a physician, have a written treatment plan that is 

reviewed periodically by a physician, and need therapy for rehabilitation 

rather than maintenance purposes.2

 Several types of facility-based 

providers offer outpatient therapy services, including outpatient 

departments (OPD) at hospitals and skilled nursing facilities (SNF), and 

rehabilitation agencies. These providers deliver services in ambulatory 

settings such as clinics and community hospital outpatient departments. 

In many states, therapy services are also available through Comprehensive 

Outpatient Rehabilitation Facilities (CORF). In 1980, Congress recognized 

CORFs as potential Medicare participating providers to allow beneficiaries 

access to both physician and therapy services in one stand-alone 

 1

Physical therapy treatments—such as whirlpool baths, ultrasound, and therapeutic 

exercises—are designed to improve mobility, strength, and physical functioning, and limit 

the extent of disability resulting from injury or disease. Occupational therapy helps patients 

learn the skills necessary to perform daily tasks and function independently. Speechlanguage pathology services include the diagnosis and treatment of speech, language, and 

swallowing disorders. 

2

Medicare does not cover maintenance therapy—therapy services performed to maintain, 

rather than improve, a beneficiary’s level of functioning. Examples of maintenance therapy 

are when a patient’s restoration potential is insignificant in relation to the therapy required 

to achieve such potential, when it has been determined that the treatment goals will not 

materialize, or when the therapy performed is considered to be a general exercise program. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-709 Florida CORFs 

outpatient facility.3 CORFs are different from other types of Medicarecertified outpatient therapy providers in that, in addition to physical 

therapy, regulations require that they offer psychological or social services 

and the services of a physician who specializes in rehabilitation medicine.4

They are also unique in their authority to provide a variety of nontherapy 

services—such as respiratory treatment or nursing care—as medically 

necessary in the context of a patient’s rehabilitation therapy treatment 

plan.5

 In general, services must be provided on the CORF premises at a 

single, fixed location. However, physical therapy, occupational therapy, 

and speech-language pathology services may be provided in places other 

than the CORF’s main location, such as in a patient’s home. Back 

disorders, arthritis, soft tissue injuries (such as joint sprains and strains), 

and neurologic disorders (such as concussion) are common conditions 

treated at CORFs. 

In recent years, CORF marketing consultants have actively promoted the 

establishment of CORFs as lucrative business opportunities for investors. 

For example, one consultant’s marketing materials stated that “every new 

CORF office is expected to pre-tax net at least $400,000 to $500,000 after a 

start-up period. . . With or without any medical background, you can own a 

small medical facility.” Aware of such promotions, you raised concerns 

about whether Medicare could be vulnerable to overbilling for CORF 

services. In fact, in 2000, the Department of Health and Human Services 

Office of Inspector General (HHS OIG) reported a high level of improper 

billing by outpatient therapy providers in several states.6

 3

The conditions under which Medicare will pay for outpatient therapy services provided by 

a CORF were established by the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, § 

933, 94 Stat. 2599, 2635. 

4

Rehabilitation medicine is the treatment of individuals with disabling conditions and 

diseases, designed to yield improvement in function, level of independence, and quality of 

life. 

5

While CORFs must be able to provide all of the therapy and related nontherapy services 

required by each patient’s treatment plan, they are not permitted to provide nontherapy 

services alone; such services must be delivered as a component of each patient’s 

rehabilitative therapy treatment. Furthermore, although each CORF chooses which of 

these services to offer, a facility cannot accept a patient unless it can provide all required 

services. 

6

States included in the study were Florida, Louisiana, Michigan, New Jersey, Pennsylvania, 

and Texas. See HHS/OIG, Six-State Review of Outpatient Rehabilitation Facilities, pub. 

A-04-99-01193 (Washington D.C.: March 2000). 
Page 3 GAO-04-709 Florida CORFs 

In this report, we (1) compared Medicare’s outpatient therapy payments to 

CORFs in 2002 with its payments that year to other facility-based 

outpatient therapy providers and (2) assessed the program’s effectiveness 

in ensuring that payments to CORFs complied with Medicare rules. As 

agreed with your staff, we focused our review on Florida providers and 

Medicare’s Florida claims administration contractor because, with nearly 

200 CORFs in operation at the end of 2002, that state had one-third of the 

nation’s CORFs and far more of these facilities than any other state. 

To address these issues, we analyzed Medicare claims data for services 

provided in 2002 (the most current data available) by CORFs, 

rehabilitation agencies, hospital OPDs, and SNF OPDs. We also 

interviewed officials at the Centers for Medicare & Medicaid Services 

(CMS)—the federal agency that oversees the Medicare program—the 

Florida contractor responsible for processing and paying Medicare’s 

CORF claims, federal law enforcement agencies, and therapy industry 

experts. In addition, we reviewed relevant investigative reports by the HHS 

OIG and the Florida claims administration contractor on the improper 

billing activities of some CORFs. (For a detailed description of our 

methodology and procedures we followed for evaluating the reliability of 

the data we used, see app. I.) This work was performed from May 2003 

through July 2004 in accordance with generally accepted government 

auditing standards. 

In Florida, CORFs were by far the most expensive type of outpatient 

therapy provider in the Medicare program in 2002. Per-patient payments to 

CORFs for therapy services were 2 to 3 times higher than payments to 

other types of facility-based therapy providers. Higher therapy payments 

were largely due to the higher volume of services—more visits or more 

intensive therapy per visit—delivered to CORF patients. This pattern of 

relatively high CORF payments was evident in each of the eight 

metropolitan statistical areas (MSA) of the state where nearly all Florida 

CORFs operated and the vast majority of CORF patients were treated. A 

consistent pattern of high payments and service levels was also evident for 

patients in each of the diagnosis categories most commonly treated by 

CORFs. Differences in patient characteristics—age, sex, disability, and 

prior inpatient hospitalization—did not explain the higher payments that 

Florida CORFs received compared to other outpatient therapy provider 

types. 

Results in Brief 
Page 4 GAO-04-709 Florida CORFs 

Steps taken by Medicare’s claims administration contractor for Florida 

have not been sufficient to mitigate the risk of improper billing by CORFs. 

After examining state and national trends in payments to CORFs in 1999, 

the contractor increased its scrutiny of CORF claims to ensure that 

Medicare payments made to CORFs were appropriate. It found widespread 

billing irregularities in Florida CORF claims, including high rates of 

medically unnecessary therapy services. Since late 2001, the contractor 

has intensified its review of claims from new CORF providers and required 

medical documentation to support certain CORF services considered at 

high risk for billing errors. It has also required that supporting medical 

records documentation be submitted with all CORF claims for about 650 

beneficiaries who had previously been identified as receiving medically 

unnecessary services. The contractor’s analysis of 2002 claims data for this 

limited group of beneficiaries suggests that, as a result of these oversight 

efforts, Florida CORFs billed Medicare for substantially fewer therapy 

services than in previous years. However, our analysis of all CORF therapy 

claims for that year indicates that the contractor’s program safeguards 

were not completely effective in controlling per-patient payments to 

CORFs statewide. With oversight focused on a small fraction of CORF 

patients, CORF facilities continued to provide high levels of services to 

beneficiaries whose claims were not targeted by the contractor’s 

intensified reviews. 

We recommend that CMS direct the Florida claims administration 

contractor to medically review a larger number of CORF claims. 

In commenting on a draft of this report, CMS agreed with our findings but 

noted that contractors have limited resources for medical review. The 

agency also stated that the Florida claims administration contractor is 

already taking appropriate steps to address concerns about CORF billing. 

We recognize that contractors can achieve efficiencies by targeting their 

medical review activities on areas where the financial risk to Medicare is 

greatest. However, the impact of medical review comes, in part, from the 

sentinel effect of consistently applying medical review to providers’ 

claims. Given that Florida CORFs continued to bill significantly more per 

beneficiary than other outpatient therapy providers even after the 

contractor took steps to examine some claims, we maintain that the 

Florida contractor could enhance compliance in this area of program 

vulnerability by enlarging the number of CORF claims reviewed. 
Page 5 GAO-04-709 Florida CORFs 

All outpatient therapy providers are subject to Medicare part B payment 

and coverage rules.7

 Payment amounts for each type of outpatient therapy 

service are based on the part B physician fee schedule.8

 In 2000, Medicare 

paid approximately $2.1 billion for all outpatient therapy services, of 

which $87.1 million was paid to CORFs. 

To meet Medicare reimbursement requirements, outpatient therapy 

services must be: 

• appropriate for the patient’s condition, 

• expected to improve the patient’s condition, 

• reasonable in amount, frequency, and duration, 

• furnished by a skilled professional, 

• provided with a physician available on call to furnish emergency medical 

care, and 

• part of a written treatment program that is reviewed periodically by a 

physician. 

CMS relies on its claims administration contractors to monitor provider 

compliance with program requirements. Contractors regularly examine 

claims data to identify billing patterns by specific providers or for 

particular services that are substantially different from the norm. Claims 

submitted by these groups of providers—or for specific services—are then 

selected for additional scrutiny. Whether such reviews occur prior to 

payment (prepayment reviews) or after claims have been paid 

(postpayment reviews), the provider is generally required to submit 

patient records to support the medical necessity of the services billed. This 

routine oversight may lead to additional claim reviews or provider 

education about Medicare coverage or billing issues. 

 7

Part B covers physician services and payments to other licensed practitioners, clinical 

laboratory and diagnostic services, surgical supplies and durable medical equipment, and 

ambulance services. Part A covers hospital and certain other services. 

8

Medicare pays 80 percent of the payment amount with a 20 percent coinsurance payment 

required from the beneficiary. 

Background 

Medicare Coverage Rules 

for Outpatient Therapy 
Page 6 GAO-04-709 Florida CORFs 

With 567 facilities nationwide at the end of 2002, the CORF industry is 

relatively small. Although CORFs operated in 41 states at the end of 2002, 

the industry is highly concentrated in Florida, where 191 (one-third) of all 

Medicare-certified CORFs are located. By contrast, the state with the 

second largest number of CORFs at the end of 2002 was Texas, with 53 

CORFs. 

The number of CORF facilities in Florida grew about 30 percent during 

2002 and the industry is now largely composed of relatively new, for-profit 

providers. The CORF industry in Florida continued to grow in 2003, 

reaching 220 facilities by year’s end, of which 96 percent were for profit. 

The growth in Florida CORFs came after a period of substantial turnover 

among CORF owners (many closures and new entrants).9

From 1999 to 2002, Medicare payments to Florida CORFs rose 

substantially and far outpaced growth in the number of beneficiaries that 

used CORFs. The number of Medicare beneficiaries receiving services 

from CORFs grew 13 percent, increasing from 33,653 in 1999 to 38,024 in 

2002. However, during the same time period, Medicare expenditures for 

services billed by CORFs rose significantly, with total payments increasing 

61 percent, from $48.1 million to $77.4 million. Half of all Florida CORFs 

received an annual payment of $91,693 or more from Medicare in 1999; by 

2002, the median annual payment more than doubled to $187,680.10

Although CORFs were added to the Medicare program to offer 

beneficiaries a wide range of nontherapy services at the same location 

where they receive therapy, most Florida CORFs do not provide these 

types of services. For those that do, only a small proportion of Medicare 

 9

In part, turnover in the industry may be the result of a new payment system for Medicare 

outpatient therapy services that took effect in 1999. That year, facility providers were 

switched from a cost-based reimbursement system—under which payments were based on 

the cost to the provider of delivering services—to a fee schedule—where payments are 

based on pre-established amounts. Previously, the fee schedule had only applied to therapy 

provided by physician practices and independent practitioners. 

10These changes in Medicare payments since 1999 reflect, in part, the industry’s varied 

responses to the new Medicare payment rules for outpatient therapy. A 2001 study by the 

Urban Institute reported that CORF payments per patient for therapy services declined 55 

percent nationwide, from $1,642 in 1998 to $743 in 1999—the first year under the fee 

schedule payment system. The study also showed that this adjustment year was followed 

by a 61 percent “rebound” in average payments of $1,199 in 2000. See S. Maxwell, C. 

Baseggio, and M. Storeygard, Part B Therapy Services Under Medicare in 1998- 2000: 

Impact of Extending Fee Schedule Payments and Coverage Limits, (Washington, D.C.: 

The Urban Institute, September 2001). 

Florida CORF Industry 
Page 7 GAO-04-709 Florida CORFs 

payments are accounted for by these services. In 2002, 98 percent of 

Medicare payments to Florida CORFs went to furnish physical and 

occupational therapy or speech-language pathology services. The mix of 

services reimbursed by Medicare was very different in 1999, when such 

therapy accounted for 68 percent of all payments, and the remainder paid 

for nontherapy services, such as pulmonary treatments and psychiatric 

care.11

In recent years, payments to Florida CORFs have increasingly shifted 

toward those made for patients with back and musculoskeletal conditions. 

Most notably, patients who presented with back disorders accounted for 

16 percent of all Medicare payments to Florida CORFs in 1999 and 29 

percent of payments in 2002. In addition, payments for treating patients 

diagnosed with soft tissue injuries increased from 8 percent of Florida 

CORF payments in 1999 to 24 percent in 2002. One diagnosis group for 

which there was a notable decrease in the proportion of Medicare 

payments was pulmonary disorders, which fell from 30 percent of all 

payments in 1999 to 2 percent in 2002. 

In 2002, most of the 191 CORFs in Florida were small, with the median 

CORF in the state treating 150 beneficiaries. CORFs accounted for 15 

percent of all Florida Medicare beneficiaries who received outpatient 

therapy from facility-based providers that year, and 30 percent of 

Medicare’s payments for outpatient therapy services to Florida facilitybased providers. In a few areas, however, CORFs represented a substantial 

share of the outpatient therapy market, particularly in south Florida. For 

example, CORFs were the predominate providers of outpatient therapy 

services in Miami, with 53 percent of all facility-based outpatient therapy 

patients, and treated 29 percent of patients who received outpatient 

therapy from facility-based providers in nearby Fort Lauderdale. 

 11Payments for physical therapy services made up the largest share of Medicare payments 

to Florida CORF facilities. Physical therapy payments climbed from 49 percent of all 

Medicare payments to CORFs in 1999 to 64 percent in 2002. Payments for occupational 

therapy also increased, changing from 18 percent of payments in 1999 to 32 percent in 2002. 

The CORF service for which there was a substantial decline in payments was respiratory 

treatments, which changed from 29 percent of Florida CORF payments in 1999 to 2 percent 

of payments in 2002. 
Page 8 GAO-04-709 Florida CORFs 

In 2002, Medicare’s therapy payments per patient to Florida CORFs were 

several times higher than therapy payments made to other facility-based 

outpatient therapy providers in the state. This billing pattern was evident 

in each of the eight Florida MSAs that accounted for the majority of 

Medicare CORF facilities and patients. Differences in prior hospitalization 

diagnoses and patient demographic information did not explain the 

disparities in per-patient therapy payments. 

Our analysis of claims payment data showed that per-patient therapy 

payments to Florida CORFs were about twice as high as therapy payments 

to rehabilitation agencies and SNF outpatient departments, and more than 

3 times higher than therapy payments to hospital outpatient departments. 

(See table 1.) Specifically, at $2,327 per patient, therapy payments for 

CORF patients were 3.1 times higher than the per-patient payment of $756 

for those treated by outpatient hospital-based therapists. 

Table 1: Therapy Payments and Units of Service Per Patient by Type of Provider, 

Florida, 2002 

 CORFs Hospital OPDs 

Rehabilitation 

agencies SNF OPDs

Payments per patient $2,327 $756 $1,094 $1,167

Units of service per patient 108 37 59 53

Source: GAO analysis of CMS claims data. 

Note: Table provides average payments and units for therapy services only. 

Higher therapy payments for Medicare patients treated at CORFs were 

largely due to the greater number of services that CORF patients 

received.12 As shown in table 1, on average, CORF patients received 108 

units of therapy compared with 37 to 59 units of outpatient therapy, on 

average, at the other types of outpatient providers. Typically, a unit of 

therapy service represents about 15 minutes of treatment with a physical 

therapist, occupational therapist, or speech-language pathologist. 

 12On average, Medicare fees per unit of therapy provided by Florida CORFs were about the 

same as the fees per unit of service furnished by other provider types. In 2002, fees 

averaged about $22 (CORFs), $22 (SNF OPD), $21 (hospital OPD), and $19 (rehabilitation 

agencies). 

Florida CORFs 

Received Higher 

Average Therapy 

Payments, Despite 

Treating Similar 

Patients 

Average Therapy Payments 

to CORFs Substantially 

Exceeded Payments to 

Other Facility-Based 

Providers 
Page 9 GAO-04-709 Florida CORFs 

The pattern of relatively high payments to CORFs was evident in all of the 

localities where CORFs were concentrated. In 8 of the 14 MSAs in Florida 

that had CORFs in 2002, CORF payments per patient were higher than 

payments to all other types of facility-based outpatient therapy providers. 

These MSAs together accounted for 86 percent of all Florida CORF 

beneficiaries and 90 percent of the state’s CORF facilities. In these 

localities, per-patient payments to CORFs ranged from 1.2 to 7.4 times 

higher than payments to the provider type with the next highest payment 

amount.13 For example, in Fort Lauderdale, the 2002 average CORF 

therapy payment was $2,900—more than twice the average payment of 

$1,249 made for beneficiaries treated by rehabilitation agencies. (See table 

2.) 

Table 2: Therapy Payments Per Patient by Type of Provider in Selected Florida 

MSAs, 2002 

Dollars 

MSA CORFs

Hospital 

OPDs 

Rehabilitation 

agencies SNF OPDs

Fort Lauderdale $2,900 $916 $1,249 $889

Fort Myers-Cape Coral 1,729 775 1,084 911

Miami 2,686 998 1,914 2,025

Naples 1,986 859 1,317 856

Orlando 3,394 609 1,037 1,266

Panama City 6,050 816 793 N/Aa

Tampa-St. Petersburg-Clearwater 1,495 801 1,131 1,278

West Palm Beach-Boca Raton 2,169 771 1,092 1,091

Statewide $2,327 $756 $1,094 $1,167

Source: GAO analysis of CMS claims data. 

Note: Table provides average payments for therapy services only. 

a

We found no 2002 outpatient therapy claims for Medicare beneficiaries treated by SNFs in this MSA. 

 13Five MSAs with elevated CORF payments were in southern Florida (Fort Lauderdale, Fort 

Myers-Cape Coral, Miami, Naples, and West Palm Beach-Boca Raton); two were in the 

middle of the state (Orlando and Tampa-St. Petersburg-Clearwater), and one was in the 

northwest (Panama City). CORFs operating in Panama City had the highest per-patient 

payments, but treated only 37 Medicare patients in 2002. In contrast, CORFs in Miami 

provided services to 6,069 Medicare patients that year. 
Page 10 GAO-04-709 Florida CORFs 

Some factors that could account for differences in therapy payment 

amounts—patient diagnosis and indicators of patient health care needs—

did not explain the higher payments that some Florida CORFs received 

compared with other types of facility-based outpatient therapy providers. 

We found that CORFs received higher per-patient therapy payments than 

other facility-based providers for patients in each of the four leading 

diagnosis categories treated at CORFs. For patients with neurologic 

disorders, arthritis, soft tissue injuries, and back disorders, payments to 

CORFs were 66 percent to 159 percent higher than payments to 

rehabilitation agencies and SNF OPDs and higher yet than payments to 

hospital OPDs.14 (See table 3.) Patients treated for back disorders made up 

the largest share of Florida CORF patients, at 25 percent. For patients with 

this diagnosis, average payments to CORFs—at $1,734—were twice as 

high as the average payment of $867 made to rehabilitation agencies—the 

next highest paid provider type. 

Table 3: Therapy Payments Per Patient by Provider Type for Selected Diagnosis 

Categories, Florida, 2002 

Dollars 

Diagnosis category CORFs

Hospital 

OPDs 

Rehabilitation 

agencies SNF OPDs

Neurologic disordersa $2,676 $545 $1,311 $1,032

Arthritisa 2,168 679 979 1,029

Soft tissue injuriesa 1,835 625 929 1,105

Back disordersa 1,734 532 867 743

All diagnosis categories $2,327 $756 $1,094 $1,167

Source: GAO analysis of CMS claims data. 

Note: Table provides average payments for therapy services only. 

a

These four diagnosis categories accounted for 74 percent of all Medicare beneficiaries receiving 

therapy services exclusively from Florida CORFs in 2002. 

The higher therapy payments to CORFs were driven by the higher volume 

of therapy services that CORFs provided to their Medicare patients, 

compared with the volume of services other facility-based outpatient 

therapy providers furnished to patients in the same diagnosis group. As 

 14While grouping beneficiaries with the same diagnosis allows for comparison of similar 

patients, some patients in each grouping are likely to have higher levels of health care 

needs than others. 

Patient Characteristics Did 

Not Explain Higher 

Average Therapy Payments 

to Florida CORFs 

Average Therapy Payment by 

Diagnosis 
Page 11 GAO-04-709 Florida CORFs 

shown in table 4, for all four leading diagnosis categories, CORF Medicare 

patients received far more units of therapy, on average, than Medicare 

patients treated by other outpatient therapy providers.15 Differences across 

provider types were particularly pronounced for Medicare patients with 

arthritis. CORFs furnished an average of 100 units of therapy to 

beneficiaries treated for arthritis. In contrast, non-CORF outpatient 

therapy providers delivered an average of 33 to 53 units of therapy to 

Medicare arthritis patients. 

Table 4: Units of Therapy Service Per Patient by Provider Type for Selected 

Diagnosis Categories, Florida, 2002 

Diagnosis category CORFs Hospital OPDs 

Rehabilitation 

agencies SNF OPDs

Neurologic disordersa 115 28 86 45

Arthritisa 100 33 53 49

Soft tissue injuriesa 87 32 48 54

Back disordersa 84 27 49 38

All diagnosis categories 108 37 59 53

Source: GAO analysis of CMS claims data. 

Note: Table provides average units for therapy services only. 

a

These four diagnosis categories accounted for 74 percent of all Medicare beneficiaries receiving 

services exclusively from Florida CORFs in 2002. 

Differences in patient demographic characteristics and prior-year hospital 

diagnoses—factors that could indicate variation in patient health care 

needs—did not explain most of the wide disparities in therapy payments 

 15Just as CORFs consistently provided high levels of therapy services, hospital OPDs were 

uniformly low across the four common diagnosis categories in the amount of therapy 

services delivered. A CMS official remarked that this may be driven by the traditional 

practice of hospitals to employ the same set of therapists for both their inpatient and 

outpatient care. Because Medicare’s payment system for inpatient hospitalization provides 

a set payment amount, based on patient diagnosis, for each hospital stay, hospital-based 

therapists may be accustomed to discharging inpatients from therapy quickly. They may 

approach outpatient care in much the same way, despite the fact that Medicare pays on a 

fee schedule for therapy patients treated in hospital outpatient departments. 

Patient Demographics and 

Prior-Year Hospitalizations 
Page 12 GAO-04-709 Florida CORFs 

per patient across settings.16 When we considered differences in patient 

age, sex, disability, Medicaid enrollment, and 2001 inpatient hospital 

diagnoses across provider types, the data showed that patients served by 

CORFs could be expected to use slightly more health care services than 

patients treated by other facility-based therapy providers.17 However, we 

found that, after controlling for these patient differences, average 

payments for CORF patients remained 2 to 3 times greater than for those 

treated by other provider types.18

Consistent with this finding, therapy industry representatives we spoke 

with—including those representing CORFs—reported that, in the 

aggregate, CORF patients were not more clinically complex or in need of 

more extensive care than patients treated by other outpatient therapy 

providers. They told us that patients are referred to different types of 

outpatient therapy providers based on availability and convenience rather 

than on their relative care needs. One private consultant to CORFs and 

other outpatient provider groups noted that there are no criteria to identify 

and direct patients to a particular setting for outpatient care, and that 

physicians generally refer patients to therapy providers with whom they 

have a relationship. 

 16Recent hospitalization records are one indicator of patient health care needs. To compare 

differences in predicted patient health care use across outpatient therapy provider types, 

we used CMS’s Principal Inpatient Diagnostic Cost Group (PIP-DCG) model, which uses 

demographic information and hospitalization data to predict health care expenditures for 

each beneficiary. Among all Florida beneficiaries who received outpatient therapy services 

during 2002, 26 percent were hospitalized during 2001. 

17We found two exceptions to this finding. First, among patients with neurologic disorders, 

those treated by CORFs appeared to be similar in health status to patients treated by other 

types of providers. Second, patients treated by CORFs were shown to require slightly less 

health care services than patients using SNF OPDs. The patients using SNF OPDs comprise 

only 5 percent of all Florida beneficiaries who received facility-based outpatient therapy 

services. 

18We used the PIP-DCG score developed for each beneficiary in combination with 2002 

claims payment data to conduct an analysis of covariance. We found that differences in 

average payments were statistically significant at the .01 level across comparative provider 

types for every diagnosis category except for beneficiaries with neurologic disorders and 

amputations. However, the overall R-Square for the analysis was 0.18, which indicates that 

much of the difference we found in average payments across provider types remains 

unexplained by patient demographics and prior hospital diagnosis. 
Page 13 GAO-04-709 Florida CORFs 

Despite the Florida contractor’s increased scrutiny of CORF claims, our 

analysis of Florida CORFs’ 2002 billing patterns suggests that some 

providers received inappropriate payments that year. In late 2001, after 

finding widespread billing irregularities among CORF claims, the Florida 

claims administration contractor implemented new strategies for 

reviewing claims that were maintained throughout 2002. Although these 

strategies were successful at ensuring appropriate claims payments for a 

limited number of beneficiaries, our analysis of 2002 CORF claims found 

that many CORFs continued to receive very high per-patient payments. 

In 2001, the Medicare claims administration contractor for Florida 

reviewed about 2,500 claims submitted by CORFs and other facility-based 

outpatient therapy providers for services provided from January 1999 

through February 2001.19 Among these claims, the contractor found 

widespread billing for medically unnecessary therapy services. These were 

therapy services related to maintaining rather than improving a patient’s 

functioning, as required by Medicare reimbursement requirements for 

covering outpatient therapy. 

Reviews also found claims for the same beneficiary, made by more than 

one CORF, sometimes on the same day.20 The unlikelihood that a patient 

would receive treatment from more than one CORF provider when each 

one was equipped to provide the patient’s full range of needed services 

caused the contractor to investigate further. After interviewing a sample of 

beneficiaries treated by multiple CORFs, the contractor found that some 

of the facilities treating these beneficiaries had common owners. It 

reported that the common ownership was significant, suggesting efforts by 

the owners to distribute billings for a patient’s services across several 

providers. The contractor stated that this would allow the CORFs’ owners 

to avoid the scrutiny of the Medicare contractor, which typically screens 

claims aggregated by facility rather than by beneficiary. After conducting 

additional reviews of a sample of paid claims from these CORFs, it found 

that 82 percent of payments made were inappropriate, largely due to 

questions about medical necessity. As a result, the contractor required 

these CORFs to repay Medicare approximately 1 million dollars and 

 19The investigation included claims submitted by CORFs and rehabilitation agencies. 

20Although Medicare does not prohibit beneficiaries from receiving the same type of 

services from multiple providers during the same day, contractor staff indicated that such a 

situation raises questions about the medical necessity of services provided. 

Actions by the Florida 

Contractor Were Not 

Sufficient to Ensure 

Appropriate Payments 

to CORFs 

2001 Investigation by 

Florida Claims Contractor 

Revealed Pattern of 

Inappropriate CORF 

Billing 
Page 14 GAO-04-709 Florida CORFs 

referred some of the CORFs to CMS and the HHS OIG for further 

investigation.21

In late 2001, the Florida claims administration contractor implemented 

additional claim review strategies targeting CORF claims. For any new 

CORF, the contractor began reviewing for medical necessity, prior to 

payment, about 30 of the first claims submitted. The contractor also began 

reviewing all therapy claims submitted on behalf of about 650 

beneficiaries identified as having high levels of therapy use from multiple 

CORFs and other facility-based outpatient therapy providers during the 

2001 investigation. CORFs and other providers submitting therapy claims 

for these beneficiaries had to supply documentation of medical necessity 

before claims were paid. The contractor also conducted prepayment 

reviews for specific therapy services determined to be at high risk for 

inappropriate payments, regardless of the beneficiary receiving services.22

The contractor maintained these intensified claim documentation and 

review requirements throughout 2002. 

The contractor indicated that the oversight measures put in place for 

specific beneficiaries were effective at improving the appropriateness of 

claims payments for therapy services made for those beneficiaries. 

Specifically, the contractor reported that Florida CORFs billed Medicare 

$12.1 million for this group in 2000, $10.2 million in 2001, and $7.3 million 

during 2002. In addition, the contractor denied an increasing percentage of 

the amount billed each year—46 percent in 2001, and 53 percent in 2002—

based on its medical records reviews.23

 21An outpatient therapy company that owned several CORFs in Florida was later 

investigated by the Department of Justice. A settlement in December 2002 for $600,000 

resolved allegations of billing for medically unnecessary services, falsifying patient and 

facility records, and providing services outside the state in which the facilities were 

licensed to operate. 

22These reviews were conducted on claims submitted from all provider types. 

23Other therapy providers subject to these reviews also reduced the amount of therapy 

services billed to Medicare. Rehabilitation agencies billed Medicare $1.5 million for this 

group of beneficiaries in 2000, $827,000 in 2001, and $709,000 during 2002. The Florida 

contractor denied 36 percent of the amount billed by rehabilitation agencies in 2001, and 48 

percent in 2002. 
Page 15 GAO-04-709 Florida CORFs 

While the contractor succeeded in ensuring that payments to CORFs for 

this limited group of beneficiaries met Medicare rules, our own analysis of 

CORF claims submitted in 2002 found several indications that billing 

irregularities continued. The indicators included a high rate of 

beneficiaries who received services from multiple CORFs, some CORFs 

that did not provide any therapy services, and many facilities with very 

high per-patient payments. 

Our analysis of 2002 Florida CORF claims by facility showed that the 

Florida claims administration contractor’s efforts to ensure appropriate 

CORF payments were not completely effective. We found that 11 percent 

of the beneficiaries who received CORF services in Florida were treated 

by more than one CORF facility during the year. While Medicare rules do 

not prohibit beneficiaries from receiving services from multiple providers 

in a single year, this occurs much more frequently among Florida CORFs 

than among CORFs in other states. Specifically, in the five other states 

with the greatest numbers of CORFs at the end of 2001 (Alabama, 

California, Kentucky, Pennsylvania, and Texas), fewer than 4 percent of 

beneficiaries received services from more than one CORF during 2002, and 

in most of these states, the rate was 1 percent or less. 

Although many CORFs treated a few patients who received services from 

multiple providers during 2002, a small group of Florida CORFs had very 

high rates of “shared” patients that year—suggesting that some CORFs 

may have continued to operate in the patterns first detected by the Florida 

contractor during its 2001 review. Of the CORFs operating in Florida in 

2002, 32 facilities shared more than half of their patients with other CORF 

providers. At four CORFs, more than 75 percent of the beneficiaries were 

treated by multiple CORF providers during the year. 

Staff from the Florida contractor told us that these patterns of therapy 

use—receiving services from multiple providers during the same time 

period—complicate their ability to monitor appropriate use of therapy 

services. Contractor staff routinely analyze claims data to evaluate 

appropriate levels of service use and identify trends that may suggest 

excessive use. However, these analyses are normally conducted on claims 

data aggregated by CORF provider, not aggregated per beneficiary. When 

beneficiaries receive outpatient therapy services from multiple providers, 

traditional methods of oversight are less likely to detect high levels of 

service use and payments. 

Florida CORFs’ High 

Medicare Payments 

Continued After 

Intensified Claim Reviews 
Page 16 GAO-04-709 Florida CORFs 

Our review of 2002 Florida claims data also showed that some CORFs 

were not complying with Medicare program rules about furnishing 

required services. Although CORFs are permitted to provide nontherapy 

services, they must be delivered as part of a beneficiary’s overall therapy 

plan of care. However, three Florida CORFs received payments 

exclusively for nontherapy services—such as pulmonary treatment and 

oxygen saturation tests—in 2002.24 Four additional providers billed 

Medicare primarily for nontherapy services, with therapy care accounting 

for less than 10 percent of their annual Medicare payments. 

In addition, we found that a number of the CORFs identified during the 

Florida contractor’s 2001 investigation continued to have very high 

average payments for all services provided in 2002.25 As shown in table 5, 

several of these facilities were among 21 CORFs with per-patient payments 

that exceeded the statewide CORF average by more than 50 percent. 

Among this group of high-cost facilities, the per-patient payment in 2002 

ranged from $3,099 to $6,080, substantially above the average payment of 

$2,036 across all Florida CORFs.26

 24An official from the CMS regional office with oversight responsibility for Florida reported 

that some facilities marketing themselves as “specialized” CORFs have had problems 

complying with Medicare requirements. Specifically, the regional office found that some 

CORFS were paying a fee to providers (such as therapists or psychologists) to have the 

provider’s name included on the initial CORF application for Medicare certification. 

However, after certification was granted, these providers never worked for the CORF; in 

fact, the facilities were only providing specialized services and not the core CORF services 

required by Medicare. 

25Includes payment for therapy services and other types of services provided by CORFs, 

such as physician and nursing services, psychological services, and pulmonary treatments. 

In 2002, 2 percent of all Medicare payments to Florida CORFs were for nontherapy 

services. 

26Overall, we found considerable variation in Medicare per-patient payments across Florida 

CORFs. The top quartile of CORFs received payments of $2,070 or more, while the lowest 

quartile received payments of $982 or less. The median per-patient payment across all 

Florida CORFs was $1,498. 
Page 17 GAO-04-709 Florida CORFs 

Table 5: Medicare Payments to Selected Florida CORFs for All Types of Services, 

2002 

CORF 

Total Medicare 

payments

Number of 

beneficiaries treated 

Average payment per 

beneficiary

A $6,080 1 $6,080

B 400,355 70 5,719

C 346,893 69 5,027

D 1,260,324 255 4,942

E 1,648,748 337 4,892

F 879,629 193 4,558

G 1,709,567 390 4,384

H 740,252 169 4,380

I 154,780 36 4,299

J 914,198 241 3,793

Ka 6,066,325 1,600 3,791

L 705,499 189 3,733

M 309,082 88 3,512

N 631,009 184 3,429

Oa 398,526 117 3,406

P 544,950 163 3,343

Q 1,467,888 447 3,284

Ra 5,387,964 1,723 3,127

Sa 2,415,257 775 3,116

T 632,862 204 3,102

Ua 1,152,947 372 3,099

All others $49,656,466 30,401 $1,633

Total $77,429,600 38,024 $2,036

Source: GAO analysis of CMS claims data. 

Note: This analysis includes all Medicare payments to Florida CORFs for therapy services (physical 

therapy, occupational therapy, and speech-language pathology services) and other types of CORF 

services. In 2002, 98 percent of Medicare payments to Florida CORFs were for therapy services. We 

included all beneficiaries in this analysis, regardless of their total therapy payments for the year and 

duration of Medicare fee-for-service enrollment. 

a

These facilities were among those identified by the Florida claims administration contractor during its 

2001 investigation as having high levels of medically unnecessary services and questionable billing 

practices. 

These relatively high 2002 payments suggested that Florida CORFs 

responded to the contractor’s targeted medical reviews selectively by 

reducing the services provided to the small number of patients whose 
Page 18 GAO-04-709 Florida CORFs 

claims were under scrutiny. Other patients, outside the scope of the 

contractor’s criteria for medical review, continued to receive high levels of 

services. The contractor continues to rely on the medical review criteria 

originally established in late 2001. However, contractor staff reported 

ongoing concerns about the extent to which CORFs bill for services that 

may not meet the program’s requirements for payment. In particular, they 

cited the practice of delivering therapy services over relatively long 

periods of time that only maintain, rather than improve, a patient’s 

functional status.27

Sizeable disparities between Medicare therapy payments per patient to 

Florida CORFs and other facility-based outpatient therapy providers in 

2002—with no clear indication of differences in patient needs—raise 

questions about the appropriateness of CORF billing practices. After 

finding high rates of medically unnecessary therapy services to CORFs, 

CMS’s claims administration contractor for Florida took steps to ensure 

appropriate claim payments for a small, targeted group of CORF patients. 

Despite its limited success, billing irregularities continued among some 

CORFS and many CORFs continued to receive relatively high payments 

the following year. This suggests that the contractor’s efforts were too 

limited in scope to be effective with all CORF providers. 

To ensure that Medicare only pays for medically necessary care as 

outlined in program rules, CMS should direct the Florida claims 

administration contractor to medically review a larger number of CORF 

claims. 

CMS officials reviewed a draft of this report and agreed with its findings. 

Specifically, the agency noted that “disproportionately high payments 

made to CORFs indicate a need for medical review of these providers.” 

The agency also pointed out that, given the high volume of claims 

submitted by providers, contractors must allocate their limited resources 

 27One Medicare rule offers CORFs unique operating circumstances that may contribute to 

providing services over longer periods of time. CORFs may provide therapy services for 60 

days before the patient’s physician must reevaluate the patient and certify that continuing 

therapy services would result in continuing improvement of patient function. 42 C.F.R. § 

410.105 (c)(2)(2003). In contrast, other facility-based outpatient therapy providers must 

reevaluate patients every 30 days. 42 C.F.R. § 424.24 (c)(4). 

Conclusions 

Recommendation 

Agency Comments 

and Our Evaluation 
Page 19 GAO-04-709 Florida CORFs 

for medical review in such a way as to maximize returns. Furthermore, 

CMS stated that the Florida claims administration contractor is already 

taking appropriate steps to address concerns about CORF billing and is 

prepared to take additional steps if necessary. 

We recognize that contractors can achieve efficiencies by targeting their 

medical review activities at providers or services that place the Medicare 

trust funds at the greatest risk. However, the impact of medical review 

comes, in part, from the sentinel effect of consistently applying medical 

review to providers’ claims. Thus, while we support the contractor’s focus 

on new CORF providers, we continue to believe that enlarging the number 

of CORF claims reviewed would promote compliance with medical 

necessity requirements. Given that Florida CORFs continued to bill 

significantly more per beneficiary than other outpatient therapy providers 

even after the contractor took steps to examine some claims, compliance 

could be enhanced by aggressively addressing this vulnerability. CMS’s 

comments appear in appendix II. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution of it until 30 days from 

its issue date. At that time, we will send copies of this report to the 

Administrator of CMS and to other interested parties. In addition, this 

report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. We will also make copies available to others upon 

request. 

If you or your staff have any questions about this report, please call me at 

(312) 220-7600. Another contact and key contributors are listed in 

appendix III. 

Sincerely yours, 

Leslie G. Aronovitz 

Director, Health Care—Program 

 Administration and Integrity Issues 
Appendix I: Objectives, Scope, and 

Methodology 

Page 20 GAO-04-709 Florida CORFs 

In this report we (1) compared Medicare’s outpatient therapy payments to 

CORFs in 2002 with its payments that year to other facility-based 

outpatient therapy providers and (2) assessed the program’s effectiveness 

in ensuring that payments to CORFs complied with Medicare rules. As 

agreed with the requester’s staff, we limited the scope of our review to 

facility-based outpatient therapy providers and beneficiaries in Florida. 

Florida accounted for one-third of all CORF facilities at the end of 2002. 

Our primary data source was CMS’s National Claims History (NCH) 100% 

Nearline File. The NCH file contains all institutional and noninstitutional 

claims from the Common Working File (CWF)—the system that CMS uses 

to process and pay Medicare claims through its contractors across the 

country. We also reviewed data from CMS’s Medicare Provider of Service 

Files, which contain descriptive information on CORF facility 

characteristics, such as location, type of ownership, and the date of each 

provider’s initial program certification. Finally, we interviewed 

representatives of CMS’s central and regional offices, the Florida claims 

administration contractor, federal law enforcement agencies, and the 

therapy industry. 

To describe the Florida CORF industry and operations, we gathered 

Medicare claims data from CMS’s NCH File for the years 1999 through 

2002. In addition to reviewing trends in total Medicare payments to 

CORFs, we examined changes in the patient case mix by identifying the 

primary diagnoses listed on claims for beneficiaries treated by CORFs. We 

also obtained descriptive information on CORFs’ characteristics from the 

Provider of Service Files for 1999 through 2003. 

This work was performed from May 2003 through July 2004 in accordance 

with generally accepted government auditing standards. 

In this analysis, we compared Medicare therapy payments to four types of 

facility-based outpatient therapy providers: CORFs, rehabilitation 

agencies, hospital OPDs, and SNF OPDs. Although CORFs are authorized 

to offer a wide range of services, we limited our comparison to a common 

set of therapy services: physical therapy services, occupational therapy 

services, and speech-language pathology services. 

Appendix I: Objectives, Scope, and 

Methodology 

Comparison of Medicare 

Outpatient Therapy 

Payments by Provider 

Type 
Appendix I: Objectives, Scope, and 

Methodology 

Page 21 GAO-04-709 Florida CORFs 

To compare Medicare’s therapy payments to Florida CORFs with therapy 

payments to other types of facility-based outpatient rehabilitation therapy 

providers, we examined 2002 Medicare beneficiary claims data from the 

NCH File.1

 We used the NCH file to identify all beneficiaries who resided in 

Florida and received outpatient therapy services from in-state providers 

during 2002. By limiting our review to beneficiaries who were enrolled in 

part B for all 12 months of the year, we excluded those in managed care 

and those with less than a full year of fee-for-service coverage. Using 

beneficiary identification numbers, we aggregated each beneficiary’s total 

outpatient therapy claims from all provider types. We summed the annual 

number of therapy units billed for each beneficiary as well as the annual 

line-item payment amounts.2

 This allowed us to assign each beneficiary to 

a provider comparison group. 

To compare Medicare expenditures for similar patients, we assigned each 

beneficiary to a diagnosis category based on the primary diagnoses listed 

in their outpatient therapy claims for the year.3

 Our diagnosis groups 

included 

• stroke, 

• spinal cord injury, 

• neurologic disorders, 

• hip fractures, 

• back disorders, 

• amputation, 

• cardiovascular disorders—circulatory, 

• cardiovascular disorders—pulmonary, 

• rehabilitation for unspecified conditions, 

• arthritis, 

 1

This was the latest year for which complete CMS claims data were available. 

2

To ensure that each beneficiary included in our study received services from only one type 

of outpatient rehabilitation therapy provider during 2002, we also examined therapy claims 

from physician practices and therapists in independent practice. Beneficiaries who 

received services from more than one type of facility-based provider, or from a facilitybased provider and a nonfacility-based provider (such as a physician’s office), were 

excluded from our analysis. In addition, we limited the analysis to beneficiaries whose 

annual therapy payments were $100 or more. 

3

We based our diagnosis categories on an approach originally developed by rehabilitation 

researchers. See Joan L. Buchanan, J. David Rumpel, and Helen Hoenig, “Outpatient 

Institutional Rehabilitation Services 1987-1990: Who Provides Them and How Do They 

Compare?” (Santa Monica, CA: RAND/UCLA/Harvard Center for Health Care Financing 

Policy Research, 1993). 
Appendix I: Objectives, Scope, and 

Methodology 

Page 22 GAO-04-709 Florida CORFs 

• soft tissue/musculoskeletal injuries, 

• ortho-surgical, 

• multiple diagnoses4 and 

• other. 

To consider differences in payment by provider type at the substate level, 

we compared annual per-patient payments for CORFs and other outpatient 

facility providers in each of Florida’s 20 metropolitan statistical areas. 

Variation in treatment patterns and payments (for the same diagnosis 

category) across provider types may suggest that one type of provider 

treats a patient population with greater needs for service. To consider 

patient differences, we applied CMS’s Principal Inpatient Diagnostic Cost 

Group (PIP-DCG) model.5

 By comparing patients’ use of hospital services 

and inpatient diagnoses (in the calendar year prior to the year they 

received therapy) and demographic information such as age, sex, 

disability, and Medicaid enrollment, the PIP-DCG model allowed a 

comparison of anticipated patient care needs across provider types. We 

used the PIP-DCG score developed for each beneficiary in combination 

with the 2002 therapy payment data to conduct an analysis of covariance. 

To review strategies used by the Florida claims administration contractor 

to ensure proper CORF payments, we interviewed representatives of 

CMS’s central and regional offices and representatives from the 

contractor. The contractor provided us with the results of its 2001 

investigation of Florida CORFs and its subsequent reports on CORF billing 

patterns. In addition, we interviewed federal law enforcement agencies 

involved in investigations of Florida CORF facilities. 

To assess the effectiveness of the contractor’s oversight strategies, we 

reviewed information developed by the contractor on changes in CORF 

billing practices. We also analyzed 2002 claims data for CORF services to 

identify any CORFs with disproportionately high Medicare payments. This 

 4

Florida beneficiaries with more than one condition listed as their primary diagnosis on 

therapy claims in 2002 were assigned to the multiple diagnosis category. 

5

The PIP-DCG model is an algorithm that uses base-year inpatient diagnoses, along with 

demographic factors, to predict total health spending in the following year. CMS has used 

the PIP-DCG model to determine relative risk factors and predict health expenditures for 

beneficiaries enrolled in its Medicare+Choice program and, as a result, has risk adjusted 

payments to participating health plans. 

Evaluation of the Florida 

Contractor’s Efforts to 

Ensure Appropriate CORF 

Claim Payments 
Appendix I: Objectives, Scope, and 

Methodology 

Page 23 GAO-04-709 Florida CORFs 

analysis included payment data for all claims—for both therapy and 

nontherapy services. In contrast to our comparison of per-patient 

payments by provider type, in this analysis we included all beneficiaries, 

regardless of their total annual therapy payments and duration of 

Medicare fee-for-service enrollment. 

We did not independently verify the reliability of CMS’s Medicare claims 

data. However, we determined that CMS’s Medicare claims data were 

sufficiently reliable for the purposes of this engagement. CMS operates a 

Quality Assurance System designed to ensure the accuracy of its Medicare 

NCH and CWF data files. Specifically, the agency has procedures in place 

to (1) ensure that files have been transmitted properly and completely, (2) 

check the functioning of contractor claims edits, and (3) sample claims 

from the files that exhibit unusual or inconsistent coding practices 

(indicating that data elements may be unreliable). In addition, we 

consulted with CMS’s technical staff as necessary to ensure the accuracy 

and relevance of the data elements used in our analysis. We also screened 

the files and excluded claims that were denied, claims superseded by an 

adjustment claim, and claims for services in other years. 

Assessment of Data 

Reliability 
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Page 24 GAO-04-709 Florida CORFs 

Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Page 25 GAO-04-709 Florida CORFs 
Appendix III: GAO Contact and Staff 

Acknowledgments 

 Page 26 GAO-04-709 Florida CORFs

Rosamond Katz, (202) 512-7148 

In addition to the contact named above, Jennifer Grover, Rich Lipinski, 

and Hannah Fein made key contributions to this report. 

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(290234) 
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