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Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

CARRIER DETERMINATION OF 


COPAYMENTS 


FOR MEDICARE MENTAL 


HEALTH SERVICES 


Daniel R. Levinson


Inspector General 


October 2006


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Office of Inspector General 
 http://oig.hhs.gov 

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

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors 

in carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations. These assessments help reduce waste, 

abuse, and mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on 

significant issues. Specifically, these evaluations focus on preventing fraud, waste, or 

abuse and promoting economy, efficiency, and effectiveness in departmental programs. 

To promote impact, the reports also present practical recommendations for improving 

program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 

and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support in OIG's internal operations. OCIG imposes program exclusions and civil 

monetary penalties on health care providers and litigates those actions within HHS. 

OCIG also represents OIG in the global settlement of cases arising under the Civil False 

Claims Act, develops and monitors corporate integrity agreements, develops compliance 

program guidances, renders advisory opinions on OIG sanctions to the health care 

community, and issues fraud alerts and other industry guidance. 
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Δ EXECUTIVE SUMMAR Y 

OBJECTIVE 

To determine the extent to which Medicare carriers: 

1. consistently calculate beneficiary copayments for mental health 

services, and 

2. correctly calculate copayments for mental health services rendered 

to beneficiaries diagnosed with Alzheimer’s disease or related 

disorders. 

BACKGROUND 

The Outpatient Mental Health Treatment Limitation 

The “outpatient mental health treatment limitation” (the limitation) 

reduces payments from Medicare’s Supplementary Medical Insurance 

Benefits for the Aged and Disabled (Part B) to 62.5 percent of the 

expenses (Medicare approved amount) for services in connection with 

the treatment of mental disorders. Mental disorders that occur most 

frequently for Medicare beneficiaries include affective psychoses, 

senile psychotic conditions, schizophrenic disorders, and neurotic 

disorders. Services include such things as psychotherapy, psychiatric 

pharmacologic management, and evaluation and management. 

Mental health services are typically rendered by psychiatrists, clinical 

psychologists, licensed clinical social workers, nurse practitioners, 

clinical nurse specialists, and physician assistants. 

While the usual copayment for medical services is 20 percent, the 

limitation commonly results in a copayment for the beneficiary of 

50 percent of the approved amount (Medicare pays 80 percent of 

62.5 percent of the approved amount). The limitation applies to services 

that are furnished in connection with the treatment of a mental, 

psychoneurotic, or personality disorder and either: 

o furnished by physicians and other practitioners, whether 

furnished directly or as incident to those practitioners’ services, or 

o provided by a comprehensive outpatient rehabilitation facility. 

Pursuant to 42 CFR § 410.155(b)(2), some services are exempt from 

the limitation, such as services furnished to a hospital inpatient, 

diagnostic services, and medical management services furnished to a 

patient diagnosed with Alzheimer’s disease or a related disorder. 

However, carriers must interpret the meaning of “mental health 

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EXE CUTIVE S U MMAR Y 

treatment” and “mental, psychoneurotic, and personality disorders” to 

determine whether they should apply the limitation to specific claims. 

Application of the Limitation by Carriers 

The Centers for Medicare & Medicaid Services (CMS) contracts with 

private companies, called “carriers,” to process and pay physicians’ 

and nonphysician practitioners’ Part B claims. CMS authorizes 

carriers to process and pay claims submitted by providers in CMSdefined geographic service areas. In most cases, an individual service 

area is one State. However, some States (such as New York and 

Missouri) have two service areas. While most carriers process and 

pay claims for multiple service areas, each service area is represented 

by only one carrier. In 2003, 19 carriers processed claims from 

providers in the 57 service areas that encompassed all 50 States, the 

District of Columbia, Puerto Rico, and the U.S. Virgin Islands. 

Claims Processing 

Physicians and other practitioners submit Medicare claims to their 

respective carriers. Carriers are responsible for applying the limitation 

via their automated claims processing systems. Carriers customize 

their systems and apply the limitation according to their individual 

payment policies. The application of the limitation does not affect 

coverage. Instead, the limitation determines the proportion of expenses 

that will be borne by a beneficiary. 

Methodology 

We used multiple methods to accomplish our objectives. To determine 

the extent to which Medicare carriers consistently calculate beneficiary 

copayments for mental health services and correctly calculate 

copayments for beneficiaries diagnosed with Alzheimer’s disease and 

related disorders, we surveyed (by mail, telephone, and e-mail) the 

carriers and analyzed a 1-percent sample of claims from the Medicare 

National Claims History for services rendered from 2001 through 2004. 

In addition, we reviewed all relevant statutes, regulations, and CMS 

guidance. 

FINDINGS 

Beneficiary copayments can be more than double for the same mental 

health service in different service areas. Medicare beneficiaries can be 

responsible for either 20 percent or 50 percent of the cost of exactly the 

same mental health service, based on their geographic locations. 

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EXE CUTIVE S U MMAR Y 

Individual beneficiaries who move from one State to another may see 

dramatic changes in their Medicare liability. 

Because their payment policies are inconsistent, carriers do not 

uniformly apply the outpatient mental health treatment limitation. Among 

the 57 carrier service areas, we identified 9 different payment policies 

for application of the limitation. Carriers’ policies vary regarding the 

services that trigger the limitation and the psychiatric illnesses that 

trigger the limitation. 

Carriers overstated copayments for beneficiaries with Alzheimer’s 

disease and related disorders by approximately $27 million during 

a 4-year period. Both the regulations and CMS guidance clearly state 

that medical management for patients diagnosed with Alzheimer’s or a 

related disorder should not be subject to the limitation. Only 

psychotherapy services are subject to the limitation for these patients. 

However, from 2001 to 2004, carriers applied the limitation to medical 

management services for approximately 488,000 beneficiaries with 

Alzheimer’s and related disorders. 

RECOMMENDATIONS 

Due to carriers’ inconsistent policies regarding application of the 

limitation, carriers do not uniformly calculate beneficiaries’ copayments. 

In addition, some carriers are incorrectly applying the limitation to 

services for beneficiaries with Alzheimer’s disease and related disorders. 

To address this, CMS should: 

o Issue new guidance to carriers regarding the outpatient mental 

health treatment limitation and ensure that the limitation is 

consistently applied among all carriers. 

o Require its carriers to adjust the copayments for beneficiaries who 

were overcharged. 

AGENCY COMMENTS 

CMS agreed to take steps to address our recommendations. CMS plans 

to issue more precise guidance that will establish policy for application 

of the outpatient mental health treatment limitation, create and post 

educational materials to its Web site, and, to the extent operationally 

feasible, require its carriers to reopen and adjust incorrectly processed 

claims. 

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Δ T ABLE OF CONTENTS 

EXECUTIVE SUMMARY .................................... i

INTR O D U C T I ON ........................................... 1

FINDI NGS ................................................ 11

Unequal beneficiary copayments .......................... 11

Inconsistent carrier payment policies ...................... 13

Overstated copayments for Alzheimer’s patients ............. 18

RECOM M E NDATI O NS ..................................... 20

 Agency Comments ..................................... 21

APPENDIXES ............................................. 22

A: Glossary of Terms ................................... 22

B: Alzheimer’s-Related Disorders ......................... 24

C: Procedure Codes .................................... 25

D: Agency Comments .................................. 26

ACKN O W LEDGMENTS .................................... 28
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Δ INTRODU C TION 

OBJECTIVE 

To determine the extent to which Medicare carriers: 

1. consistently calculate beneficiary copayments for mental health 

services, and 

2. correctly calculate copayments for mental health services 

rendered to beneficiaries diagnosed with Alzheimer’s disease or 

related disorders. 

BACKGROUND 

Outpatient Mental Health Services and Psychiatric Disorders 

Outpatient mental health services commonly rendered1 to Medicare 

beneficiaries include: 

o Psychotherapy: treatment for mental illness and behavioral 

disturbances in which the clinician establishes a professional 

contract with the patient, and through definitive therapeutic 

communication, attempts to alleviate emotional disturbances, 

reverse or change maladaptive patterns of behavior, and 

encourage personality growth and development;2 

o Psychiatric pharmacologic management: pharmacologic 

management, including prescription, use, and review of 

medication with no more than minimal medical psychotherapy;3 

and 

o Evaluation and management (E&M) services: office visits, 

hospital visits, and consultations that typically involve at least 

one of three key components – history, physical examination, and 

medical decisionmaking. E&M services can vary in complexity.4 

Psychiatric disorders that occur most frequently for Medicare 

beneficiaries5 include: 

o affective psychoses (e.g., major depressive disorder and bipolar 

affective disorder); 

1 Based on the Office of Inspector General (OIG) analysis of a 1-percent sample of 

Medicare claims for 2003. 

2 AMA, “Current Procedural Terminology, Professional Edition,” 2003. 

3 Ibid. 

4 Ibid. 

5 Based on OIG analysis of a 1-percent sample of Medicare claims for 2003. 

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INTROD UCT ION 

o senile psychotic conditions; 

o schizophrenic disorders; and 

o neurotic disorders (e.g., neurotic depression and adjustment 

reaction). 

These disorders are described in more detail in the American Medical 

Association’s (AMA) “International Classification of Diseases, 

9th Revision” (ICD-9) and the American Psychiatric Association’s 

(APA) “Diagnostic Statistical Manual, Third Edition – Revised” 

(DSM-III-R). 

Practitioners who render mental health services to Medicare 

beneficiaries include psychiatrists, clinical psychologists, licensed 

clinical social workers, nurse practitioners, clinical nurse specialists, 

and physician assistants. 

The Outpatient Mental Health Treatment Limitation 

Medicare’s Supplementary Medical Insurance (Part B) covers 

physicians’ services, outpatient care, and some other services not 

covered by Medicare’s Hospital Insurance (Part A). In general, 

beneficiaries are responsible for copayments of 20 percent of the 

approved amount for most Part B services. Outpatient mental health 

services are covered under Part B. However, Federal law limits 

Medicare payments to 62.5 percent of the expenses (Medicare approved 

amount) for mental health services.6 Specifically, the law limits 

payments for services in connection with the treatment of “mental, 

psychoneurotic, and personality disorders.” For these services, 

beneficiaries face greater cost-sharing liability. 

Federal statute and regulations. The implementing regulations for 

section 1833(c) of the Social Security Act (the Act) are called the 

“outpatient mental health treatment limitation” (the limitation).7 

Pursuant to 42 CFR § 410.155(b), services subject to the limitation 

include those “furnished in connection with the treatment of a mental, 

psychoneurotic, or personality disorder (that is, any condition 

identified by a diagnosis code within the range of 290 through 319)” 

and either: 

o furnished by physicians and other practitioners, whether 

furnished directly or as incident to those practitioners’ services, or 

6 Section 1833(c) of the Act (42 U.S.C. 1395I). 

7 42 CFR § 410.155. 

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INTROD UCT ION 

o provided by a comprehensive outpatient rehabilitation facility. 

Pursuant to section 1833(c) of the Act, services not subject to the 

limitation include the following: 

o services furnished to a hospital inpatient; 

o brief office visits for the sole purpose of monitoring or changing 

drug prescriptions used in the treatment of mental, 

psychoneurotic, or personality disorders; and 

o partial hospitalization services that are not directly provided by a 

physician. 

In addition, the regulations at 42 CFR § 410.155(b)(2) prohibit 

application of the limitation to: 

o diagnostic services, such as psychological testing, that are 

performed to establish a diagnosis; and 

o medical management, as opposed to psychotherapy, furnished to a 

patient diagnosed with Alzheimer's disease or a related disorder. 

The regulation contains examples of how the limitation affects 

provider reimbursement and beneficiary copayments. The example 

below from 42 CFR § 410.155(c) illustrates why the limitation results 

in a 50-percent beneficiary copayment for mental health services: 

A clinical psychologist submitted a claim for $200 for outpatient 

treatment of a beneficiary’s mental disorder. The Medicare approved 

amount was $180. Since clinical psychologists must accept assignment, 

the beneficiary is not liable for the $20 in excess charges. The 

beneficiary previously satisfied the $100 annual Part B deductible. The 

limitation reduces the amount of incurred expenses to 62 1⁄2 percent of 

the approved amount. After subtracting any unmet deductible, Medicare 

pays 80 percent of the remaining incurred expenses. Medicare payment 

and beneficiary liability are computed as follows: 

1. Actual charges $200.00 

2. Medicare approved amount 180.00 

3. Medicare incurred expenses (0.625 x line 2) 112.50 

4. Unmet deductible 0.00 

5. Remainder after subtracting deductible (line 3 minus line 4) 112.50 

6. Medicare payment (0.80 x line 5) 90.00 

7. Beneficiary liability (line 2 minus line 6) 90.00 

Source: 42 CFR § 410.155(c). 

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INTROD UCT ION 

The application of the limitation in the example on the preceding page 

results in a beneficiary liability of 50 percent of the Medicare approved 

amount for the service. While Medicare approved the entire physician 

fee schedule amount for the service, it limited the incurred expenses to 

62.5 percent and reimbursed the provider 80 percent of that limited 

amount. The provider collected the remaining reimbursement from the 

beneficiary. 

For other Part B services, beneficiaries are typically liable for 

20 percent of the Medicare approved amount, as opposed to 50 percent 

under the limitation. Using the example provided in 

42 CFR § 410.155(c) (above), Table 1 compares the Medicare payment 

calculation for mental health services (limitation is applied) and medical 

services (limitation is not applied). 

Table 1 

Comparison of 

Medicare Payment 

Calculations: 

By law, Medicare 

incurs less for 

mental health 

services, resulting 

in higher 

copayments for 

beneficiaries. 

Medicare Payment Calculation: 

Mental Health vs. Other Medical Services 

Mental Health 

Services 

Other Medical

 Services 

1. Actual charges 

2. Medicare approved amount 

3. Medicare incurred expense 

4. Unmet deductible 

5. Remainder after subtracting deductible 

(line 3 minus line 4) 

6. Medicare payment 

 (0.80 x line 5)

7. Beneficiary liability

 (line 2 minus line 6) 

8. Beneficiary liability as percent of approved 

$200.00 

$180.00 

$112.50 

(62.5 percent 

of approved amount) 

0.00 

$112.50 

$ 90.00 

$90.00 

50 percent 

$200.00 

$180.00 

$180.00 

 (100 percent 

of approved amount) 

0.00 

$180.00 

$144.00 

$36.00 

20 percent 

Source: Office of Inspector General analysis of Medicare payment policies, 2005. 

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INTROD UCT ION 

CMS guidance. The Centers for Medicare & Medicaid Services (CMS) 

issues binding guidance to its carriers in the form of claims processing 

manuals and memoranda. CMS has issued guidance on the limitation 

in the Medicare Carriers Manual and its Internet Only Manuals.8 In 

1995, at least three CMS regional offices also issued to their respective 

carriers memoranda that contained additional clarification on the 

application of the limitation. 

CMS guidance9 interprets and implements regulations10 concerning the 

limitation by identifying (1) the disorders that are subject to the 

limitation, (2) the services that are subject to the limitation, and (3) the 

services that are not subject to the limitation. However, the guidance 

lacks the specificity necessary for carriers to apply the limitation to 

claims without additional interpretation of the regulations. In 

particular, the guidance lacks specificity in two areas. One is the 

definition of “mental, psychoneurotic, and personality disorders.” The 

other is the definition of “mental health treatment.” 

CMS guidance defines the phrase “mental, psychoneurotic, and 

personality disorders” as the specific psychiatric conditions described in 

APA’s DSM-III-R.11 The guidance also provides that, if the primary 

diagnosis is the “same as or equivalent to a condition described in the 

APA’s DSM-III-R,” the service is subject to the limitation. CMS 

guidance does not mention the range of diagnosis codes that are 

specified in the regulation, i.e., 290 through 319, nor does it mention the 

ICD-9. The ICD-9 lists diagnosis codes for all diseases and conditions, 

including mental illness, and contains 192 diagnosis codes for mental 

illness that are not in the DSM-III-R. 

To identify services that are subject to the limitation, CMS guidance 

instructs carriers to apply the limitation to “professional services that 

represent mental health treatment.”12 However, the guidance does not 

list the specific procedure codes (i.e., AMA’s “Current Procedural 

8 “Medicare General Information, Eligibility, and Entitlement Manual,” Publication 

100-1, Chapter 3, sections 30.0 through 30.3 and “Medicare Claims Processing Manual,” 

Publication 100-4, Chapter 12, sections 210 and 210.1. 

9 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, section 210.1. 

10 42 CFR § 410.155. 

11 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, section 

210.1(B). 

12 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, section 

210.1(C). 

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INTROD UCT ION

Terminology” (CPT codes)) that qualify as mental health treatment 

services. 

To identify services that are not subject to the limitation, CMS provides 

additional guidance for the following exceptions: diagnosis of 

Alzheimer’s disease or related disorders, brief office visits for 

monitoring or changing drug prescriptions, diagnostic services, and 

partial hospitalization services not directly provided by a physician.13 

CMS guidance on exceptions relevant to this report are discussed in 

more detail later. 

Application of the Limitation by Carriers 

Section 1842 of the Act authorizes CMS to contract with private 

companies, called “carriers,” to process and pay physician and 

nonphysician practitioner Part B claims within a given service area. In 

most cases, a carrier service area is a single State; however, some States 

(such as New York and Missouri) have two service areas. Most carriers 

process and pay claims for multiple service areas. In 2003, 19 carriers 

processed claims from providers in the 57 service areas that 

encompassed all 50 States, the District of Columbia, Puerto Rico, and 

the U.S. Virgin Islands. 

Unlike Local Coverage Determinations (LCD), application of the 

limitation is a payment decision, not a coverage decision. The LCD is a 

decision by a carrier to cover a particular item or service. In contrast, 

the application of the limitation does not affect coverage. Instead, the 

limitation determines the proportion of expenses that will be borne by a 

beneficiary. Carriers are required by law to apply the limitation; 

however, they make decisions on its application to specific services on 

the basis of national payment policy in conjunction with their 

interpretation of that policy (CMS guidance and memoranda). 

Claims Processing 

Physicians and other practitioners submit Medicare claims to their 

respective carriers. They submit claims electronically in a uniform 

format that includes, among other things: 

o demographic information about the patient, 

o the patient’s Medicare identification number, 

13 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, section 

210.1(D). 

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INTROD UCT ION 

o codes used to describe the services rendered,

14 and 

o codes used to describe the patient’s diagnosis.15 

Using their automated claims processing systems, carriers determine if 

Medicare covers the services billed by physicians and other 

practitioners. If the services are covered, prior to paying the claim, 

carriers transmit the claim information to one of nine “host sites” for the 

Common Working File (CWF). The CWF system reviews the claim and 

beneficiary information and authorizes payment, based on the payment 

rules. However, carriers are solely responsible for applying the 

limitation via their automated claims processing systems. Carriers 

customize their systems and apply the limitation according to their 

individual payment policies, which, as previously mentioned, are a 

combination of national payment policy and carriers’ interpretations of 

national payment policy. 

Companion Report 

This report is the first of two reports on Medicare Part B mental health 

services rendered in 2003. The second report will describe the results of 

a medical review of a representative sample of Medicare claims for 

mental health services rendered in 2003. 

METHODOLOGY 

Because CMS has not provided the carriers with comprehensive 

guidance on the limitation, we focused on how consistently the carriers 

calculate beneficiary copayments. However, since carriers can 

determine whether the limitation applies to services rendered to 

beneficiaries diagnosed with Alzheimer’s and related disorders based on 

the plain language of the CMS guidance, we determined the extent to 

which carriers correctly calculate copayments for these beneficiaries. 

We used multiple methods to accomplish our objective. To determine 

the extent to which carriers consistently calculate beneficiary 

copayments for mental health services, we surveyed each carrier and 

analyzed a 1-percent sample of claims from the Medicare National 

Claims History for claims received in calendar year 2003. To determine 

the extent to which carriers are correctly calculating copayments for 

beneficiaries diagnosed with Alzheimer’s disease or related disorders, 

14 Procedure codes are from AMA’s “Current Procedural Terminology.” 

15 Diagnosis codes are from AMA’s ICD-9. 

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INTROD UCT ION 

we analyzed a 1-percent sample of claims from the Medicare National 

Claims History for claims received in calendar years 2001 through 2004. 

In addition, we reviewed all relevant statutes, regulations, and CMS 

guidance. 

Carrier Survey 

We sent a written survey to 18 of the 19 carriers that had paid claims in 

calendar year 2003. All 18 carriers responded to our survey. The 

carrier that processed claims for Rhode Island in 2003 was no longer a 

Medicare contractor at the time we conducted our survey (October 2004) 

and was, therefore, not included in our survey. The carriers that 

responded to our survey represented at least 1 of all 57 Part B service 

areas in 2003, except Rhode Island. 

We asked the carriers to provide detailed explanations of their payment 

policies for applying the limitation to the claims they paid for services 

rendered in 2003. After receiving their completed surveys, we contacted 

many of the carriers by telephone, fax, and/or e-mail to clarify their 

survey responses. 

2003 Medicare Claims Data and Carrier Payment Policy Analysis 

We analyzed a 1-percent sample of claims from the Medicare National 

Claims History for claims received in calendar year 2003. We analyzed 

the claims to (1) verify that carriers followed their stated payment 

policies for application of the limitation in 2003 and (2) calculate 

Medicare reimbursements and beneficiary liabilities for claims paid 

under the limitation. 

We analyzed the carriers’ payment policies in four categories: 

1. Psychiatric pharmacologic management services. See page 1 for 

the definition. 

2. E&M services. See page 1 for the definition. 

3. Diagnosis lists used to trigger the limitation. As mentioned on 

page 5, there are two professionally recognized sources for 

diagnosis codes for mental illnesses: (1) AMA’s ICD-9 and 

(2) APA’s DSM-III-R. The ICD-9 is the international standard for 

a comprehensive listing of all diseases and conditions, and is not 

limited to mental illnesses. The DSM-III-R is the standard 

diagnostic manual used by mental health practitioners, and is 

limited to mental illnesses. In addition to listing the diagnosis 

codes, it contains other information, such as diagnostic criteria. 

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INTROD UCT ION 

4. Services to treat Alzheimer’s and related disorders. Federal 

regulations16 prohibit application of the limitation to “medical 

management, as opposed to psychotherapy, furnished to a patient 

diagnosed with Alzheimer’s disease or a related disorder.” 

Alzheimer’s-related disorders comprise 12 different diseases, as 

defined by the DSM-III-R. See appendix B for a complete listing 

of the diseases. 

Policy verification analysis. We verified that the carriers were following 

their payment policies in each of these four categories of claims by 

analyzing their paid claims in the 2003 1-percent sample. Based on the 

results of our analysis, we included a service area in our findings if at 

least 99.5 percent of the paid claims in that service area were processed 

in accordance with the carrier’s payment policies. For example, if a 

carrier stated that it applied the limitation to E&M services in a 

particular service area, we included that service area in our findings if 

at least 99.5 percent of paid claims showed that the carrier had followed 

its stated payment policy. If fewer than 99.5 percent of the service 

area’s claims were paid in accordance with the payment policy, we 

excluded that service area from our findings for that category of claims 

only (E&M services in the example). The service area could still be 

included in our findings related to the three other categories if the 

99.5 percent-criterion were met for those particular services. See 

Table 2 for details about the carriers and service areas that we 

excluded. 

Table 2 

Excluded Carriers 

and Service Areas: 

Carriers’ stated 

payment policies 

for specific claim 

categories could 

not be verified in 

2003 paid claims 

data. 

Carriers and Service Areas Excluded from this Report’s Analyses 

Categories for Application of the 

Limitation 

Carriers* 

(n=19) 

Service 

Areas 

(n=57) 

Percent 

Service 

Areas 

Psychiatric pharmacologic management 

services 

Evaluation and management services 

Diagnosis lists used to trigger the 

limitation 

Services to treat Alzheimer’s and related 

dementia disorders 

3 

8 

10 

5 

4 

11 

14 

7 

7% 

19% 

25% 

12% 

*This column indicates that at least one service area for the carrier was excluded, not that the entire carrier 

was excluded from our analysis. 

Source: Office of Inspector General analysis of a 1-percent sample of calendar year 2003 Medicare claims, 

2005. 

16 42 CFR § 410.155(b)(2)(v). 

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INTROD UCT ION 

The carriers in Table 2 could not accurately describe their payment 

policies for applying the limitation. Determining why the carriers could 

not accurately describe their payment policies was outside of the scope 

of this study. However, a few carriers provided information that 

suggests they do not keep accurate written records of their limitation 

policies and are unable to query their payment systems to obtain past 

payment policies (e.g., the limitation policy in 2003). 

We also excluded from our verification analysis all claims for which the 

primary payer was not Medicare. These claims represented less than 

1 percent of the claims in our sample. 

We analyzed carriers’ payment policies that were in effect on 

December 31, 2003. For most carriers and most service areas, the 

limitation policies that were in effect on December 31, 2003, represented 

the policies that were in effect throughout the calendar year. 

We asked the carriers if they changed their limitation policies for claims 

that were processed in 2004 and 2005. Eight carriers had added specific 

procedure codes to the list of services that were subject to the limitation 

and/or had added specific diagnosis codes to trigger the limitation. One 

carrier changed its limitation policies from 2003 to 2004 because of a 

change in its claims processing system; however, the carrier was unable 

to explain how its policies had changed. 

Medicare reimbursement and beneficiary liability estimates 

We analyzed a 1-percent sample of paid claims for services rendered in 

2003 to determine actual Medicare reimbursement and beneficiary 

liability for services subject to the limitation. During claims processing, 

carriers code individual claims to indicate whether the limitation has 

been applied. In comparing the copayments among beneficiaries in 

different States, we factored in the difference in fee schedule amounts to 

make comparisons of beneficiary liability stemming from the limitation. 

We relied on these codes to identify the individual claims for cost 

estimates. 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

See appendix A for a glossary of the terms used in this report. 

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Δ FINDINGS

Beneficiary copayments can be more than double for 

the same mental health service 

in different service areas 

Beneficiaries’ financial liability for 

Medicare mental health services vary 

based on the geographic location in 

which they receive the services. In 

one service area, the beneficiary 

copayment might be 20 percent, while in another the copayment could 

be 50 percent for the same service. For example, approximately 

7,600 Medicare beneficiaries received psychiatric pharmacologic 

management services on December 31, 2003. Carriers applied the 

limitation to the services for approximately 83 percent of these 

beneficiaries. For two of these beneficiaries, one in Florida and the 

other in Utah, Medicare approved approximately $53 and $46 for the 

services, respectively. Because carriers that serve Florida and Utah 

have different payment policies regarding the limitation, the beneficiary 

in Florida was responsible for approximately $11, while the beneficiary 

in Utah was responsible for approximately $23. This is one example 

among thousands in which beneficiaries pay significantly different 

amounts for the same Medicare-covered mental health services. In 

2003, Medicare approved approximately $1.2 billion for claims for which 

carriers applied the limitation. Beneficiaries were liable for 

$662 million of that amount. 

Beneficiaries who move from one State to another may see dramatic 

changes in their Medicare liability for the same Medicare-covered services 

To illustrate the effect the carriers’ inconsistent limitation policies can 

have on Medicare beneficiaries, the scenarios depicted in 

Figure 1 include two real Medicare beneficiaries. In each scenario, the 

beneficiaries hypothetically moved from their home State to a State 

served by a carrier with a different limitation policy. The number of 

services reported in figure 1 were the actual number of services these 

beneficiaries received in their home States in 2003.17 

o Scenario 1: Beneficiary A received 50 E&M services in California 

and was liable for 50 percent copayments for all Medicare mental 

health services. The carrier applied the limitation to services that 

appear in the psychiatric section of the AMA’s “Current 

Procedural Terminology,” as well as E&M services where a mental 

disorder appeared on the claims. If the beneficiary moved to Ohio 

17 Approximately 3 percent of beneficiaries in 2003 received 50 or more E&M services. 

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F

Figure 1 

Beneficiaries 

Who Move to 

Another 

Service Area: 

Hypothetical 

movement of 

two real 

Medicare 

beneficiaries 

to States with 

different 

limitation 

policies. 

I NDING S 

and received exactly the same services, the beneficiary would be 

liable for approximately $1,386 less in copayments.18 

o Scenario 2: Beneficiary B received 47 E&M services in Ohio, 

avoided the limitation for these services, and was liable for the 

standard 20 percent copayment. The local carrier does not apply 

the limitation to E&M services for patients with a mental disorder 

in that service area. If the beneficiary moved to California, the 

beneficiary’s liability for copayments for the same services would 

increase by approximately $468.19 

Note: While the two beneficiaries received a similar number of E&M services, beneficiary A received services of a higher level of complexity, 

and therefore the fee schedule amounts were higher than the services for beneficiary B. 

Source: Office of Inspector General analysis of 1-percent sample of calendar year 2003 Medicare claims, 2005. 

Beneficiary A: 2003 Medicare mental health 

services received in the State of California. 

Diagnosis: Paranoid Schizophrenia 

50 E&M Services 

If Beneficiary A moves to Ohio and receives the 

same services, the beneficiary will be liable for 

$1,386 less. 

If Beneficiary B moves to California and 

receives same services, the beneficiary 

will be liable for $468 more. 

Beneficiary B: 2003 Medicare mental health 

services received in the State of Ohio. 

Diagnosis: Opioid Dependence 

47 E&M Services 

18 Of this total, $1,157.25 of the difference is attributed to the variance in the outpatient 

mental health treatment limitation policy, and $229.00 is attributed to the change in fee 

schedule amounts. The total approved amount for this beneficiary’s services in California 

was $4,315. 

19 Of this total, $432.86 of the difference is attributed to the variance in the outpatient 

mental health treatment limitation policy, and $36.58 is attributed to the change in fee 

schedule amounts. The total approved amount for this beneficiary’s services in Ohio was 

$1,978. 

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F I NDING S 

Because their payment policies are inconsistent, 

carriers do not uniformly apply 

the outpatient mental health treatment limitation 

Among the 57 service areas, we 

identified 9 distinctive payment 

policies for application of the 

limitation, based on the 4 categories 

listed below. In some cases, the 

payment policies vary within the carriers themselves. Among the 

13 carriers that have multiple service areas, at least 6 carriers have 

more than 1 distinctive payment policy in effect, which reflects 

variations within the carriers across service areas. 

Carriers’ payment policies vary in four categories 

Significant Medicare payment policy variance among the carriers occurs

primarily in four categories: 

1. psychiatric pharmacologic management services, 

2. E&M services, 

3. diagnosis lists20 used to trigger the limitation, and 

4. services to treat Alzheimer’s disease and related disorders. 

These four categories include most Medicare Part B claims for mental 

health services. Among all claims in 2003 for mental health services 

and/or beneficiaries with a psychiatric diagnosis, these four categories 

apply to 58 percent of the claims and 90 percent of the beneficiaries. 

The remaining 42 percent of the claims were for psychotherapy services, 

for which carriers were mostly consistent in applying the limitation. 

For the first three categories, CMS guidance lacks the specificity 

necessary for carriers to apply the limitation to claims without 

additional interpretation. Carriers must interpret the meaning of 

“mental health treatment” and “mental, psychoneurotic, and personality 

disorders” in order to determine whether the limitation should apply to 

claims. For the fourth category, CMS guidance is unequivocal. 

Nevertheless, carriers still vary in their application of the limitation to 

services for beneficiaries with Alzheimer’s and related disorders. 

20 AMA’s ICD-9 or APA’s DSM-III-R. 

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F I NDING S 

Psychiatric pharmacologic management is not always subject to the 

limitation 

In 86 percent of the service areas, carriers subject psychiatric 

pharmacologic management to the limitation. However, in approximately 

one-fourth of those service areas, psychiatric pharmacologic management is 

subject to the limitation only if the patient has a diagnosis recognized by 

the carrier to trigger the limitation (e.g., a mental disorder according to the 

ICD-9 or DSM-III-R). In two-thirds of the service areas, psychiatric 

pharmacologic management is subject to the limitation regardless of 

diagnosis. See Table 3 for details on how carriers’ payment policies differ. 

Table 3 

Psychiatric 

Pharmacologic 

Management: 

Carriers did not 

always apply the 

limitation to these 

claims in 2003. 

Psychiatric Pharmacologic Management – CPT 90862 

Application of the Limitation Carriers* Service Areas 

Percent 

Service Areas 

Never 

Always

Based on Diagnosis 

Unknown – carriers’ stated payment policies 

could not be verified in claims data 

2 

13 

6 

3 

4 

36 

13 

4 

7% 

63% 

23% 

7% 

Total 24 57 100% 

*There were 19 carriers in 2003; this column totals 24 because 5 carriers use different policies among their service areas. 

Source: Office of Inspector General analysis of carriers’ payment policies, 2005. 

AMA defines psychiatric pharmacologic management (CPT 90862) as a 

psychiatric service consisting of “pharmacologic management, including 

prescription, use, and review of medication with no more than minimal 

medical psychotherapy.” AMA’s definition does not explicitly indicate 

whether psychiatric pharmacologic management is a therapeutic 

(treatment) service only, as opposed to a therapeutic service with 

diagnostic and evaluative features. CMS guidance21 exempts “tests and 

evaluations performed to establish or confirm the patient’s diagnosis” 

from the limitation. Moreover, CMS guidance provides that diagnostic 

services should take more than one visit only in “rare cases,” and that, 

in those rare cases, carriers should “request documentation to justify 

the reason for more than one diagnostic visit.” 

Carriers inconsistently apply the limitation to E&M services 

E&M services are sometimes subject to the limitation in at least 

72 percent of the service areas. In at least 9 percent of the service areas,

E&M services will never trigger the limitation. See Table 4 for details. 

21 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, 

section 210.1(D)(3). 

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F I NDING S 

Table 4 

Evaluation and 

Management 

Services: 

 Carriers in most 

States applied 

the limitation in 

2003. 

E&M Services 

Application of the Limitation Carriers* 

Service 

Areas 

Percent Service 

Areas 

Never 

Based on Diagnosis 

Unknown – carriers’ stated payment policies 

could not be verified in claims data 

3 

13 

8 

5 

41 

11 

9% 

72% 

19% 

Total 24 57 100% 

*There were 19 carriers in 2003; this column totals 24 because 5 carriers use different policies among their service areas. 

Source: Office of Inspector General analysis of carriers’ payment policies, 2005. 

Further, carriers that apply the limitation based on diagnosis may use 

different lists of diagnoses to trigger the limitation for E&M services. The 

diagnosis lists that carriers use to trigger the limitation represent the 

most complex aspect of the limitation, and accordingly, result in 

significant inconsistency among the carriers and the service areas. All 

carriers that subject E&M services to the limitation do so based on the 

patient’s diagnosis, which appears on the claim. Each carrier that applies 

the limitation to E&M services uses a list of diagnoses coded into their 

claims payment systems to trigger the limitation. Typically, a carrier will 

use one list of diagnoses to “include” E&M services as subject to the 

limitation. At least one carrier uses another list of diagnoses to “exclude” 

E&M services from the limitation. Among the carriers, and even within 

some carriers, these lists vary. See Table 5 for details. 

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-

F I NDING S 

Table 5 

Diagnostic Triggers 

Vary: 

Carriers’ used 

different lists of 

diagnoses to 

trigger the 

limitation for E&M 

claims received in 

2003. 

DSM-III-R and Non-DSM III-R Psychiatric Diagnoses Used to Apply the 

Limitation to E&M Services in 2003 

Application of the Limitation to E&M 

Services Carriers* 

Service 

Areas 

Percent Service 

Areas** 

E&Ms are never subject to the limitation

DSM-III-R Included 

Only DSM-III-R diagnoses trigger the 

limitation 

DSM-III-R and non-DSM-III-R Included 

Both DSM-III-R and non-DSM-III-R 

diagnoses trigger the limitation 

Non-DSM-III-R Excluded 

Non-DSM-III-R diagnoses prevent the 

application of the limitation to any claim 

Unknown 

Carriers’ stated payment policies could 

not be verified in claims data 

3 

4 

10 

1 

10 

5 

12 

25 

1 

14 

9% 

21% 

44% 

2% 

25% 

Overall Total 28 57 101% 

*There were 19 carriers in 2003; this column totals 28 because 9 carriers use different policies among their service areas.

**The “percent of service areas” column equals 101 percent due to rounding. 

Source: Office of Inspector General analysis of carriers’ payment policies, 2005.

Carriers’ diagnosis lists are not consistent 

The differences in carriers’ diagnosis lists can be explained, at least in 

part, by the source(s) that carriers use to develop them. The ICD-9 and 

DSM-III-R do not contain the same diagnoses. In its “mental disorders” 

sections, the ICD-9 contains 192 diagnoses22 not found in the 

DSM-III-R. As shown in Table 5, carriers covering 12 service areas use 

only DSM-III-R diagnoses, and therefore, none of these 192 diagnoses 

listed only in the ICD-9 will trigger the limitation. In contrast, carriers 

covering 25 service areas use both DSM-III-R and some of these 

192 non-DSM-III-R diagnoses to trigger the limitation. Many of the 

192 diagnoses excluded from the DSM-III-R are subcategories of 

diseases, specifying, for example, a recurrent episode or chronic 

condition. For example, in service areas in which carriers rely solely on 

22 In 1995, at least three CMS regional offices issued to their respective carriers 

memoranda that listed each diagnosis code as found in the ICD-9 but not in the DSM-III-R. 

We used these memoranda as our source for identifying the non-DSM-III diagnoses. 

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F I NDING S 

the DSM-III-R, diagnoses that providers code more specifically 

(e.g., schizo-affective type, chronic, code 295.72) will not trigger the 

limitation while diagnoses coded more broadly (e.g., schizo-affective 

type, unspecified, code 295.70) will trigger the limitation. 

The ICD-9 and DSM-III-R are not fully compatible, and regulations and 

CMS guidance do not specify how carriers should reconcile the 

differences to consistently apply the limitation. The most recent CMS 

guidance states that, for purposes of applying the limitation, a mental 

disorder is “. . . defined as the specific psychiatric condition described in 

the American Psychiatric Association’s “Diagnostic and Statistical 

Manual of Mental Disorders, Third Edition – Revised.”23 However, the 

regulations state, without mentioning the DSM-III-R or the ICD-9, that 

for the purpose of applying the limitation a mental disorder is “any 

condition identified by a diagnosis code within the range of 290 through 

319.”24 The range of codes in the “mental disorders” section of the 

ICD-9 is “290 through 319,” while the range of codes in the DSM-III-R is 

“290 through 319” in addition to other codes (e.g., 780.50, 780.54, 

799.90). In addition, as mentioned earlier, there are 192 diagnoses in 

the ICD-9’s mental disorders section that do not appear in the 

DSM-III-R. 

Carriers incorrectly subject E&M services for Alzheimer’s patients to the 

limitation in approximately half of the service areas 

Contrary to Federal regulations and CMS guidance,25 in approximately 

one-half of the service areas, carriers subject E&M services to the 

limitation for patients diagnosed with Alzheimer’s and related 

disorders. Eleven carriers representing twenty-six service areas apply 

the outpatient mental health treatment limitation to E&M services 

rendered to Alzheimer’s and dementia patients. See Table 6 for details. 

We could verify the payment policies of 11 of the 19 carriers that 

reported that they apply the limitation to E&M services for beneficiaries 

diagnosed with Alzheimer’s disease or related disorders. 

23 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, sections 210 

and 210.1(B). 

24 42 CFR § 410.155(b). 

25 42 CFR § 410.155 and “Medicare General Information, Eligibility, and Entitlement 

Manual,” Publication 100-1, Chapter 3, section 30.2. 

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F I NDING S 

Table 6 

Diagnoses of 

Alzheimer’s or 

Related Disorders: 

Carriers’ payment 

policies for 

application of the 

limitation to E&M 

claims received in 

2003. 

Diagnoses of Alzheimer’s Disease or Related Disorders as a Trigger for 

Applying the Limitation to E&M Services 

Application of the Limitation to E&M Services Carriers* 

Service 

Areas 

Percent 

Service Areas 

No 

regardless of diagnosis. 

Yes 

but not to Alzheimer’s or dementia 

disorders. 

Yes 

to some but not all Alzheimer’s and 

dementia disorders. 

Yes 

to all Alzheimer’s and dementia disorders. 

Unknown 

Carriers’ stated payment policies could not 

be verified in claims data. 

3 

7 

11 

0 

5 

5 

19 

26 

0 

7 

9% 

33% 

46% 

0% 

12% 

Overall Total 26 57 100% 

*The total number of carriers in 2003 was 19, however, the carriers’ column totals 26 because 7 carriers use different 

policies among their service areas. 

Source: Office of Inspector General analysis of carriers’ payment policies, 2005. 

Carriers overstated copayments for beneficiaries with 

Alzheimer’s disease and related disorders 

by approximately $27 million during a 4-year period 

The regulations at 

42 CFR § 410.155(b)(2)(v) prohibit 

application of the limitation to “medical 

management, as opposed to 

psychotherapy, furnished to a patient 

diagnosed with Alzheimer’s disease or a related disorder.” In its 

guidance to carriers, CMS elaborates: 

When the primary diagnosis reported for a particular service is Alzheimer’s 

Disease (coded 331.0 in the “International Classification of Diseases, 9th 

Revision”) or Alzheimer’s or other disorders coded 290.XX in the APA’s 

DSM-III-R, carriers look to the nature of the service that has been 

rendered in determining whether it is subject to the limitation. Typically, 

treatment provided to a patient with a diagnosis of Alzheimer’s Disease or 

a related disorder represents medical management of the patient’s 

condition (rather than psychiatric treatment) and is not subject to the 

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Table 7 

Diagnoses of 

Alzheimer’s or 

Related 

Disorders: 

Incorrect 

application of 

the limitation 

for claims 

received 2001 

through 2004. 

NDING S 

limitation. However, when the primary treatment rendered to a patient 

with such a diagnosis is psychotherapy, it is subject to the limitation.26 

Both the regulations and CMS guidance clearly state that medical 

management for these patients should not be subject to the limitation. 

Only psychotherapy services are subject to the limitation for patients 

diagnosed with Alzheimer’s or a related disorder. The regulations do 

not specifically define an “Alzheimer’s related disorder;” however, CMS 

guidance identifies the specific range of diagnosis codes as “290.XX.” 

See appendix B for a complete list of diagnoses referenced in the 

guidance. 

CMS guidance on 42 CFR § 410.155 is consistent with the regulation. 

However, carriers are applying inappropriately the outpatient mental 

health treatment limitation to medical management services27 for 

beneficiaries diagnosed with Alzheimer’s disease or related disorders. 

Consequently, Medicare underpaid providers for these services. As a 

result, the beneficiaries were responsible for copayments in excess of 

what is mandated by Federal regulations. See Table 7 below for the 

total copayments miscalculated by year and Appendix C for the services 

in 2004 for which the copayments were miscalculated. 

Incorrect Application of the Limitation for Patients with Alzheimer’s Disease 

or Related Disorders 

Total Total 

Medicare Beneficiary Beneficiary Medicare 

Year Services were Total Liability Liability UnderRendered Beneficiaries Approved (by Carriers) (Correct) payment 

2001 158,000 $20,489,000 $10,245,000 $4,098,000 $6,147,000 

2002 178,000 $22,587,000 $11,294,000 $4,517,000 $6,776,000 

2003 197,000 $27,503,000 $13,752,000 $5,501,000 $8,251,000 

2004 146,000 $20,091,000 $10,046,000 $4,018,000 $6,027,000 

Total 488,000 $90,671,000 $45,336,000 $18,134,000 $27,201,000* 

*This table represents projections from a 1-percent sample of Medicare claims. The projections are rounded to the nearest 1,000. 

The 95 percent confidence interval for the point estimate of $27,201,000, rounded to the nearest thousand is $26,213,000 to $28,190,000.

Source: Office of Inspector General analysis of 1-percent sample of calendar years 2001, 2002, 2003, and 2004 Medicare claims, 2005.

26 “Medicare Claims Processing Manual,” Publication 100-4, Chapter 12, 

section 210.1(D)(1). 

27 These services include E&M and psychiatric pharmacologic management. See 

Appendix B for a complete list of the procedure codes in 2004. 

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ΔF I NDING S  RECOMME NDA TIONS 

Due to carriers’ inconsistent policies regarding application of the 

outpatient mental health treatment limitation, carriers do not 

uniformly calculate beneficiaries’ copayments. In addition, some 

carriers are incorrectly applying the limitation to services for 

beneficiaries with Alzheimer’s disease and related disorders, resulting 

in beneficiary overpayments. 

To address this, CMS should: 

Issue new guidance to carriers regarding the outpatient mental health 

treatment limitation and ensure that the limitation is consistently applied 

among all carriers 

In the new guidance, CMS should instruct its carriers (using a 

comprehensive list of specific CPT and ICD-9 codes) how the outpatient 

mental health treatment limitation applies to services for: 

o psychiatric pharmacologic management; 

o evaluation and management; 

o patients with diagnoses that appear in the ICD-9 list of 

psychiatric illness, but do not appear in the DSM-III-R; 

o patients with diagnoses that appear in the DSM-III-R, but do 

not appear in the ICD-9; and 

o patients diagnosed with Alzheimer’s disease and related 

disorders. 

CMS should instruct its carriers that, pursuant to 42 CFR § 410.155 

and the “Medicare General Information, Eligibility, and Entitlement 

Manual,” Publication 100-1, Chapter 3, section 30.2, they should 

discontinue applying the limitation to any services, except 

psychotherapy, for patients with Alzheimer’s disease (diagnosis code 

331.0) or related disorders (diagnosis codes 290.XX). 

Require its carriers to adjust the copayments for beneficiaries who were 

overcharged 

CMS should instruct its carriers to identify claims for all 

nonpsychotherapy services (e.g., E&M services and psychiatric 

pharmacologic management) for patients with Alzheimer’s disease or 

related disorders that were subjected to the limitation. Carriers should 

reopen these claims in accordance with 42 CFR § 405.841 and 

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R E C O MMENDA T I O N S 

determine if beneficiary copayments for the claims were calculated 

improperly and need to be adjusted. 

AGENCY COMMENTS 

CMS agreed to take steps to address our recommendations. CMS 

believes that providing more precise guidance is in the best interest of 

the Medicare program. Accordingly, CMS plans to issue new guidance 

to carriers to eliminate variations in the application of the mental 

health treatment limitation. Additionally, CMS indicated that it would 

create educational materials for the Medicare Learning Network 

located on its Web site. Finally, to the extent operationally feasible, 

CMS will require its carriers to reopen and adjust incorrectly processed 

claims for patients with Alzheimer’s disease and related disorders. See 

Appendix D for the complete CMS response. 

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 O E I - 0 9 - 0 4 - 0 0 2 2 1 C OPAYMENTS FOR MENTAL HEALTH SERVICES 22

 

Glossary of Terms

Approved amount 

 

The amount Medicare allows as total reimbursement to the 

provider for a service, including Medicare’s share and the 

beneficiary’s copayment. 

Beneficiary 

liability 

The Medicare approved amount less the practitioner 

reimbursement. Usually 50 percent of the approved amount for 

claims processed under the limitation. 

Carrier A private insurance company working under contract with CMS 

to process Part B Medicare claims. In 2003, there were 

19 separate carriers. 

Copayment The amount the Medicare beneficiary is liable for any given 

service. Typically, this amount is either 20 percent (medical 

services) or 50 percent (mental health services) of the Medicare 

approved amount. 

CPT “A listing of descriptive terms and identifying codes for medical 

services and procedures performed by physicians. The purpose of 

the terminology is to provide a uniform language that will 

accurately describe medical, surgical, and diagnostic services, 

and will thereby provide an effective means for reliable 

nationwide communication among physicians, patients, and third 

parties.” (AMA, “Current Procedural Terminology, 2003, 

Professional Edition,” Forward, p. vii.) 

DSM-III-R “The standard diagnostic tool used by mental health 

professionals worldwide to promote reliable research, accurate 

diagnosis, and thus appropriate treatment and patient care. 

Each psychiatric disorder with its corresponding diagnostic code 

is accompanied by a set of diagnostic criteria . . .” (American 

Psychiatric Association, “Diagnostic and Statistical Manual of 

Mental Disorders Third Edition Revised” (DSM-III-R), available 

online at www.psychiatryonline.org. Accessed on November 15, 

2005.) 

Δ APPENDIX A 
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APP E N D I X A 

E&M 

ICD-9 

Limitation 

Mental disorder 

Psychiatric Pharmacologic 

Management 

Psychiatric procedures 

Reimbursement 

(Medicare payment) 

Service area 

Evaluation and Management services (CPT codes 

99201-99499). These include office visits, hospital 

visits, and consultations. E&M services typically 

involve three key components: history, physical 

examination, and medical decisionmaking. E&M 

services can vary in complexity and can be rendered by 

practitioners for patients with mental disorders. 

Comprehensive source for disease classification. Diseases 

are classified with a 5-digit code, such as 295.00, 

schizophrenia, simple type, unspecified. (AMA’s 

“International Classification of Diseases, 9th Revision” 

(ICD-9).) 

The Medicare outpatient mental health treatment 

limitation. Statutory limitation of 62.5 percent of the 

Medicare Physician Fee Schedule amount on mental 

health services. 

Includes 281 diagnoses listed in the “International 

Classification of Diseases” (ICD-9) under Section 5, 

Mental Disorders (290-319). 

AMA defines psychiatric pharmacologic management 

(CPT 90862) as a psychiatric service consisting of 

“pharmacologic management, including prescription, use, 

and review of medication with no more than minimal 

medical psychotherapy.” 

Includes 42 procedures listed in AMA’s “Current 

Procedural Terminology (CPT) 2003,” under Medicine, 

Psychiatry. 

The amount Medicare pays to the practitioner for 

services. 

Includes 57 geographic areas represented by 1 of the 

19 carriers in 2003. Most service areas follow State lines; 

however, three States (e.g., California, Missouri. and New 

York) are divided into multiple service areas. 

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Δ APPENDIX B 

Table 8 

Diagnosis Code 

and Names for 

Alzheimer’sRelated 

Disorders: 

Complete list 

based upon to 

CMS guidance 

on 42 CFR

 § 410.155. 

Alzheimer’s-Related Disorders 

ICD-9 

Code ICD-9 Diagnosis Name 

DSM-III-R 

code DSM-III-R Diagnosis Name 

290.0 Senile dementia uncomplicated 290.00 Dementia of the Alzheimer's type, 

senile onset, uncomplicated 

290.10 Presenile dementia uncomplicated 290.10 Dementia of the Alzheimer's type, 

presenile onset, uncomplicated. 

290.11 Presenile dementia with delirium 290.11 Dementia of the Alzheimer's type, 

presenile onset, with delirium 

290.12 Presenile dementia with delusional 

features 290.12 Dementia of the Alzheimer's type, 

presenile onset, with delusions 

290.13 Presenile dementia with depressive 

features 290.13 Dementia of the Alzheimer's type, 

presenile onset, with depressed mood 

290.20 Senile dementia with delusional 

features 290.20 Dementia of the Alzheimer's type, 

senile onset, with delusions 

290.21 Senile dementia with depressive 

features 290.21 Dementia of the Alzheimer's type, 

senile onset, with depressed mood 

290.3 Senile dementia with delirium 290.30 Dementia of the Alzheimer's type, 

senile onset, with delirium 

290.40 Vascular dementia uncomplicated 290.40 Multi-infarct dementia, uncomplicated 

290.41 Vascular dementia with delirium 290.41 Multi-infarct dementia, with delirium 

290.42 Vascular dementia with delusions 290.42 Multi-infarct dementia, with delusions 

290.43 Vascular dementia with depressed 

mood 290.43 Multi-infarct dementia, with depression 

Source: Office of Inspector General analysis of “The Medicare Claims Processing Manual Publication,” 100-4, Chapter 12, 

section 210.1(D)(1); AMA, “International Classification of Diseases, 9th Revision” (ICD-9); and the American Psychiatric 

Association, “Diagnostic and Statistical Manual of Mental Disorders Third Edition – Revised” (DSM-III-R), 2005. 

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Δ APPENDIX C 

Table 9 

Diagnoses of 

Alzheimer’s 

or Related 

Disorders: 

Incorrect 

application 

of the 

limitation for 

claims 

received in 

2004. 

Incorrect Application of the Limitation for Patients with Alzheimer’s Disease 

or Related Disorders (from a 1-Percent Sample of Cliams) 

HCPCS Beneficiaries Total Allowed 

Total 

Beneficiary 

Liability 

(by Carriers) 

Total 

Beneficiary 

Liability 

(Correct) 

Medicare 

Underpayment 

90862 508 $78,127 $39,063 $15,625 $23,438 

90870 1 $97 $49 $19 $29 

96151 1 $24 $12 $5 $7 

99203 3 $294 $147 $59 $88 

99204 6 $764 $382 $153 $229 

99205 1 $162 $81 $32 $49 

99211 1 $26 $13 $5 $8 

99212 34 $1,490 $745 $298 $447 

99213 263 $17,638 $8,819 $3,528 $5,291 

99214 184 $19,665 $9,833 $3,933 $5,900 

99215 39 $5,206 $2,603 $1,041 $1,562 

99217 1 $77 $38 $15 $23 

99218 1 $73 $36 $15 $22 

99220 1 $170 $85 $34 $51 

99231 1 $96 $48 $19 $29 

99232 1 $51 $26 $10 $15 

99243 1 $84 $42 $17 $25 

99263 1 $62 $31 $12 $18 

99282 2 $58 $29 $12 $17 

99283 4 $264 $132 $53 $79 

99284 4 $509 $255 $102 $153 

99285 3 $457 $228 $91 $137 

99301 9 $908 $454 $182 $272 

99302 9 $829 $415 $166 $249 

99303 18 $2,205 $1,103 $441 $662 

99311 187 $13,980 $6,990 $2,796 $4,194 

99312 277 $38,412 $19,206 $7,682 $11,523 

99313 106 $14,826 $7,413 $2,965 $4,448 

99315 2 $120 $60 $24 $36 

99316 1 $74 $37 $15 $22 

99322 1 $51 $26 $10 $15 

99323 1 $76 $38 $15 $23 

99331 5 $283 $142 $57 $85 

99332 15 $1,932 $966 $386 $579 

99333 7 $414 $207 $83 $124 

99344 1 $173 $86 $35 $52 

99348 3 $346 $173 $69 $104 

99349 3 $352 $176 $70 $106 

99350 3 $538 $269 $108 $161 

Total from 

1 percent sample 1460 $200,912 $100,456 $40,182 $60,274 

Total projected 146,000 $20,091,000 $10,046,000 $4,018,000 $6,027,000 

 Source: Office of Inspector General analysis of 1-percent sample of calendar year 2004 Medicare claims, 2005. 

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Δ APPENDIX D 

Agency Comments 

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APP E N D I X D 

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Report Template Update = 04-30-05_rev.12 

Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Paul A. Gottlober, 

Regional Inspector General for Evaluation and Inspections in the San 

Francisco regional office, and Deborah W. Harvey, Assistant Regional 

Inspector General. Other principal Office of Evaluation and Inspections 

staff who contributed include: 

Steven Zerebecki, Project Leader 

Robert Gibbons, Lead Analyst 

Silvia Chin, Program Analyst 

China Tantameng, Program Analyst 

Thomas Purvis, Program Analyst 

Doris Jackson, Program Specialist 

Tricia Davis, Director, Medicare Branch 

 OE I-09-04-00 221 C O PAYM E N T S FOR MENTA L HE A LT H SE R V I C E S 28