MEDICARE 

PHYSICAL THERAPY

Self-Referring 

Providers Generally 

Referred More 

Beneficiaries but 

Fewer Services per 

Beneficiary

Report to Congressional Requesters

April 2014

GAO-14-270

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-270, a report to 

congressional requesters

April 2014

MEDICARE PHYSICAL THERAPY

Self-Referring Providers Generally Referred More 

Beneficiaries but Fewer Services per Beneficiary

Why GAO Did This Study

Rising Medicare expenditures for PT 

services have long been of concern, 

and questions have been raised about 

the role of self-referral in this growth. 

Self-referral occurs when a provider 

refers patients to entities in which the 

provider or the provider’s family 

members have a financial interest.

GAO was asked to examine selfreferral for PT services and Medicare 

spending for these services. This 

report examines (1) trends in the 

number of and expenditures for selfreferred and non-self-referred 

Medicare PT services and (2) how 

provision of these services differs 

among providers on the basis of 

whether they self-refer. GAO analyzed 

Medicare Part B claims data from 2004 

through 2010 and examined three 

measures of PT referral for each 

referring provider: number of PT 

services referred, number of 

beneficiaries referred, and number of 

PT services provided per beneficiary. 

GAO compared PT referrals for selfreferring and non-self-referring 

providers after accounting for referring 

provider specialty, Medicare 

beneficiary practice size, and 

geographic (urban or rural) location. 

GAO also compared selected 

characteristics of the beneficiaries 

referred by self-referring and non-selfreferring providers.

The Department of Health and Human 

Services stated that it had no 

comments on a draft of this report.

What GAO Found

From 2004 to 2010, non-self-referred physical therapy (PT) services increased at 

a faster rate than self-referred PT services. During this period, the number of 

self-referred PT services per 1,000 Medicare fee-for-service beneficiaries was 

generally flat, while non-self-referred PT services grew by about 41 percent. 

Similarly, the growth rate in expenditures associated with non-self-referred PT 

services was also higher than for self-referred services.

The relationship between provider self-referral status and PT referral patterns 

was mixed and varied on the basis of referring provider specialty, Medicare 

beneficiary practice size, and geography. GAO examined three measures of PT 

referral for each referring provider for the three provider specialties that referred 

nearly 75 percent of PT services in 2010—family practice, internal medicine, and 

orthopedic surgery.

• The overall relationship between provider referral status and the first 

measure of PT referrals—the average number of PT services referred per 

provider—was mixed. GAO found that self-referring family practice and 

internal medicine providers in urban areas, on average, generally referred 

more PT services than their non-self-referring counterparts. In contrast, selfreferring orthopedic surgeons, on average, generally referred fewer PT 

services than non-self-referring orthopedic surgeons.

• Self-referring providers in all three specialties that GAO examined generally 

referred more beneficiaries for PT services, on average, but for fewer PT 

services per beneficiary compared with non-self-referring providers. For 

these two measures of PT referrals, differences between self-referring and 

non-self-referring providers generally persisted after accounting for referring 

providers' specialty, Medicare beneficiary practice size, and geographic 

location, although the magnitude of these differences varied on the basis of 

these factors. For example, the average number of beneficiaries referred by 

self-referring family practice providers in urban areas was approximately 43 

to 87 percent higher than for their non-self-referring counterparts, depending 

on Medicare practice size. In contrast, beneficiaries referred by self-referring 

family practice providers in urban areas received 12 to 28 percent fewer PT 

services, on average, depending on practice size, compared with their nonself-referring counterparts.

• GAO also found that in the year a provider began to self-refer, PT service 

referrals increased at a higher rate relative to non-self-referring providers of 

the same specialty. For example, family practice providers that began selfreferring in 2009 increased PT referrals 33 percent between 2008 and 2010. 

In contrast, non-self-referring family practice providers increased their PT 

service referrals 14 percent during this same period.

View GAO-14-270. For more information, 

contact James Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov.
Page i GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Letter 1 

Background 6

Self-Referred PT Services and Expenditures from 2004 through 

2010 Were Generally Flat, While Non-Self-Referred PT 

Services and Expenditures Increased 8

PT Referral Patterns Differed on the Basis of Whether the 

Providers Self-Referred 11

Concluding Observations 26

Agency and Third-Party Comments and Our Evaluation 27

Appendix I Scope and Methodology 32

Appendix II Distribution of Medicare Physical Therapy Services for Self-Referring 

and Non-Self-Referring Providers, 2010 38

Appendix III Providers Who Referred Medicare Physical Therapy Services, by 

Selected Characteristics, 2010 41

Appendix IV GAO Contact and Staff Acknowledgments 43

Tables

Table 1: Average Number of Medicare Physical Therapy Services 

Referred in Urban Areas, by Provider Referral Status, 

Selected Specialty, and Beneficiary Practice Size in 2010 13

Table 2: Average Number of Medicare Physical Therapy Services 

Referred in Rural Areas, by Provider Referral Status, 

Selected Specialty, and Beneficiary Practice Size in 2010 14

Table 3: Average Number of Medicare Beneficiary Referrals for 

Physical Therapy Services in Urban Areas, by Provider 

Referral Status, Selected Specialty, and Beneficiary 

Practice Size in 2010 16

Contents
Page ii GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 4: Average Number of Medicare Beneficiary Referrals for 

Physical Therapy Services in Rural Areas, by Provider 

Referral Status, Selected Specialty, and Beneficiary 

Practice Size in 2010 18

Table 5: Average Number of Physical Therapy Services Received 

per Medicare Beneficiary in Urban Areas, by Provider 

Referral Status, Selected Specialty, and Beneficiary 

Practice Size in 2010 20

Table 6: Average Number of Physical Therapy Services Received 

per Medicare Beneficiary in Rural Areas, by Provider 

Referral Status, Selected Specialty, and Beneficiary 

Practice Size in 2010 21

Table 7: Selected Characteristics of Medicare Beneficiaries 

Referred for Physical Therapy Services by Self-Referring 

and Non-Self-Referring Providers in Selected Specialties, 

2010 23

Table 8: Percentage of Medicare Beneficiaries Referred for 

Physical Therapy Services by Self-Referring and NonSelf-Referring Providers in Selected Specialties by 

Diagnostic Category, 2010 24

Table 9: Change in Average Number of Medicare Physical 

Therapy Services Referred for Self-Referring Providers, 

Non-Self-Referring Providers, and Switchers in Selected 

Specialties Who Had at Least One Office Referral, 2008 

and 2010 25

Table 10: Distribution of Physical Therapy Services for SelfReferring and Non-Self-Referring Family Practice 

Providers, 2010 38

Table 11: Distribution of Medicare Physical Therapy Services for 

Self-Referring and Non-Self-Referring Internal Medicine 

Providers, 2010 39

Table 12: Distribution of Medicare Physical Therapy Services for 

Self-Referring and Non-Self-Referring Orthopedic Surgery 

Providers, 2010 40

Table 13: Providers in Urban Areas Who Referred Medicare 

Physical Therapy Services, by Provider Referral Status, 

Selected Specialty, and Beneficiary Practice Size in 2010 41

Table 14: Providers in Rural Areas who Referred Medicare 

Physical Therapy Services, by Provider Referral Status, 

Selected Specialty, and Beneficiary Practice Size in 2010 42
Page iii GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Figures

Figure 1: Trends in Number of Self-Referred and Non-SelfReferred Physical Therapy Services per 1,000 Medicare 

Fee-for-Service Beneficiaries, 2004-2010 9

Figure 2: Trends in Self-Referred and Non-Self-Referred Medicare 

Physical Therapy Expenditures, 2004-2010 11

Abbreviations

AAFP American Academy of Family Physicians

AAOS American Academy of Orthopaedic Surgeons

ACP American College of Physicians

APTA American Physical Therapy Association

BBA Balanced Budget Act of 1997

CCS Clinical Classification Software

CMS Centers for Medicare & Medicaid Services

FFS fee-for-service 

HCPCS Healthcare Common Procedure Coding System

ICD-9-CM International Classification of Diseases, Ninth Revision, 

 Clinical Modification

NPI national provider identifier

PT physical therapy

TIN Taxpayer Identification Number

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Page 1 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

441 G St. N.W.

Washington, DC 20548

April 30, 2014

The Honorable Charles E. Grassley

Ranking Member

Committee on the Judiciary

United States Senate

The Honorable Henry A. Waxman

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives

Rising Medicare spending for outpatient therapy services, including 

physical therapy (PT), has long been an issue. Between 2006 and 2009, 

Medicare expenditures for outpatient PT increased by approximately 

28 percent, while the national economy grew about 4 percent. In 2011, 

Medicare paid about $4.1 billion for outpatient PT services provided to 

about 4.3 million Medicare beneficiaries. PT services, such as therapeutic 

exercises, are designed to improve mobility, strength, and physical 

functioning, and to limit the extent of disability resulting from injury or 

disease. An aging U.S. population that remains active later than previous 

generations may have contributed to an increase in demand for such 

services. However, there is concern that not all PT services may be 

medically necessary, and selected legislation has focused on reforming 

how the Centers for Medicare & Medicaid Services (CMS)—the agency 

that administers the Medicare program—pays for and manages the 

outpatient therapy benefit. For example, under the Balanced Budget Act 

of 1997 (BBA), CMS was required to apply per beneficiary financial limits, 

known as therapy caps, to help control spending growth and discourage 
 

Page 2 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

medically unnecessary use of outpatient therapy services, including PT.1

More recently, the Middle Class Tax Relief and Job Creation Act of 2012 

required CMS to gather information on patient function during the course 

of therapy to better understand patient condition and outcomes for 

outpatient therapy claims, including PT, beginning January 1, 2013.2

Some policymakers also have expressed concern that some of the 

growth in PT may be the result of provider self-referral, which occurs 

when providers refer their patients for services delivered by entities—

such as their own solo or group practice—in which they or a member of 

their family have a financial relationship.3 While federal law generally 

prohibits self-referral under Medicare, there are exceptions for certain 

services and arrangements, including PT.

4

 

1

Pub. L. No. 105-33, § 4541, 111 Stat. 251, 454. BBA established a combined $1,500 cap 

for PT and speech-language pathology for calendar year 1999. The amount of the therapy 

caps is calculated annually to account for increases in the Medicare economic index, and 

has increased to $1,920 in 2014 for PT and speech-language pathology services 

combined. Since BBA, therapy caps were in effect only in 1999 and in part of 2003; in 

other years, Congress imposed temporary moratoria on the caps in response to concerns 

that patients with an extensive need for outpatient therapy services might be adversely 

affected by the caps. See, for example, Medicare, Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999, Pub. L. No. 106-113, App. F, § 221(a), 113 Stat. 1501, 1501A351; Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, 

Pub. L. No. 106-554, App. F, § 421(a), 114, Stat. 2763, 2763A-516; Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. No. 108-173, 

§ 624(a), 117 Stat. 2066, 2317.

Opponents of self-referral for 

PT suggest that financial incentives may lead providers to initiate PT 

services more frequently than is necessary, leading to overutilization and 

2

Pub. L. No. 112-96, § 3005(g), 126 Stat. 156, 189. The Middle Class Tax Relief and Job 

Creation Act of 2012 made several changes affecting the processing of claims for 

outpatient therapy services. For example, the act required CMS to begin conducting 

manual medical reviews of requests for exceptions for outpatient therapy claims over an 

annual threshold of $3,700 for services provided on or after October 1, 2012 and required 

that the national provider identification number of the physician who certifies the plan of 

care be included on Medicare claims for outpatient therapy services, including PT.

3

For example, a provider may refer patients to a physical therapist who is employed by the 

provider or the provider’s group practice.

4

Compliance with the physician self-referral law, commonly known as the Stark Law, is 

outside the scope of this report. The Stark Law prohibits physicians from making referrals 

for certain designated health services paid for by Medicare to entities with which the 

physicians or immediate family members have a financial relationship, unless the 

arrangement complies with a specific exception, such as in-office ancillary services. 

42 U.S.C. § 1395nn(b)(2). The requirements of the in-office ancillary services exception 

are found at 42 C.F.R § 411.355(b)(2013).
 

Page 3 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

increased Medicare spending. Proponents of PT self-referral suggest that 

such arrangements allow providers to improve coordination of care and 

provide patients with convenient access to PT services. Some proponents 

also have argued that physical therapists practicing independently can 

have a financial incentive to recommend additional PT visits and perform 

more PT procedures per visit than may be medically necessary.

We have recently reported on self-referral for advanced imaging, 

anatomic pathology, and intensity modulated radiation therapy.5

To identify trends in the utilization of and expenditures for self-referred 

and non-self-referred PT services, we analyzed 100 percent of Medicare 

fee-for-service (FFS) claims from the Medicare Part B Carrier File from 

2004 through 2010 for PT services provided in professional offices.

We 

generally found that providers who self-refer tended to use more of these 

health care services, in some cases resulting in additional Medicare 

spending. You also asked us to examine provider self-referral for PT 

services and Medicare spending for these services. In this report, we 

provide information on (1) trends in the number of and expenditures for 

self-referred and non-self-referred Medicare PT services from 2004 

through 2010 and (2) how provision of these services differs among 

providers on the basis of whether they self-refer.

6

 

5

For studies by GAO on physician self-referral, see GAO, Medicare: Higher Use of 

Advanced Imaging Services by Providers Who Self-Refer Costing Medicare Millions, 

Because there is no “indicator” or “flag” on Medicare claims to identify 

whether PT services are self-referred or non-self-referred, we developed 

a claims-based methodology for identifying self-referred services. We 

classified services as self-referred if the provider shown in the referring 

provider field for PT services and the provider that performed the PT 

GAO-12-966 (Washington, D.C.: Sept. 28, 2012); GAO, Medicare: Action Needed to 

Address Higher Use of Anatomic Pathology Services by Providers Who Self-Refer, 

GAO-13-445 (Washington, D.C.: June 24, 2013); and GAO, Medicare: Higher Use of 

Costly Prostate Cancer Treatment by Providers Who Self-Refer Warrants Scrutiny, 

GAO-13-525 (Washington, D.C.: July 19, 2013).

6

Medicare data from the Carrier file include data from the CMS-1500, which is the 

standard claim form used by noninstitutional providers, such as physicians’ offices and 

physical therapists’ private practices, to bill Medicare. Some of the PT services reported 

on the CMS-1500 may be provided in patients’ homes. We used Healthcare Common 

Procedure Coding System (HCPCS) codes to identify PT services, and included claims for 

all office-based PT services that were covered by Medicare.
 

Page 4 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

service had a financial relationship with the same entity.7 We classified 

services as non-self-referred if the provider shown in the referring 

provider field for PT services had no financial relationship with the 

provider who performed the PT service.8 After we classified PT services 

as self-referred or non-self-referred, we used the claims to identify trends 

in the number of self-referred and non-self-referred PT services and 

expenditures for PT services performed from 2004 through 2010.9

To determine the extent to which the referral of PT services differed for 

providers who self-referred when compared with other providers, we 

classified providers into subgroups based on characteristics that may be 

associated with the amount of PT referrals. We then performed two 

analyses using 100 percent of Medicare Part B claims for PT services 

provided in both professional offices and facility settings. For the first 

analysis, we compared PT referrals during 2010 by providers who selfreferred at least one beneficiary for PT services (“self-referring” providers) 

with providers who referred all beneficiaries for PT services to provider(s) 

with whom they had no financial relationship (“non-self-referring” 

providers).

(See 

app. I for more details on our scope and methodology.)

10

 

7

Providers could have a financial relationship with the same entity if, for example, they are 

part of the same group practice.

Because the amount, frequency, and duration of PT services 

may vary for each beneficiary, we examined three PT referral measures 

for each referring provider: total number of PT services referred, total 

number of beneficiaries referred, and average number of PT services 

received by each beneficiary referred. Differences in these measures of 

PT referrals between providers may reflect differences due to self-referral 

status, provider characteristics, or beneficiary characteristics. To account 

for provider characteristics that may be associated with the amount of PT 

referrals, we categorized self-referring and non-self-referring providers 

8

CMS uses the provider shown in the referring provider field to identify the provider who 

certified the beneficiary’s plan of care for PT services. In some cases the certifying 

provider may be different from the referring provider. In this study we refer to the provider 

shown in the referring provider field as the referring provider.

9

Expenditure trends are based on allowed charges from the claims. Allowed charges 

include the payments made by both the beneficiary and the Medicare program.

10All self-referring and non-self-referring providers in this study referred at least one PT 

service to a professional office, and some may have also referred PT services to a facility 

setting. We assumed that all PT services referred to a facility setting were non-selfreferred services.
 

Page 5 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

into subgroups of similar specialties, geographic areas (urban/rural 

location), and beneficiary practice size (i.e., the number of Medicare FFS 

beneficiaries treated in a professional office for any medical condition), 

and examined our three PT referral measures for self-referring and nonself-referring providers of each subgroup.11 We examined PT referral 

measures for providers in three specialties that we found referred nearly 

75 percent of PT services in 2010—family practice, internal medicine, and 

orthopedic surgery.12

For our second analysis, we analyzed the extent to which the total 

number of PT services referred changed the year after providers began to 

self-refer. Specifically, we identified a group of providers that began to 

self-refer PT services in 2009. We then calculated the difference in the 

percentage change in the number of PT services referred by two groups 

of providers—”switchers” and non-self-referring providers. Switchers were 

non-self-referring during 2008 and self-referring during 2009 and 2010. 

Switchers may have begun to self-refer in 2009 by hiring PT provider(s) 

or joining a group practice that self-referred. Non-self-referring providers 

were providers who were non-self-referring throughout 2008, 2009, and 

2010.

To account for differences in beneficiary 

characteristics, we compared selected characteristics of the beneficiaries 

referred by self-referring and non-self-referring providers, such as 

beneficiary age and disability status.

Our study has some limitations. First, we may not have identified all selfreferred PT services because CMS uses the referring provider identifier 

on PT claims to identify the provider who certified the beneficiary’s plan of 

care, and in some cases the referring provider may be different from the 

certifying provider. In addition, Medicare claims data do not capture all 

financial relationships between performing and referring providers. 

Second, we may have understated the occurrence of certain self-referral 

 

11For example, the number of PT services providers refer may increase as their Medicare 

beneficiary practice size increases. Examining PT referral measures for providers within 

each subgroup helps to account for provider characteristics that may be associated with 

the amount of PT referrals and provides a better estimate of how providers’ PT referral 

patterns vary on the basis of whether they self-refer. 

12During 2010, family practice providers referred approximately 20 percent of PT services 

with a unique referring provider identifier, internal medicine providers referred 26 percent, 

and orthopedic surgeons referred 28 percent. We also examined other provider specialties 

that self-referred PT services, including neurology, podiatry, and physical medicine.
 

Page 6 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

arrangements, such as referring physician ownership of hospitals, by 

assuming that all PT services referred to facilities were non-self-referred. 

Third, our analysis that compares PT diagnostic categories for 

beneficiaries referred by self-referring and non-self-referring providers is 

based on data that CMS does not use to determine payment for PT 

services. Consequently, providers do not have a financial incentive to 

accurately report diagnostic data for PT services on Medicare claims. 

Finally, it is outside the scope of this report to examine the medical 

necessity, clinical appropriateness, or effectiveness of PT services 

beneficiaries received.

We assessed the reliability of the CMS data we used by interviewing 

officials responsible for overseeing these data sources, reviewing relevant 

documentation, comparing means and frequencies of selected variables 

with published data, and examining the data for obvious errors. We 

determined that the data were sufficiently reliable for the purposes of this 

report.

We conducted this performance audit from February 2012 through April 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

PT treatment consists of a planned program to relieve symptoms, 

improve function, and prevent further disability for individuals disabled by 

chronic or acute disease or injury. Health conditions that require physical 

rehabilitation, such as low back pain, bursitis, stroke, Parkinson’s 

disease, or arthritis, may benefit from PT services. Beneficiaries are 

eligible to receive outpatient PT under Medicare Part B, which covers 

diagnosis and treatment of impairments, functional limitations, disabilities, 

or changes in physical function and health status. Medicare-covered 

outpatient PT services are provided in institutional settings such as 

hospital outpatient departments and skilled nursing facilities, as well as 

noninstitutional settings such as physicians’ offices and PT clinics.

To be covered by Medicare, outpatient PT services must be medically 

necessary, furnished while the beneficiary is or was under the care of a 

physician, and provided under a written plan of care established by an 

appropriate medical professional, such as a physician or physical 

Background
 

Page 7 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

therapist. The plan of care is required to contain, among other 

information, the amount, duration, and frequency of PT services.13 The 

plan of care must be certified by a physician or nonphysician practitioner 

within 30 days of the initial therapy treatment, and must be recertified at 

least every 90 days after the initial treatment.14 Medicare does not require 

that a beneficiary obtain a physician referral to initiate PT services.15

PT services are billed using Healthcare Common Procedure Coding 

System (HCPCS) codes; examples of HCPCS codes for PT services 

include therapeutic exercises and massage therapy. Each Medicare claim 

for PT can include one or more HCPCS codes, as well as one or more 

15-minute “units” for each timed code.

However, if a physician referral for PT services is documented in the 

medical record, it provides evidence that the patient was under the care 

of a physician.

16

 

1342 CFR §§ 424.24(c)(1)(iii), 410.61(c). For example, the plan of care for PT services 

may be documented as “once daily, three times per week, over 6 weeks.” CMS, Medicare 

Benefit Policy Manual, Chapter 15, § 220.1.2 (2012).

1442 CFR § 424.24(c)(4)(i).

15According to the American Physical Therapy Association, 48 states and the District of 

Columbia have state laws that allow “direct access” to certain PT services without a 

physician referral. Michigan and Oklahoma allow PT evaluation without referral, but not 

treatment. The association estimates that less than 10 percent of patients obtain PT 

services without a physician referral, and this percentage may vary by state depending on 

the specific provisions in state direct access laws.

16For example, a Medicare claim line with a timed PT HCPCS code and a unit count of “2” 

means that a beneficiary received two 15-minute increments of that service. Not all PT 

services are timed. For example, the HCPCS code for PT evaluation is untimed.
 

Page 8 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

The total number of PT services provided to Medicare beneficiaries 

increased nearly 30 percent from 2004 through 2010. Over this period, 

the number of self-referred PT services was generally flat, while the 

number of non-self-referred PT services increased. In addition, 

expenditures increased over this time period for both self-referred and 

non-self-referred PT services, but this increase was larger for services 

that were not self-referred.17

The total number of PT services provided to Medicare beneficiaries 

increased nearly 30 percent from 2004 through 2010, despite a small 

decrease in the total number of FFS beneficiaries over this same period.18

From 2004 to 2010, the number of services per 1,000 FFS beneficiaries 

that we identified as self-referred was generally flat—about 320 services 

in both 2004 and 2010 (see fig. 1).19

 

17We previously reported that self-referred services and expenditures for advanced 

imaging, anatomic pathology, and intensity-modulated radiation therapy grew faster than 

non-self-referred services and expenditures. See 

In contrast, the number of non-selfreferred PT services per 1,000 FFS beneficiaries grew by about 

41 percent, from about 903 in 2004 to about 1,275 services in 2010. 

Because of the rapid growth in non-self-referred PT services, the 

GAO-12-966, GAO-13-445, and 

GAO-13-525. One potential reason for this difference is that non-self-referred PT services 

can be performed by providers who can directly influence the amount, duration, and 

frequency of PT services through the written plan of care required by Medicare. In 

contrast, non-self-referred services we examined for our prior work tend to be performed 

by providers who have more limited ability to generate additional services or referrals; for 

example, radiologists generally do not have the discretion to order more imaging services 

or more intense imaging procedures.

18As a result of increased enrollment in Medicare Advantage, the number of Medicare 

FFS beneficiaries decreased from 2004 to 2010, going from approximately 35.5 million to 

approximately 35.3 million. The Medicare Advantage program is an alternative to the 

original Medicare FFS program in which private health insurance plans offer health care 

coverage to Medicare beneficiaries.

19Self-referred PT services per 1,000 FFS beneficiaries changed from approximately 320 

to approximately 319 (about -0.3 percent) from 2004 to 2010.

Self-Referred PT 

Services and 

Expenditures from 

2004 through 2010 

Were Generally Flat, 

While Non-SelfReferred PT Services 

and Expenditures 

Increased

Self-Referred PT Services 

Were Generally Flat; NonSelf-Referred Services 

Increased About 

40 Percent
 

Page 9 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

proportion of PT services that were self-referred decreased from about 

24 percent in 2004 to about 18 percent in 2010.

Figure 1: Trends in Number of Self-Referred and Non-Self-Referred Physical 

Therapy Services per 1,000 Medicare Fee-for-Service Beneficiaries, 2004-2010

Note: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office or PT clinic. Total PT services per 

1,000 fee-for-service (FFS) beneficiaries include PT services that we could not classify as selfreferred or non-self-referred because a referring provider identifier was not included on the Medicare 

claim. From 2004 to 2010, approximately 8.9 percent of Medicare claims for PT services provided in a 

physician office or PT clinic did not include a referring provider identifier.

The overall increase in PT services is likely due, in part, to an increase in 

the proportion of Medicare beneficiaries receiving these services. In 2004, 

approximately 4 percent of all Medicare FFS beneficiaries received PT 

services; this increased to approximately 6 percent in 2010. However, 

from 2004 through 2010, the number of beneficiaries that received selfreferred PT services increased only 12 percent, while the number of 

beneficiaries that received non-self-referred PT services increased nearly 

44 percent. In addition, the number of both self-referred and non-self-
 

Page 10 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

referred PT services temporarily declined in 2006, likely due to the 

reinstatement of the therapy payment cap on PT services.20

Expenditures for both self-referred and non-self-referred PT services 

grew from 2004 to 2010, but the increase was smaller for self-referred 

services (see fig. 2). Specifically, expenditures for self-referred services 

increased from $389 million to $428 million, an increase of about 

10 percent. In contrast, expenditures for non-self-referred services 

increased from $1.2 billion in 2004 to $1.9 billion in 2010, an increase of 

about 57 percent. The larger increase in non-self-referred expenditures 

from 2004 to 2010 reflects the disproportionate increase in the number of 

beneficiaries receiving non-self-referred PT services over this period as 

well as more rapid growth in the number of 15-minute units billed for nonself-referred PT services.21

 

20Beginning in January 2006, beneficiaries could exceed the therapy payment caps 

through an exceptions process. Under an automatic exceptions process, beneficiaries 

who had qualifying conditions could exceed the therapy caps, while those who were not 

eligible for the automatic exceptions process could apply for a manual exception if they 

required services beyond the cap. In 2007, the exceptions process became fully 

automatic, allowing a provider to certify the medical necessity of therapy services in 

excess of the cap by adding a modifier to the therapy claim.

21On average, self-referred PT services were billed for a slightly shorter period of time 

than non-self-referred PT services. In 2010, the average number of 15-minute units billed 

per self-referred PT service was 1.4, or approximately 21 minutes per service; in contrast, 

the average number of 15-minute units billed per non-self-referred PT service was 1.5, 

which corresponds to approximately 23 minutes of therapy per service. Further, the 

average number of 15-minute units associated with each self-referred PT service grew 

less than 1 percent from 2004 through 2010, while the average number of units 

associated with each non-self-referred PT service grew 5.7 percent over this period.

Expenditures for SelfReferred PT Services 

Increased About 

10 Percent; Expenditures 

for Non-Self-Referred 

Services Increased Nearly 

60 Percent
 

Page 11 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Figure 2: Trends in Self-Referred and Non-Self-Referred Medicare Physical Therapy 

Expenditures, 2004-2010

Note: Medicare expenditures are in nominal dollars. We analyzed 100 percent of Medicare Part B 

claims data and included all expenditures for physical therapy (PT) Healthcare Common Procedure 

Coding System (HCPCS) services on each claim that Medicare covered in a physician office or PT

clinic. Total PT expenditures include PT services that we could not classify as self-referred or nonself-referred because a referring provider identifier was not included on the Medicare claim. From 

2004 to 2010, approximately 8.6 percent of Medicare claims for PT expenditures in a physician office 

or PT clinic did not include a referring provider identifier.

The overall relationship between provider referral status and the average 

number of PT services referred per provider was mixed and varied on the 

basis of referring provider specialty, Medicare beneficiary practice size, 

and geography. For example, self-referring family practice and internal 

medicine providers in urban areas, on average, generally referred more 

PT services in 2010 than their non-self-referring counterparts. Selfreferring orthopedic surgeons, on average, generally referred fewer PT 

services than non-self-referring orthopedic surgeons. In addition, selfreferring providers generally referred more beneficiaries for PT services, 

on average, than non-self-referring providers after accounting for 

differences in provider specialty, Medicare beneficiary practice size, and 

PT Referral Patterns 

Differed on the Basis 

of Whether the 

Providers SelfReferred
 

Page 12 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

geography.22 However, self-referring providers, on average, referred 

fewer PT services per beneficiary than non-self-referring providers. 

Providers’ referrals for PT services increased the year after they began to 

self-refer at a greater rate than non-self-referring providers.

In 2010, the relationship between provider referral status and number of 

PT services referred across all beneficiaries differed on the basis of 

geography, provider specialty, and Medicare beneficiary practice size. In 

urban areas, self-referring providers generally referred more PT services, 

on average, than non-self-referring providers, with some exceptions (see 

table 1). For example, self-referring family practice providers in urban 

areas referred more services, on average, than non-self-referring family 

practice providers in every beneficiary practice size category. In contrast, 

self-referring orthopedic surgeons in urban areas referred fewer PT 

services, on average, in every beneficiary practice size category except 

the middle category (101 to 250 beneficiaries).

 

22We determined Medicare beneficiary practice size on the basis of the number of unique 

Medicare FFS beneficiaries who received at least one service in a professional office from 

each provider for any medical condition covered by Medicare. Geographic location refers 

to the urban or rural location based on designations from the U.S. Census Bureau.

Overall Relationship 

between Provider Referral 

Status and Average 

Number of PT Services 

Referred Was Mixed
 

Page 13 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 1: Average Number of Medicare Physical Therapy Services Referred in Urban 

Areas, by Provider Referral Status, Selected Specialty, and Beneficiary Practice 

Size in 2010

Provider specialty and 

Medicare beneficiary 

practice sizea

Urban 

self-referring 

providers

Urban 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 150.2 119.5 1.26

51 to 100 185.9 129.1 1.44

101 to 250 385.4 276.0 1.40

251 to 500 848.6 625.8 1.36

501+ 1,756.3 1,639.2 1.07

Internal medicine

0 to 50 150.8 175.5 0.86

51 to 100 361.4 143.2 2.52

101 to 250 465.9 309.1 1.51

251 to 500 799.4 679.5 1.18

501+ 1,811.4 1,567.5 1.16

Orthopedic surgery

0 to 50 195.7 243.9 0.80

51 to 100 431.9 442.0 0.98

101 to 250 1,001.4 984.7 1.02

251 to 500 1,892.1 2,034.4 0.93

501+ 3,960.3 4,124.8 0.96

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. We considered providers to be self-referring if they self-referred at 

least one PT service during 2010 and non-self-referring if they referred at least one PT service to a 

professional office during 2010 and none of their referrals were self-referred. To identify providers as 

practicing in urban areas, we used urban-rural commuting area codes, which are a Census-tractbased classification scheme. In 2010, there were 4,869 self-referring providers in family practice, 

4,367 in internal medicine, and 6,458 in orthopedic surgery in urban areas. There were 35,977 nonself-referring providers in family practice, 39,981 in internal medicine, and 11,463 in orthopedic 

surgery in urban areas.

a

The Medicare beneficiary practice size for each provider refers to the number of unique Medicare 

fee-for-service (FFS) beneficiaries that received at least one service in a professional office from that 

provider during 2010 for any medical condition that was covered by Medicare. Some referring 

providers had a beneficiary practice size of zero because they treated all their Medicare FFS

beneficiaries in a setting other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 
 

Page 14 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

In rural areas, self-referring providers in the three specialties generally 

referred fewer PT services, on average, than non-self-referring providers, 

with some exceptions, as shown in table 2.23

Table 2: Average Number of Medicare Physical Therapy Services Referred in Rural 

Areas, by Provider Referral Status, Selected Specialty, and Beneficiary Practice 

Size in 2010

For example, self-referring 

family practice providers with a beneficiary practice size greater than 500, 

and orthopedic surgeons in rural areas with a beneficiary practice size of 

251 through 500 beneficiaries referred more PT services, on average.

Provider specialty and 

Medicare beneficiary 

practice sizea

Rural 

self-referring 

providers

Rural 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 226.5 245.8 0.92

51 to 100 222.9 321.5 0.69

101 to 250 311.0 393.4 0.79

251 to 500 682.3 718.7 0.95

501+ 1,969.3 1,442.9 1.36

Internal medicine

0 to 50 211.1 320.0 0.66

51 to 100 415.2 372.2 1.12

101 to 250 405.1 398.4 1.02

251 to 500 567.4 645.6 0.88

501+ 1,332.3 1,440.2 0.93

Orthopedic surgery

0 to 50 169.8 227.7 0.75

51 to 100 213.7 320.7 0.67

101 to 250 667.4 841.5 0.79

251 to 500 1,654.4 1,559.2 1.06

501+ 3,069.2 3,222.1 0.95

Source: GAO analysis of CMS data.

 

23During 2010, a smaller percentage of family practice, internal medicine, and orthopedic 

surgery providers in rural areas were self-referring compared with their urban 

counterparts.
 

Page 15 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. We considered providers as self-referring if they self-referred at least 

one PT service during 2010 and non-self-referring if they referred at least one PT service to a 

professional office during 2010 and none of their referrals were self-referred. To identify providers as 

practicing in rural areas, we used urban-rural commuting area codes, which are a Census-tract-based 

classification scheme. In 2010, there were 964 self-referring providers in family practice, 452 in 

internal medicine, and 596 in orthopedic surgery in rural areas. There were 11,492 non-self-referring 

providers in family practice, 5,584 in internal medicine, and 2,327 in orthopedic surgery in rural areas.

a

The Medicare beneficiary practice size for each provider refers to the number of unique Medicare 

fee-for-service (FFS) beneficiaries that received at least one service in a professional office from that 

provider during 2010 for any medical condition that was covered by Medicare. Some referring 

providers had a beneficiary practice size of zero because they treated all their Medicare FFS 

beneficiaries in a setting other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

Self-referring providers generally referred more beneficiaries for PT 

services during 2010, on average, but referred fewer PT services per 

beneficiary compared with non-self-referring providers. Specifically, in 

urban areas, self-referring providers in family practice, internal medicine, 

and orthopedic surgery referred more beneficiaries for PT services on 

average, than their non-self-referring counterparts in every Medicare 

beneficiary practice size category.24

 

24We classified referring providers into five beneficiary practice size groups: 0 to 50, 51 to 

100, 101 to 250, 251 to 500, and 501 or more beneficiaries. Some referring providers had 

a beneficiary practice size of zero because they treated all their beneficiaries in a setting 

other than a professional office (such as a hospital outpatient department).

However, the magnitude of the 

differences between the two groups varied by specialty and practice size. 

For example, the average number of beneficiaries referred by selfreferring orthopedic surgeons was 13 to 29 percent higher than for their 

non-self-referring counterparts, depending on the beneficiary practice size 

category, while the average number of beneficiaries referred by selfreferring family practice providers was approximately 43 to 87 percent 

In 2010, Self-Referring 

Providers Generally 

Referred More 

Beneficiaries, on Average, 

but Referred Fewer PT 

Services per Beneficiary
 

Page 16 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

higher than for their non-self-referring counterparts, depending on the 

beneficiary practice size category (see table 3).25

Table 3: Average Number of Medicare Beneficiary Referrals for Physical Therapy 

Services in Urban Areas, by Provider Referral Status, Selected Specialty, and 

Beneficiary Practice Size in 2010 

Provider specialty and 

Medicare beneficiary 

practice sizea

Urban 

self-referring 

providers

Urban 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 5.6 4.0 1.43

51 to 100 8.9 4.8 1.87

101 to 250 15.0 8.8 1.71

251 to 500 26.6 16.3 1.63

501+ 48.2 32.3 1.49

Internal medicine

0 to 50 6.7 4.9 1.35

51 to 100 11.5 4.8 2.40

101 to 250 16.9 9.2 1.83

251 to 500 27.2 17.8 1.53

501+ 48.8 33.8 1.44

Orthopedic surgery

0 to 50 8.4 7.4 1.13

51 to 100 18.4 14.4 1.28

101 to 250 39.6 30.8 1.29

251 to 500 72.2 61.5 1.17

501+ 140.5 118.7 1.18

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. For this analysis, we considered providers as self-referring if they 

self-referred at least one PT service during 2010, and as non-self-referring if they referred at least 

one PT service to a professional office during 2010 and none of their referrals were self-referred. To 

 

25The relative rate of self-referring providers refers to the factor by which the average 

number of services referred by self-referring providers is different from the average 

number of services referred by non-self-referring providers. For example, if the relative 

rate of self-referring providers is equal to 2, it would mean that, on average, self-referring 

providers referred 2 times as many PT services as did non-self-referring providers.
 

Page 17 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

identify providers as practicing in urban areas, we used urban-rural commuting area codes, which are 

a Census-tract-based classification scheme. In 2010, there were 4,869 self-referring providers in 

family practice, 4,367 in internal medicine, and 6,458 in orthopedic surgery in urban areas. There 

were 35,977 non-self-referring providers in family practice, 39,981 in internal medicine, and 11,463 in 

orthopedic surgery in urban areas.

a

The Medicare beneficiary practice size for each provider refers to the number of unique Medicare 

fee-for-service (FFS) beneficiaries that received at least one service in a professional office from that 

provider during 2010 for any medical condition that was covered by Medicare. Some referring 

providers had a beneficiary practice size of zero because they treated all their Medicare FFS 

beneficiaries in a setting other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

In general, self-referring providers in rural areas also tended to refer more 

beneficiaries for PT services across provider specialties and practice size 

categories. In rural areas, self-referring providers in family practice in our 

smallest beneficiary practice size category and orthopedic surgery with a 

practice size of 51 to 100 beneficiaries referred fewer beneficiaries for PT 

services, on average, than their non-self-referring counterparts. However, 

in all other instances, self-referring providers in rural areas referred more 

beneficiaries for PT services, on average, than their non-self-referring 

counterparts. For example, self-referring internal medicine providers in 

rural areas referred about 25 to 94 percent more beneficiaries than their 

non-self-referring counterparts, depending on the beneficiary practice size 

category (see table 4).
 

Page 18 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 4: Average Number of Medicare Beneficiary Referrals for Physical Therapy 

Services in Rural Areas, by Provider Referral Status, Selected Specialty, and 

Beneficiary Practice Size in 2010

Provider specialty and 

Medicare beneficiary 

practice sizea

Rural 

self-referring 

providers

Rural 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 7.0 7.1 0.99

51 to 100 12.2 8.6 1.42

101 to 250 15.1 11.4 1.33

251 to 500 24.3 18.1 1.35

501+ 49.8 30.6 1.63

Internal medicine

0 to 50 11.2 7.4 1.51

51 to 100 18.8 9.7 1.94

101 to 250 14.6 11.7 1.25

251 to 500 23.4 17.8 1.31

501+ 42.8 32.8 1.30

Orthopedic surgery

0 to 50 9.8 8.4 1.16

51 to 100 11.5 12.0 0.96

101 to 250 34.0 30.0 1.13

251 to 500 71.1 54.5 1.30

501+ 126.6 102.7 1.23

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. For this analysis, we considered providers as self-referring if they 

self-referred at least one PT service during 2010 and as non-self-referring if they referred at least one 

PT service to a professional office during 2010 and none of their referrals were self-referred. To 

identify providers as practicing in rural areas, we used urban-rural commuting area codes, which are 

a Census-tract-based classification scheme. In 2010, there were 964 self-referring providers in family 

practice, 452 in internal medicine, and 596 in orthopedic surgery in rural areas. There were 11,492 

non-self-referring providers in family practice, 5,584 in internal medicine, and 2,327 in orthopedic 

surgery in rural areas.

a

The Medicare beneficiary practice size for each provider refers to the number of unique beneficiaries 

that received at least one service in a professional office from that provider during 2010 for any 

medical condition that was covered by Medicare. Some referring providers had a beneficiary practice 

size of zero because they treated all their Medicare fee-for-service (FFS) beneficiaries in a setting 

other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 
 

Page 19 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

While self-referring providers generally referred more beneficiaries during 

2010, beneficiaries referred by self-referring providers in family practice, 

internal medicine, and orthopedic surgery received fewer PT services, on 

average, compared with beneficiaries referred by non-self-referring 

providers.26 For example, in urban areas, beneficiaries referred by selfreferring family practice providers received 12 to 28 percent fewer PT 

services, on average, compared with beneficiaries referred by non-selfreferring family practice providers, depending on the beneficiary practice 

size category (see table 5).

 

26A study of PT self-referral using worker’s compensation data from California found 

similar results: self-referring providers initiated PT treatment 2.3 times more often than 

non-self-referring physicians, but the mean cost per case for PT was lower in the selfreferral group (see A. Swedlow, G. Johnson, N. Smithline, and A. Milstein, “Increased 

Costs and Rates of Use in the California Workers’ Compensation System as a Result of 

Self-Referral by Physicians,” The New England Journal of Medicine, vol. 327, no. 21 

(1992)). Examining why beneficiaries referred by self-referring providers received fewer 

services, on average, compared with beneficiaries referred by non-self-referring providers 

was beyond the scope of this study. 
 

Page 20 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 5: Average Number of Physical Therapy Services Received per Medicare 

Beneficiary in Urban Areas, by Provider Referral Status, Selected Specialty, and 

Beneficiary Practice Size in 2010

Provider specialty and 

Medicare beneficiary 

practice sizea

Urban 

self-referring 

providers

Urban 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 26.7 30.3 0.88

51 to 100 20.8 27.1 0.77

101 to 250 25.7 31.4 0.82

251 to 500 31.9 38.4 0.83

501+ 36.4 50.7 0.72

Internal medicine

0 to 50 22.6 35.5 0.64

51 to 100 31.5 30.0 1.05

101 to 250 27.6 33.6 0.82

251 to 500 29.4 38.1 0.77

501+ 37.1 46.3 0.80

Orthopedic surgery 

0 to 50 23.4 32.9 0.71

51 to 100 23.5 30.8 0.76

101 to 250 25.3 32.0 0.79

251 to 500 26.2 33.1 0.79

501+ 28.2 34.8 0.81

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. For this analysis, we considered providers as self-referring if they 

self-referred at least one PT service during 2010 and as non-self-referring if they referred at least one 

PT service to a professional office during 2010 and none of their referrals were self-referred. To 

identify providers as practicing in urban areas, we used urban-rural commuting area codes, which are 

a Census-tract-based classification scheme. In 2010, there were 4,869 self-referring providers in 

family practice, 4,367 in internal medicine, and 6,458 in orthopedic surgery in urban areas. There 

were 35,977 non-self-referring providers in family practice, 39,981 in internal medicine, and 11,463 in 

orthopedic surgery in urban areas.

a

The Medicare beneficiary practice size for each provider refers to the number of unique beneficiaries 

that received at least one service in a professional office from that provider during 2010 for any 

medical condition that was covered by Medicare. Some referring providers had a beneficiary practice 

size of zero because they treated all their Medicare fee-for-service (FFS) beneficiaries in a setting 

other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 
 

Page 21 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

In rural areas, beneficiaries referred by self-referring providers in family 

practice, internal medicine, and orthopedic surgery received fewer PT 

services, on average, than their non-self-referring counterparts in every 

practice size category (see table 6).

Table 6: Average Number of Physical Therapy Services Received per Medicare 

Beneficiary in Rural Areas, by Provider Referral Status, Selected Specialty, and 

Beneficiary Practice Size in 2010

Provider specialty and 

Medicare beneficiary 

practice sizea

Rural 

self-referring 

providers

Rural 

non-self-referring 

providers

Relative rate of 

self-referring 

providersb

Family practice

0 to 50 32.6 34.9 0.93

51 to 100 18.3 37.5 0.49

101 to 250 20.7 34.7 0.60

251 to 500 28.1 39.8 0.71

501+ 39.5 47.1 0.84

Internal medicine

0 to 50 18.9 43.2 0.44

51 to 100 22.1 38.5 0.57

101 to 250 27.8 34.0 0.82

251 to 500 24.3 36.3 0.67

501+ 31.1 43.9 0.71

Orthopedic surgery

0 to 50 17.3 27.0 0.64

51 to 100 18.7 26.8 0.70

101 to 250 19.6 28.1 0.70

251 to 500 23.3 28.6 0.81

501+ 24.2 31.4 0.77

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. We considered providers as self-referring if they self-referred at least 

one PT service during 2010 and non-self-referring if they referred at least one PT service to a 

professional office during 2010 and none of their referrals were self-referred. To identify providers as 

practicing in rural areas, we used urban-rural commuting area codes, which are a Census-tract-based 

classification scheme. In 2010, there were 964 self-referring providers in family practice, 452 in 

internal medicine, and 596 in orthopedic surgery in rural areas. There were 11,492 non-self-referring 

providers in family practice, 5,584 in internal medicine, and 2,327 in orthopedic surgery in rural areas.
 

Page 22 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

a

The Medicare beneficiary practice size for each provider refers to the number of unique beneficiaries 

that received at least one service in a professional office from that provider during 2010 for any 

medical condition that was covered by Medicare. Some referring providers had a beneficiary practice 

size of zero because they treated all their Medicare fee-for-service (FFS) beneficiaries in a setting 

other than a professional office (such as a hospital outpatient department).

b

The relative rate of self-referring providers refers to the factor by which the average number of 

services referred by self-referring providers is different from the average number of services referred 

by non-self-referring providers. For example, if the relative rate of self-referring providers is equal 

to 2, it would mean that, on average, self-referring providers referred 2 times as many PT services as 

did non-self-referring providers.

Observed differences between self-referring and non-self-referring 

providers within each specialty in the number of PT services referred are 

not likely due to differences in the overall health status of the beneficiaries 

they referred. We found that self-referring and non-self-referring providers 

referred beneficiaries who were similar with respect to their average 

Medicare risk scores27 and disability status (see table 7). For example, 

self-referring and non-self-referring family practice providers referred 

beneficiaries whose average estimated cost to Medicare in 2010 was 

about 30 percent higher than for the average FFS beneficiary (31 and 

33 percent higher, respectively).

 

27CMS calculates a risk score for each Medicare beneficiary, which is the ratio of 

expected Medicare payments for that beneficiary under Medicare FFS relative to the 

average health care payments for all Medicare FFS beneficiaries. For example, a 

beneficiary with a risk score of 1.05 would have expected Medicare payments that were 

5 percent greater than the average Medicare FFS beneficiary, who is assigned a risk 

score of 1.
 

Page 23 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 7: Selected Characteristics of Medicare Beneficiaries Referred for Physical Therapy Services by Self-Referring and 

Non-Self-Referring Providers in Selected Specialties, 2010

Family practice Internal medicine Orthopedic surgery

Beneficiary characteristics, 

average

Self-referring 

provider

Non-selfreferring 

provider

Self-referring 

provider

Non-selfreferring 

provider

Self-referring 

provider

Non-selfreferring 

provider

Normalized risk scorea 1.31 1.33 1.45 1.47 1.06 1.07

Percentage age 85 or older 15% 20% 17% 24% 6% 6%

Percentage disabled 18% 16% 13% 11% 15% 17%

Source: GAO analysis of CMS data.

Note: We considered providers to be self-referring if they self-referred at least one physical therapy 

(PT) service during 2010 and non-self-referring if they referred at least one PT service to a 

professional office during 2010 and none of their referrals were self-referred.

a

A beneficiary’s risk score is a proxy for health status and is equivalent to the ratio of expected 

Medicare payments for that beneficiary under Medicare fee-for-service (FFS) relative to the average 

Medicare payments for all Medicare FFS beneficiaries. The risk scores are normalized using the FFS 

normalization factor of 1.041 for 2010 that CMS used. Normalization keeps the average FFS risk 

score constant at 1.0 over time.

Some of the differences between self-referring and non-self-referring 

providers in the number of PT referrals may be due to differences in the 

severity or type of medical conditions of the beneficiaries that they 

referred for PT treatment. Although data on the severity of beneficiaries’ 

medical conditions requiring PT treatment were not available for our study 

period, we found some differences in the extent to which self-referring 

and non-self-referring providers referred beneficiaries for selected 

diagnoses (see table 8). For example, self-referring family practice, 

internal medicine, and orthopedic surgery providers were more likely to 

refer beneficiaries who were treated for spine conditions. Non-selfreferring providers in these specialties were more likely to refer 

beneficiaries who were treated for neurologic conditions or rehabilitation.
 

Page 24 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 8: Percentage of Medicare Beneficiaries Referred for Physical Therapy Services by Self-Referring and Non-SelfReferring Providers in Selected Specialties by Diagnostic Category, 2010

Family practice Internal medicine Orthopedic surgery

Beneficiary diagnostic 

category, averagea Self-referring 

provider

Non-selfreferring 

provider

Self-referring 

provider

Non-selfreferring 

provider

Self-referring 

provider

Non-selfreferring 

provider

Arthritis 53 56 50 55 69 70

Spine 39 30 40 30 21 19

Sprains 6 4 4 4 7 7 

Fractures 3 3 2 4 10 11

Neurologic 17 26 18 28 6 7 

Rehabilitation 23 33 23 32 20 29

Other diagnoses 15 24 16 26 4 6 

Source: GAO analysis of CMS data.

Note: We considered providers to be self-referring if they self-referred at least one physical therapy 

(PT) service during 2010 and non-self-referring if they referred at least one PT service to a 

professional office during 2010 and none of their referrals were self-referred.

a

The diagnostic categories are defined based on groups of related medical diagnosis codes. They are 

maintained by the U.S. Agency for Healthcare Research and Quality and are referred to as Clinical 

Classification Software (CCS) codes. Percentages do not add up to 100 because two or more 

diagnoses may be reported on a single claim.

In addition, we found some differences in the types of PT treatments used 

by self-referring and non-self-referring providers. For example, during 

2010, self-referring providers in family practice and internal medicine 

were more likely to refer beneficiaries who were treated with ancillary 

services such as massage therapy and electrical stimulation. In contrast, 

non-self-referring providers in these specialties were more likely to refer 

beneficiaries who were treated with gait training and therapeutic activities 

(see app. II, which presents tables that show the distribution of PT 

services by provider specialty and self-referral status).

PT service referrals for providers in family practice, internal medicine, and 

orthopedic surgery increased the year after they began to self-refer at a 

higher rate relative to non-self-referring providers of the same specialty. 

We compared the average number of PT service referrals made by 

providers that began self-referring beneficiaries for PT services in 2009 

and continued doing so in 2010 (“switchers”) with the average number of 

service referrals made by providers who were non-self-referring between 

2008 and 2010. The percentage increase in average PT service referrals 

for switchers between 2008 and 2010 ranged from approximately 

7 percent for orthopedic surgeons to 33 percent for family practice 

Providers’ Referrals for PT 

Services Increased the 

Year After They Began to 

Self-Refer
 

Page 25 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

providers. In contrast, the percentage increase in the average number of 

PT service referrals for non-self-referring providers during this time was 

lower, ranging from approximately 4 percent for orthopedic surgeons to 

14 percent for family practice providers (see table 9). The percentage 

point difference in the number of PT services referred between switchers 

and non-self-referring providers was higher for family practice and internal 

medicine providers (approximately 20 percent and 18 percent, 

respectively) and lower for orthopedic surgeons (approximately 

4 percent). This is consistent with our earlier finding that self-referring 

family practice and internal medicine providers tended to have higher 

relative referral rates, on average, than their non-self-referring 

counterparts in 2010, while this effect was much more limited for 

orthopedic surgeons.

Table 9: Change in Average Number of Medicare Physical Therapy Services Referred for Self-Referring Providers, Non-SelfReferring Providers, and Switchers in Selected Specialties Who Had at Least One Office Referral, 2008 and 2010

Provider specialty Referral type

Number of 

providers with 

at least one 

office referral

Average 2008 

referred 

services

Average 2010 

referred 

services

Percentage 

change, 

2008 to 2010

Percentage point 

difference, switchers 

and non-self-referring 

providers

Family practice Self-referring 3,572 699 798 14.2%

Non-self-referring 29,951 547 621 13.7%

Switchers 439 582 775 33.2% 19.5%

Internal medicine Self-referring 3,110 1,039 1,079 3.9%

Non-self-referring 30,969 771 863 12.0%

Switchers 412 733 951 29.8% 17.8%

Orthopedic surgery Self-referring 5,523 2,146 2,281 6.3%

Non-self-referring 10,573 1,716 1,777 3.6%

Switchers 514 1,767 1,896 7.3% 3.7%

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data and counted physical therapy (PT) 

services based on the number of PT Healthcare Common Procedure Coding System (HCPCS) 

services on each claim that Medicare covered in a physician office, PT clinic, outpatient hospital 

department, skilled nursing facility, comprehensive outpatient rehabilitation facility, rehabilitation 

agency, or home health agency. We considered providers to be self-referring if they self-referred at 

least one PT service in 2008, 2009, and 2010 and non-self-referring if they referred at least one PT 

service to a professional office in 2008, 2009, and 2010 and none of their referrals were self-referred. 

We defined switchers as providers who were non-self-referring in 2008 and self-referring in 2009 and 

2010. Switchers may have started to self-refer in 2009 by hiring PT provider(s) or joining a group 

practice that self-referred.
 

Page 26 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

By improving patients’ physical functioning, strength, or mobility, PT 

treatment offers many Medicare beneficiaries the opportunity to restore 

function that they may have lost due to illness or injury. Proponents of PT 

self-referral contend that it has the potential to improve coordination of 

care and provide convenient access to PT services. Our review indicates 

that PT service use and expenditures grew considerably from 2004 to 

2010, despite a slight decrease in the total number of FFS beneficiaries 

over this period. The primary driver of this growth was growth in non-selfreferred services. These results differ from our prior work on self-referral 

of other Medicare services—namely, advanced imaging, anatomic 

pathology, and intensity-modulated radiation therapy—in which we 

reported that self-referred services and expenditures grew faster than 

non-self-referred services and expenditures. One potential reason for this 

difference is that non-self-referred PT services can be performed by 

providers who can directly influence the amount, duration, and frequency 

of PT services through the written plan of care required by Medicare. In 

contrast, non-self-referred services we examined for our prior work tend 

to be performed by providers who have more limited ability to generate 

additional services or referrals; for example, radiologists generally do not 

have the discretion to order more imaging services or more intense 

imaging procedures.

Regardless, substantial growth in PT services raises concerns about 

higher costs for Medicare and beneficiaries. Although this growth is 

primarily due to non-self-referred services, we found notable differences 

between non-self-referring and self-referring providers. For example, we 

found that average PT service referrals, average PT beneficiary referrals, 

and average PT services per beneficiary differed based on whether the 

providers self-referred; further, PT service referrals increased the year 

after a provider began to self-refer at a higher relative rate to non-selfreferring providers of the same specialty. Better understanding the 

differences in referral patterns between self-referring and non-selfreferring providers may provide useful information to help manage growth 

in PT services. In 2013, CMS began collecting additional information on 

beneficiary functional status on all PT claims. These data may help CMS 

to better assess the appropriateness and effectiveness of PT treatment 

provided by both self-referring and non-self-referring providers.

Concluding 

Observations
 

Page 27 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

We provided a draft of this report to HHS, which oversees CMS, for 

comment. HHS thanked GAO for the opportunity to review the draft and 

stated that it had no comments. We obtained written comments from four 

professional associations selected because they represent an array of 

stakeholders with specific involvement in referring PT services: the 

American Academy of Family Physicians (AAFP), which represents 

physicians in family practice; the American Academy of Orthopaedic 

Surgeons (AAOS), which represents orthopedic surgeons; the American 

College of Physicians (ACP), which represents physicians in internal 

medicine; and the American Physical Therapy Association (APTA), which 

represents physical therapists. The following sections contain a summary 

of these organizations’ comments on our methodology and findings and 

our response to these comments. We incorporated any technical 

comments provided where appropriate.

AAFP appreciated the opportunity to review the draft report, but 

expressed a concern that our methodology to define self-referring 

providers as those with at least one self-referred PT service to a 

professional office may skew our results if the majority of the PT services 

referred by several self-referring providers were not self-referred. We 

applied this same threshold in our previous work on self-referral, as it is a 

conservative method for determining providers’ self-referral status. 

Furthermore, we examined the distribution of self-referred PT services to 

professional offices during 2010 and found that providers who self-refer 

tended to self-refer a majority of the PT services utilized.

AAFP also provided some context for our findings, noting that some 

factors may account for our finding that overall spending for PT services 

increased. For example, AAFP stated that health insurers have 

encouraged providers to use imaging procedures, surgery for back pain, 

and medications that manage pain (such as opioids) less frequently. 

According to AAFP, some providers may be choosing to use less imaging 

and treat fewer patients with surgery or opioids and instead manage

these patients by referring them for PT services. AAFP considers PT a 

more cost-effective yet less invasive way to treat patients. In addition, 

AAFP believes that one possible explanation for GAO's finding that selfreferring providers referred fewer PT services per beneficiary, on 

average, than non-self-referring providers, is that providers who self-refer 

are likely to fully understand the variety of services that are available in 

the PT facility for which they have an ownership interest.

Agency and ThirdParty Comments and 

Our Evaluation

American Academy of 

Family Physicians
 

Page 28 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

AAOS appreciated the opportunity to review the draft report and was 

pleased to see that the data showed that self-referring orthopedic 

practices generally self-referred the smallest number of PT services per 

beneficiary on average when compared to other specialty groups in our 

study. However, AAOS stated that it did not believe there was a rationale 

for examining “switchers”—providers who became self-referrers during 

our period of study—because we found that self-referring providers 

referred fewer services per beneficiary on average. We conducted an 

analysis of switchers to isolate the effects of self-referral, using a 

methodology similar to our previous reports on self-referral in Medicare. 

As noted in the draft report, the average number of PT service referrals 

made by providers that began self-referring beneficiaries for PT services 

in 2009 increased at a higher rate relative to non-self-referring providers 

of the same specialty during our period of study. Specifically, among 

these “switchers,” the percentage increase in average PT service 

referrals between 2008 and 2010 was approximately 4 percentage points 

higher for orthopedic surgeons, 18 percentage points higher for internal 

medicine providers, and 20 percentage points higher for family practice 

providers.

AAOS made two additional points for our consideration. First, AAOS 

noted that self-referring orthopedic surgeons may also refer some 

services outside of their practice. Our analyses provided a picture of selfreferral at both the service and provider levels. Specifically, for our 

analysis of trends between 2004 and 2010 in the utilization of and 

expenditures for self-referred and non-self-referred services, we 

examined each PT service to determine if it was self-referred or not by 

matching the Taxpayer Identification Number (TIN) on the claim with a 

crosswalk of the TINs associated with each provider submitting claims. 

This method allowed us to examine utilization and spending for each PT 

service—self-referred and non-self-referred. For our analysis of selfreferring providers, as we note in the draft report, we considered a 

provider to be non-self-referring if the provider referred at least one 

beneficiary for a PT service in a professional office and did not self-refer 

any PT services. Conversely, we considered a provider to be selfreferring if the provider self-referred at least one beneficiary for a PT 

service that was provided in a professional office during our period of 

study. Second, AAOS noted that nine states have changed their laws 

governing self-referral to PT services during the study period and that this 

may impact our results. We agree that this may impact our results, but 

examining state laws governing self-referral were outside the scope of 

this report.

American Academy of 

Orthopaedic Surgeons
 

Page 29 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

ACP stated that a major conclusion of our report, that the primary driver 

of growth in Medicare expenditures and utilization of PT services was due 

to non-self-referred PT services, differs from our prior work on self-referral 

for advanced imaging, anatomic pathology, and intensity-modulated 

radiation therapy services. According to ACP, this finding demonstrates 

the complex effects of self-referral on Medicare utilization and 

expenditures, which may be influenced by type of service as well as the 

other variables outlined in this report, such as provider specialty, 

geographic location, and Medicare beneficiary practice size. ACP also 

stated that the primary payment model can also affect the relationship 

between self-referral, expenditures, and utilization. For example, 

practices that participate in Medicare Shared Savings28 and other valuebased payment models likely refer in a different manner than those paid 

predominantly through the traditional Medicare FFS payment system. 

While we agree that different payment models could affect physicians’ 

referral patterns, such payment models generally had not been 

implemented by Medicare at the time of our study. ACP also stated that it 

is important to consider the extent to which services are ordered on the 

basis of recognized appropriate use criteria. However, using appropriate 

use criteria can involve assessing the severity of symptoms in order to 

determine the appropriate course of treatment, and data on severity were 

not available at the time of our study. ACP believes that self-referral alone 

cannot explain expenditure growth differences and that, if utilized 

appropriately, self-referral allows for increased quality oversight by 

ordering physicians, better care coordination, and the potential for the 

provision of lower-cost care compared to alternative settings, such as 

hospitals.

APTA acknowledged the thoroughness of the draft report and appreciated 

our comprehensive analysis. According to APTA, our findings that selfreferring providers referred more beneficiaries for PT services, and that 

PT referrals for switchers in the three specialties we examined increased 

relative to non-self-referring providers, are consistent with other studies 

that found that providers have a financial interest to self-refer. However, 

 

28The Medicare Shared Savings Program is a program that encourages coordination of 

care under Medicare Parts A and B and promotes accountability for patient populations. 

Under this program, eligible health systems that achieve savings for Medicare by 

improving quality and efficiency may receive a share of the savings they generate as 

financial incentive payments.

American College of 

Physicians

American Physical 

Therapy Association
 

Page 30 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

APTA also expressed concerns about some of our results. Specifically, 

APTA noted that patient condition, physical impairments, and 

comorbidities have a major impact on the amount, duration, and 

frequency of PT services provided, and without this information it is 

difficult to draw conclusions about the impact of self-referral 

arrangements on the frequency of PT services. For example, APTA noted 

that the frequency of PT use could be attributed to differences in the 

complexity of the conditions of patients treated by self-referring compared 

with non-self-referring providers. It also expressed concern that the 

measures of health status in this report—such as disability status, 

average risk score, and Clinical Classification Software (CCS) diagnostic 

categories—are limited in their ability to explain differences in PT 

frequency. In this report, we state that some of the differences between 

self-referring and non-self-referring providers in the number of PT 

referrals may be due to differences in the severity or type of medical 

conditions of the beneficiaries that they referred for PT treatment. We 

also acknowledge that data on the severity of beneficiaries' medical 

conditions requiring PT treatment were not available for our study period. 

Given the lack of severity data, we examined risk scores, age, and 

disability status, and described these measures as "overall health status 

variables," and we present data on beneficiary diagnostic categories 

without labeling them as measures of severity. We also note that APTA 

agreed with our conclusion that data CMS began collecting in 2013 may 

help the agency to better assess the appropriateness and effectiveness of 

PT treatment for both self-referring and non self-referring providers.

APTA also expressed concerns that including data on PT referrals to 

facilities, such as outpatient hospitals and skilled nursing facilities, may 

have affected the results shown in the tables in appendix II of this report, 

which compare the distribution of Medicare PT services for self-referring 

and non-self-referring providers. According to APTA, our assumption that 

all PT services referred to facilities were non-self-referred neglects a 

significant portion of self-referral arrangements. APTA also stated that 

because patients in facility settings tend to be more medically complex 

than patients seen in physician offices, these tables may make an unfair

comparison. As we note in the limitations section of this report, we 

acknowledge that we may have understated the occurrence of certain 

self-referral arrangements, such as referring physician ownership of 

hospitals, by assuming that all PT services referred to facilities were nonself-referred. For example, some providers may have referred 

beneficiaries for PT services to hospital(s) in which they had a financial 

interest in the entire hospital, and, due to data limitations, we did not 

analyze the extent to which this type of referral may have occurred.
 

Page 31 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

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

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

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

Secretary of Health and Human Services and relevant congressional 

committees, and others. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix IV.

James Cosgrove

Director, Health Care
Appendix I: Scope and Methodology

Page 32 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

This appendix describes the scope and methodology used to analyze our 

study objectives: (1) trends in the number of and expenditures for selfreferred and non-self-referred Medicare physical therapy (PT) services 

from 2004 through 2010, and (2) how provision of these services differs 

among providers on the basis of whether they self-refer. For both 

objectives, we used 100 percent of fee-for-service (FFS) claims from the 

Medicare Part B Carrier file, which contains final action Medicare Part B 

claims for noninstitutional providers, such as physicians. For the second 

objective, we also used 100 percent of FFS claims from the Medicare 

Outpatient Claims file, which includes final action Medicare Part B claims 

for five types of facilities that also provide PT services: outpatient 

hospitals, skilled nursing facilities, comprehensive outpatient rehabilitation 

facilities, rehabilitation agencies, and home health agencies.

Each Medicare claim contains data for one or more services for a 

particular beneficiary. Each service is identified on a claim by its 

Healthcare Common Procedure Coding System (HCPCS) code, which 

the Centers for Medicare & Medicaid Services (CMS) assigns to products, 

supplies, and services for billing purposes. To identify all PT services 

covered by Medicare, we used outpatient therapy HCPCS codes 

published in the Federal Register and in CMS’s Annual Therapy Update 

to identify the universe of outpatient therapy HCPCS codes in use from 

2004 through 2010. We then used the HCPCS code claim modifier (for 

Carrier file claims) and Revenue Center code (for Outpatient file claims) 

to distinguish PT services from occupational therapy or speech-language 

pathology services. Because there is no indicator or flag on the claim that 

identifies whether services were self-referred or non-self-referred, we 

developed a claims-based methodology to identify services as either selfreferred or non-self-referred. Specifically, we classified services as selfreferred if the provider that referred the beneficiary for a PT service and 

the provider that performed the PT service were identical or had a 

financial relationship.1

 

1

Although physicians have long been required by Medicare to report a provider 

identification number on claims for services they performed, they were not required to 

report a provider identification number for services they referred in the referring or 

attending provider fields in Medicare Part B outpatient claims until 2012. The Middle Class 

Tax Relief and Job Creation Act of 2012 required that the identification number of the 

physician who certified the plan of care be included in Medicare outpatient claims for 

outpatient therapy services, including PT. PL 112-96, § 3005(c), 126 Stat 188.

To determine providers’ financial relationships, we 

used the Taxpayer Identification Number (TIN), which is either the Social 

Security Number or Employer Identification Number that an individual or 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 33 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

organization uses to report tax information to the Internal Revenue 

Service. A TIN could be that of the provider, the provider’s employer, or 

another entity to which the provider reassigns payment.2 There may be 

one or multiple TINs for a medical group practice depending on the 

organizational structure of the practice.3 To identify the associated TINs 

for the referring and performing providers, we created a crosswalk of the 

performing provider’s unique physician identification number, or national 

provider identifier (NPI), to the TIN that appeared on the claim and used 

that to assign TINs to the referring and performing providers.4

To describe the trends in the number of and expenditures for self-referred 

PT services from 2004 through 2010, we used the 100 percent Medicare 

Part B Carrier file for each year to calculate utilization and expenditures 

for self-referred and non-self-referred PT services. We focused on PT 

referrals to professional offices, such as physician offices or PT clinics, 

because the financial incentive for providers to self-refer is most direct 

when the service is performed in a professional office. To calculate 

utilization, we counted the number of PT HCPCS codes. We also 

calculated the average number of 15-minute units provided per PT 

 

2

Some providers may be associated with TINs with which they or their immediate family 

members do not have a direct or indirect financial relationship and thus would not have 

the same incentives as other self-referring providers. We anticipate that relatively few 

providers in our self-referring group meet this description, but to the extent that they do, it 

may have limited the differences we found in utilization and expenditure rates between 

self-referring and non-self-referring providers.

3

For example, all providers in the same medical group practice may have the same TIN. 

Alternatively, five medical group practices that belong to the same corporate entity may 

each have a separate TIN.

4

The final rule implementing the Health Insurance Portability and Accountability Act 

established the standard for a unique health identifier for health care providers for use in 

the health care system and announced the adoption of the NPI as that standard. HIPAA 

Administrative Simplification: Standard Unique Health Identifier for Health Care Providers, 

69 Fed. Reg. 3434 (Jan. 23, 2004) (adding a new subpart D to 45 C.F.R. part 162). 

Performing physicians were required to include their NPI on any claim submitted to 

Medicare as of May 23, 2008. Prior to implementation of the NPI, Medicare required 

providers to submit another type of unique provider identifier called the unique physician 

identification number. Our methodology for identifying self-referred services was similar to 

the methodology we used for our study of physician self-referral of imaging services. See 

GAO, Medicare: Higher Use of Advanced Imaging Services by Providers Who Self-Refer 

Costing Medicare Millions, GAO-12-966 (Washington, D.C.: Sept. 28, 2012).
Appendix I: Scope and Methodology

Page 34 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

service.5

To determine the extent to which the provision of PT services differs for 

providers who self-refer when compared with other providers, we 

classified providers based on the type of referrals they made each year 

between 2008 and 2010. Specifically, we classified providers as selfreferring during a year if they self-referred at least one beneficiary for a 

PT service that was provided in a professional office. We classified 

providers as non-self-referring if they referred at least one beneficiary for 

a PT service in a professional office and did not self-refer any PT 

services.

To calculate expenditures, we used the allowed charges 

variable, which includes payments by Medicare and the beneficiary.

6 We then performed two separate analyses. For the first 

analysis, we compared the number of referrals made for PT services by 

self-referring providers and non-self-referring providers in 2010. Because 

the amount, frequency, and duration of PT services may vary for each 

beneficiary, we examined three PT referral measures for each referring 

provider: total number of PT services referred, total number of beneficiary 

referrals to an office or facility, and average number of PT services 

received by each beneficiary referred. We assumed that all beneficiaries 

referred to facilities were provided non-self-referred PT services.7

 

5

The number of 15-minute service units per PT service is reported for timed PT HCPCS 

codes. For example, a Medicare claim line with a timed PT HCPCS code and a unit count 

of “2” means that a beneficiary received two 15-minute increments of that service. Not all 

PT services are timed. For example, the HCPCS codes for PT evaluation and PT reevaluation are untimed.

We 

compared the number of PT referrals made by self-referring and non-selfreferring providers in 2010, disaggregated by selected provider specialty, 

Medicare beneficiary practice size, and geography (i.e., urban or rural 

6

We also conducted some analyses with an alternative definition of “non-self-referring 

provider.” Our alternative definition of “non-self-referring provider” included providers who 

referred at least one beneficiary for a PT service in a professional office or a facility and 

did not self-refer any PT services. This alternative definition included an additional 49,062 

providers in family practice, internal medicine, and orthopedic surgery who referred 

beneficiaries for PT services exclusively to facilities during 2010. With this alternative 

definition, we computed higher relative rates of self-referral for the average number of 

Medicare beneficiary referrals for PT services and for the average number of PT services 

provided per beneficiary (except for family practice providers). We decided to use our 

original definition of non-self-referring provider because it generally produced more 

conservative results.

7

Some providers may refer beneficiaries for PT services to hospital(s) in which they have 

a financial interest in the entire hospital. We did not analyze the extent to which this type 

of referral may have occurred.
Appendix I: Scope and Methodology

Page 35 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

provider location). We identified providers’ specialties on the basis of the 

specialties listed on the claims. We report results for three physician 

specialties that referred nearly 75 percent of PT services during 2010 that 

had a unique referring provider identification number—family practice 

(20 percent), internal medicine (26 percent), and orthopedic surgery 

(28 percent).8 We calculated beneficiary practice size by computing the 

number of unique Medicare FFS beneficiaries that providers treated in a 

professional office in 2010 for any medical condition covered by 

Medicare. We defined urban settings as metropolitan statistical areas, a 

geographic entity defined by the Office of Management and Budget as a 

core urban area of 50,000 or more population. We used rural-urban 

commuting area codes—a Census tract-based classification scheme that 

utilizes the standard Bureau of Census Urbanized Area and Urban 

Cluster definitions in combination with work commuting information to 

characterize all of the nation’s Census tracts regarding their rural and 

urban status—to identify providers as practicing in metropolitan statistical 

areas.9 We considered all other settings to be rural.10

In addition, we examined the extent to which the characteristics of the 

beneficiaries referred by self-referring and non-self-referring providers 

differed. We used CMS’s risk score file to identify each beneficiary’s risk 

score, age (specifically, whether the beneficiary was age 85 or older), and 

disability status.11

 

8

During 2010, we could not identify a unique referring provider for 8.6 percent of PT 

services provided in professional offices (because a referring provider identifier was 

missing) and for 2.6 percent of PT services provided in facilities (because two or more 

referring providers were reported on the claim).

The risk score is an estimate of each beneficiary’s 

overall health status. It is the ratio of expected Medicare payments for 

that beneficiary under Medicare FFS relative to the average health care 

9

We considered a location with a rural-urban commuting area code of 1.0, 1.1, 2.0, 2.1, or 

3.0 to be a metropolitan statistical area.

10If we could not find a provider’s zip code on the Medicare claim or in the National Plan 

and Provider Enumeration System file (which has data on the provider’s business address 

for every provider identification number in the file), then we did not classify the provider as 

having either an urban or a rural location. We were unable to find zip code data for less 

than 1 percent of the providers who referred a beneficiary for PT services in a professional 

office during 2010. 

11Beneficiaries who are enrolled in Medicare because of disability are under age 65 and 

have been entitled to Social Security disability benefits for at least 24 months.
Appendix I: Scope and Methodology

Page 36 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

payments for all Medicare FFS beneficiaries.12

For the second analysis, we determined the extent to which the number 

of PT service referrals made by providers changed after they began to 

self-refer. Specifically, we identified a group of providers, whom we called 

“switchers,” that were non-self-referring in 2008 and self-referring in 2009 

and 2010. We then calculated the change in the number of PT referrals 

made from 2008 (i.e., the year before the switchers began self-referring) 

to 2010 (i.e., the year after they began self-referring). We compared the 

change in the number of referrals made by these providers to the change 

in the number of referrals made over the same time period by providers 

who were non-self-referring between 2008 and 2010. Differences in the 

average number of PT services referred by non-self-referring providers 

between 2008 and 2010 reflect changes during this period that were not 

related to self-referral, such as changes in the number of beneficiaries 

who needed PT services or changes in the severity or types of the 

medical conditions treated with PT. Differences in the average number of 

PT services referred by switchers may reflect these changes as well as 

changes associated with self-referral. The difference in the percentage 

change in the number of PT services referred by switchers and non-selfreferring providers is an estimate of the change in providers’ referrals for 

PT services that may be associated with self-referral.

We used the Clinical 

Classification Software (CCS) categories maintained by the U.S. Agency 

for Healthcare Research and Quality to identify the diagnostic category 

for which each beneficiary received PT treatment. The CCS categories 

are based on International Classification of Diseases, 9th Revision, 

Clinical Modification (ICD-9-CM), a uniform and standardized diagnostic 

and procedural coding system. The CCS categories group ICD-9-CM 

codes into a smaller number of clinically meaningful categories. The CCS 

diagnostic categories for PT that we used include Arthritis/Other 

Connective Tissue and Joint Disorders, Fractures/Traumatic Joint 

Disorders, Neurological, Spine, Sprains/Strains, V codes/Miscellaneous 

Rehab, and Other PT diagnoses.

Our study has some limitations. First, we may not have identified all selfreferred PT services, because CMS uses the referring provider identifier 

on PT claims to identify the provider who certified the beneficiary’s plan of 

 

12For example, a beneficiary with a risk score of 1.05 would have expected Medicare 

payments that were 5 percent greater than the average Medicare FFS beneficiary, who is 

assigned a risk score of 1.
Appendix I: Scope and Methodology

Page 37 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

care, and in some cases the referring provider may be different from the 

certifying provider. In addition, Medicare claims data do not capture all 

financial relationships between performing and referring providers. 

Second, we may have understated the occurrence of certain self-referral 

arrangements, such as referring physician ownership of hospitals, by 

assuming that all PT services referred to facilities were non-self-referred. 

Third, our analysis that compares PT diagnostic categories for 

beneficiaries referred by self-referring and non-self-referring providers is 

based on data that CMS does not use to determine payment for PT 

services. Consequently, providers do not have a financial incentive to 

accurately report diagnostic data for PT services on Medicare claims. 

Finally, it is outside the scope of this report to examine the medical 

necessity, clinical appropriateness, or effectiveness of PT services 

beneficiaries received.

We took several steps to ensure that the data used to produce this report 

were sufficiently reliable. Specifically, we assessed the reliability of the 

CMS data we used by interviewing officials responsible for overseeing 

these data sources, including CMS and Medicare contractor officials. We 

also reviewed relevant documentation, compared means and frequencies 

of selected variables with published data, and examined the data for 

obvious errors, such as missing values and values outside of expected 

ranges. We determined that the data were sufficiently reliable for the 

purposes of our study, as they are used by the Medicare program as a 

record of payments to health care providers. As such, they are subject to 

routine CMS scrutiny.

We conducted this performance audit from February 2012 through April 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Distribution of Medicare Physical 

Therapy Services for Self-Referring and NonSelf-Referring Providers, 2010

Page 38 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 10: Distribution of Physical Therapy Services for Self-Referring and Non-SelfReferring Family Practice Providers, 2010

Percentage of all PT services

Physical therapy (PT) 

servicea

Self-referring 

family practice 

providers

Non-self-referring 

family practice 

providers

Percentage 

point 

difference 

Electrical stimulation

(HCPCS 97032) 3.5 1.2 2.3

Electrical stimulation, 

other than wound

(HCPCS G0283) 7.3 6.2 1.1

Gait training therapy

(HCPCS 97116) 7.5 12.0 -4.5

Manual therapy

(HCPCS 97140) 13.1 10.7 2.4

Massage therapy

(HCPCS 97124) 3.2 0.5 2.7

Neuromuscular reeducation

(HCPCS 97112) 10.4 9.8 0.6

Physical therapy evaluation

(HCPCS 97001) 3.1 3.5 -0.4

Therapeutic activities

(HCPCS 97530) 10.0 12.7 -2.7

Therapeutic exercises

(HCPCS 97110) 30.3 33.7 -3.4

Ultrasound therapy

(HCPCS 97035) 5.6 4.2 1.4

Subtotal 94.0 94.5 — 

All other PT services 6.0 5.5 — 

Total 100 100 — 

Source: GAO analysis of CMS data.

Note: We analyzed 100 percent of Medicare Part B claims data and counted PT services based on 

the number of PT Healthcare Common Procedure Coding System (HCPCS) services on each claim 

that Medicare covered in a physician office, PT clinic, outpatient hospital department, skilled nursing 

facility, comprehensive outpatient rehabilitation facility, rehabilitation agency, or home health agency.

a

We considered providers to be self-referring if they self-referred at least one PT service during 2010, 

and non-self-referring if they referred at least one PT service to a professional office during 2010 and 

none of their referrals were self-referred.

Appendix II: Distribution of Medicare 

Physical Therapy Services for Self-Referring 

and Non-Self-Referring Providers, 2010
Appendix II: Distribution of Medicare Physical 

Therapy Services for Self-Referring and NonSelf-Referring Providers, 2010

Page 39 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 11: Distribution of Medicare Physical Therapy Services for Self-Referring and 

Non-Self-Referring Internal Medicine Providers, 2010

Percentage of all PT services

Physical therapy (PT) 

servicea

Self-referring 

internal medicine 

providers

Non-self-referring 

internal medicine 

providers

Percentage 

point 

difference 

Electrical stimulation

(HCPCS 97032) 3.9 1.3 2.6

Electrical stimulation, 

other than wound

(HCPCS G0283) 7.8 5.5 2.3

Gait training therapy

(HCPCS 97116) 6.9 12.3 -5.4

Manual therapy

(HCPCS 97140) 13.8 10.6 3.2

Massage therapy

(HCPCS 97124) 2.9 0.6 2.3

Neuromuscular reeducation

(HCPCS 97112) 9.3 10.9 -1.6

Physical therapy evaluation

(HCPCS 97001) 2.8 3.3 -0.5

Therapeutic activities

(HCPCS 97530) 10.6 13.0 -2.4

Therapeutic exercises

(HCPCS 97110) 30.1 33.7 -3.6

Ultrasound therapy

(HCPCS 97035) 6.6 3.6 3.0

Subtotal 94.7 94.8 — 

All other PT services 5.3 5.2 — 

Total 100 100 — 

Source: GAO analysis of CMS data.

Note: We analyzed 100 percent of Medicare Part B claims data and counted PT services based on 

the number of PT Healthcare Common Procedure Coding System (HCPCS) services on each claim 

that Medicare covered in a physician office, PT clinic, outpatient hospital department, skilled nursing 

facility, comprehensive outpatient rehabilitation facility, rehabilitation agency, or home health agency.

a

We considered providers to be self-referring if they self-referred at least one PT service during 2010, 

and non-self-referring if they referred at least one PT service to a professional office during 2010 and 

none of their referrals were self-referred.
Appendix II: Distribution of Medicare Physical 

Therapy Services for Self-Referring and NonSelf-Referring Providers, 2010

Page 40 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 12: Distribution of Medicare Physical Therapy Services for Self-Referring and 

Non-Self-Referring Orthopedic Surgery Providers, 2010

Percentage of all physical therapy 

services

Physical therapy (PT) 

servicea

Self-referring 

orthopedic surgery 

providers

Non-self-referring 

orthopedic surgery 

providers

Percentage 

point 

difference 

Electrical stimulation

(HCPCS 97032) 1.4 1.6 -0.2

Electrical stimulation, 

other than wound

(HCPCS G0283) 10.5 10.4 0.1

Gait training therapy

(HCPCS 97116) 1.4 1.5 -0.1

Manual therapy

(HCPCS 97140) 20.3 21.0 -0.7

Massage therapy

(HCPCS 97124) 0.4 0.4 0.0

Neuromuscular 

reeducation

(HCPCS 97112) 5.2 5.7 -0.5

Physical therapy evaluation

(HCPCS 97001) 4.0 3.6 0.4

Therapeutic activities

(HCPCS 97530) 5.1 5.5 -0.4

Therapeutic exercises

(HCPCS 97110) 40.5 39.3 1.2

Ultrasound therapy

(HCPCS 97035) 4.6 4.7 -0.1

Subtotal 93.4 93.7 — 

All other PT services 6.6 6.3 — 

Total 100 100 — 

Source: GAO analysis of CMS data.

Note: We analyzed 100 percent of Medicare Part B claims data and counted PT services based on 

the number of PT Healthcare Common Procedure Coding System (HCPCS) services on each claim 

that Medicare covered in a physician office, PT clinic, outpatient hospital department, skilled nursing 

facility, comprehensive outpatient rehabilitation facility, rehabilitation agency, or home health agency.

a

We considered providers to be self-referring if they self-referred at least one PT service during 2010, 

and non-self-referring if they referred at least one PT service to a professional office during 2010 and 

none of their referrals were self-referred.
Appendix III: Providers Who Referred Medicare 

Physical Therapy Services, by Selected 

Characteristics, 2010

Page 41 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 13: Providers in Urban Areas Who Referred Medicare Physical Therapy 

Services, by Provider Referral Status, Selected Specialty, and Beneficiary Practice 

Size in 2010

Provider specialty and Medicare

beneficiary practice sizea

Urban 

self-referring 

providers

Urban 

non-self-referring 

providers

Family practice

0 to 50 0.2% 3.2%

51 to 100 0.3% 1.9%

101 to 250 0.9% 6.5%

251 to 500 0.8% 5.2%

501+ 0.4% 1.9%

Internal medicine

0 to 50 0.1% 3.0%

51 to 100 0.1% 1.3%

101 to 250 0.6% 5.0%

251 to 500 0.8% 6.7%

501+ 0.7% 4.9%

Orthopedic surgery 

0 to 50 0.1% 1.1%

51 to 100 0.1% 0.5%

101 to 250 0.8% 1.7%

251 to 500 1.4% 1.9%

501+ 0.9% 0.7%

All practice sizes for the three specialties

Percentage of urban referring providers 8.1% 45.3%

Number of urban referring providers 15,694 87,421

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data for physical therapy (PT) services 

that Medicare covered in a physician office, PT clinic, outpatient hospital department, skilled nursing 

facility, comprehensive outpatient rehabilitation facility, rehabilitation agency, or home health agency. 

We considered providers to be self-referring if they self-referred at least one PT service during 2010 

and non-self-referring if they referred at least one PT service to a professional office during 2010 and 

none of their referrals were self-referred. To identify providers as practicing in urban areas, we used 

urban-rural commuting area codes, which are a Census-tract-based classification scheme. In 2010, 

there were 4,869 self-referring providers in family practice, 4,367 in internal medicine, and 6,458 in 

orthopedic surgery in urban areas. There were 35,977 non-self-referring providers in family practice, 

39,981 in internal medicine, and 11,463 in orthopedic surgery in urban areas. In 2010, there were 

192,809 providers in urban areas from all specialties who referred PT services.

a

The Medicare beneficiary practice size for each provider refers to the number of unique Medicare 

fee-for-service (FFS) beneficiaries that received at least one service in a professional office from that 

provider during 2010 for any medical condition that was covered by Medicare. Some referring 

providers had a beneficiary practice size of zero because they treated all their Medicare FFS 

beneficiaries in a setting other than a professional office (such as a hospital outpatient department).

Appendix III: Providers Who Referred 

Medicare Physical Therapy Services, by

Selected Characteristics, 2010
Appendix III: Providers Who Referred Medicare 

Physical Therapy Services, by Selected 

Characteristics, 2010

Page 42 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

Table 14: Providers in Rural Areas who Referred Medicare Physical Therapy 

Services, by Provider Referral Status, Selected Specialty, and Beneficiary Practice 

Size in 2010

Provider specialty and Medicare

beneficiary practice sizea Rural self-referring providers

Rural non-selfreferring providers

Family practice

0 to 50 0.1% 4.8%

51 to 100 0.1% 2.4%

101 to 250 0.7% 8.0%

251 to 500 1.1% 10.9%

501+ 0.7% 6.1%

Internal medicine

0 to 50 0.0%b 1.5%

51 to 100 0.0%b 0.5%

101 to 250 0.2% 2.1%

251 to 500 0.4% 4.6%

501+ 0.6% 7.1%

Orthopedic surgery

0 to 50 0.0%b 0.7%

51 to 100 0.0%b 0.3%

101 to 250 0.3% 1.5%

251 to 500 0.8% 2.6%

501+ 0.6% 1.4%

All practice sizes for the three specialties

Percentage of rural referring providers 5.7% 54.6%

Number of rural referring providers 2,012 19,403

Source: GAO analysis of CMS data.

Notes: We analyzed 100 percent of Medicare Part B claims data for physical therapy (PT) services 

that Medicare covered in a physician office, PT clinic, outpatient hospital department, skilled nursing 

facility, comprehensive outpatient rehabilitation facility, rehabilitation agency, or home health agency. 

We considered providers to be self-referring if they self-referred at least one PT service during 2010 

and non-self-referring if they referred at least one PT service to a professional office during 2010 and 

none of their referrals were self-referred. To identify providers as practicing in rural areas, we used 

urban-rural commuting area codes, which are a Census-tract-based classification scheme. In 2010, 

there were 964 self-referring providers in family practice, 452 in internal medicine, and 596 in 

orthopedic surgery in rural areas. There were 11,492 non-self-referring providers in family practice, 

5.584 in internal medicine, and 2,327 in orthopedic surgery in rural areas. In 2010, there were 35,546 

providers in rural areas from all specialties who referred PT services.

a

The Medicare beneficiary practice size for each provider refers to the number of unique Medicare 

fee-for-service (FFS) beneficiaries that received at least one service in a professional office from that 

provider during 2010 for any medical condition that was covered by Medicare. Some referring 

providers had a beneficiary practice size of zero because they treated all their Medicare FFS 

beneficiaries in a setting other than a professional office (such as a hospital outpatient department).

b

Values given as 0.0 percent are values less than 0.05 percent, rounded to zero.
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 43 GAO-14-270 Medicare Self-Referral of Physical Therapy Services

James Cosgrove, (202) 512-7114 or cosgrovej@gao.gov

In addition to the contact named above, Jessica Farb, Assistant Director; 

Thomas Walke, Assistant Director; Daniel Lee; Elizabeth Morrison; 

Merrile Sing; Jennifer Whitworth; and Rachael Wojnowicz made key 

contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(291004)
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