Outpatient therapy services--covered under part B of the Medicare program--comprise physical therapy, occupational therapy, and speech- language pathology to improve patients' mobility and functioning. Medicare regulations and coverage rules require that beneficiaries be referred for outpatient therapy services by a physician or nonphysician practitioner and that a written plan of care be reviewed and certified by the providers at least once every 30 days. Beneficiaries receiving therapy are expected to improve significantly in a reasonable time and to need therapy for rehabilitation rather than maintenance. Medicare-covered outpatient therapy services are provided in a variety of settings by institutional providers (such as hospital outpatient departments, skilled nursing facilities, comprehensive outpatient rehabilitation facilities, outpatient rehabilitation facilities, and home health agencies) and by noninstitutional providers (such as physicians, nonphysician practitioners, and physical and occupational therapists in private practice). Both institutional and noninstitutional providers--with the exception of hospital outpatient departments--are subject to the therapy caps. For more than a decade, Medicare's costs for outpatient therapy services have been rising, and widespread examples of inappropriate billing practices, resulting from regulatory ambiguity and weaknesses in Medicare's payment rules, have been reported by us and others. In 1995 we reported, for example, that while state averages for physical, occupational, and speech therapists' salaries in hospitals and skilled nursing facilities ranged from about $12 to $25 per hour, Medicare had been charged $600 per hour or more. HHS's Office of Inspector General reported in 1999 that Medicare reimbursed skilled nursing facilities almost $1 billion for physical and occupational therapy that was claimed improperly, because the therapy was not medically necessary or was provided by staff who did not have the appropriate skills for the patients' medical conditions. To control rising costs and improper payments, Congress established therapy caps for all nonhospital providers in the Balanced Budget Act of 1997. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 later imposed a moratorium on the caps for 2000 and 2001. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 then extended the moratorium through 2002. Although no moratorium was in effect as of January 1, 2003, CMS delayed enforcing the therapy caps through August 31, 2003. In December 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 placed the most recent moratorium on the caps, extending from December 8, 2003, through December 31, 2005. The legislation establishing the caps provided for two caps per beneficiary: one for occupational therapy and one for physical therapy and speech-language pathology combined. The legislation set the caps at $1,500 each and provided that these limits be indexed by the Medicare Economic Index each year beginning in 2002. When last in place in 2003, the two caps were set at $1,590 each. To process and pay claims and to monitor health care providers' compliance with Medicare program requirements, CMS relies on claims administration contractors, who use a variety of review mechanisms to ensure appropriate payments to providers. A system of automated checks (a process CMS terms "edits") flags potential billing errors and questionable claims. The automated system can, for example, identify procedures that are unlikely to be performed on the same patient on the same day or pairs of procedure codes that should not be billed together because one service inherently includes the other or the services are clinically incompatible. In certain cases, automated checks performed by CMS claims administration contractors may lead to additional claim reviews or to educating providers about Medicare coverage or billing issues. The contractors' clinically trained personnel may perform a medical review, examining the claim along with the patient's medical record, submitted by the physician. Medical review is generally done before a claim is paid, although medical review may also be done after payment to determine if a claim was paid in error and funds may need to be returned to Medicare. The data and research available to date are insufficient to determine whether any particular conditions or diseases may justify a waiver of Medicare's outpatient therapy caps. Medicare claims data are limited in the extent to which they can be used to identify the actual conditions or diseases for which beneficiaries are receiving therapies because the claims often lack specific diagnostic information. In addition, analyses of the claims data show no particular conditions or diseases as more likely than others to be associated with payments exceeding the therapy caps. The data also show that treatment for a single condition or disease, such as stroke, may vary greatly from patient to patient. Finally, available research on the amount and mix of outpatient therapy for people aged 65 and older with specific conditions and diseases also appears insufficient to justify a waiver of the therapy caps for particular conditions or diseases. It is uncertain how many beneficiaries would have medical needs for therapy costing more than the caps and yet be unable to obtain the needed care because they have either insufficient financial resources or no access to a hospital outpatient therapy department. Although Medicare claims data constitute the most comprehensive available information for Medicare beneficiaries who have received outpatient therapy, they do not always capture the clinical diagnosis for which beneficiaries receive therapy. As such, they are insufficient for identifying particular diseases and conditions that should be exempted from the caps. Patients' conditions or diseases are expressed in claims data through diagnosis codes, and the coding system allows providers to use nonspecific diagnosis codes that are unrelated to a specific clinical condition or disease. A CMS-contracted analysis of 2002 Medicare outpatient therapy claims data, for example, found generic codes, such as "other physical therapy," to be among the most often used diagnosis codes on claim forms (see table 1). Moreover, current Medicare guidelines for processing claims permit institutional providers, such as outpatient rehabilitation facilities and skilled nursing facilities, to submit services from all three therapy types on the same claim form, with one principal diagnosis for the claim; a claim seeking payment for occupational therapy and for speech-language pathology might therefore be filed under "other physical therapy." Analysis of 2002 claims data does not show any particular conditions or diseases that are more likely than others to be associated with payments exceeding the therapy caps for physical therapy and speech-language pathology combined or for occupational therapy. Among the top 99 most reported diagnoses for physical therapy and speech-language pathology, the analysis found no particular diagnoses associated with large numbers of beneficiaries for whom payments would have exceeded the combined physical therapy and speech-language pathology cap in 2002 had it been in effect (see fig. 1). A similar pattern existed for occupational therapy. Medicare claims data do not provide information about patients' therapy needs that could be used to justify waiving the therapy caps. Even in those cases where particular conditions or diseases, such as stroke or Alzheimer's disease, are identified in the diagnosis codes, different individuals with the same diagnosis can need different intensities or types of therapy. For example, one patient with a stroke might be able to return home from the hospital a day or two after admission, while another may suffer a severe loss of functioning and require extensive therapy of more than one type. The CMS-contracted analysis of 2002 claims found wide variation in the number of treatment days required to conclude an episode of care for beneficiaries who had the same "diagnosis," such as stroke. For example, the analysis found that while the median number of days per episode of physical therapy for stroke patients was 10, episode length ranged from 1 to 80 days. Similarly wide ranges in treatment length for stroke patients appeared for occupational therapy (1 to 68 days per episode, median 9) and speech-language pathology (1 to 66 days per episode, median 7). Figure 2 shows the range in length of treatment per episode for patients with a diagnosis of acute cerebrovascular disease (stroke) for the three types of therapy. Available research on the efficacy of outpatient therapy for people aged 65 and older with specific conditions and diseases also appears insufficient to justify a waiver of particular conditions or diseases from the therapy caps. Although our literature review found several studies demonstrating the benefits of therapy for seniors and Medicare-eligible patients, this research generally did not define the amount or mix of therapy services needed for Medicare beneficiaries with specific conditions or diseases. One study, for example, examined the benefits of extensive therapy for stroke victims at skilled nursing facilities. The study concluded that high-intensity therapy may have little effect on beneficiaries' length of time spent in the facility when their short-term prognosis is good; beneficiaries with poorer prognoses, however, may benefit substantially from intensive therapy. Further, because of the complexity of patient factors involved, these studies cannot be generalized to all patients with similar diseases or conditions. In addition, MedPAC, the commission that advises Congress on Medicare issues, suggests that research should be undertaken on when and how much physical therapy benefits older patients and that evidence gathered from this research would assist in developing guidelines to determine when therapy is needed. Medicare claims data suggest that payments for more than a half million beneficiaries would have exceeded the caps had they been in place in 2002. It is uncertain, however, how many beneficiaries with payments exceeding the caps would be adversely affected because they have medical needs for care and no means to obtain it through hospital outpatient departments. According to the CMS-contracted analysis of 2002 claims data, Medicare paid an estimated $803 million in outpatient therapy benefits above what would have been permitted had the therapy caps been enforced that year. Payments for about 17 percent of occupational therapy users and 15 percent of physical therapy and speech-language pathology service users would have surpassed the caps in 2002; these beneficiaries numbered more than a half million (see table 2). Although the claims data show that payments for more than a half million beneficiaries would have exceeded the caps in 2002, it is unknown whether beneficiaries would have been adversely affected had the caps been in place. The data do not show the extent to which these beneficiaries were receiving care consistent with Medicare requirements that therapy improve a beneficiary's condition and be reasonable in amount, frequency, and duration. Also, it is not clear to what extent hospital outpatient departments would serve as a "safety valve" for Medicare beneficiaries needing extensive therapy and unable to pay for it on their own. Past work by us and others has noted that the therapy caps were integral to the Balanced Budget Act's spending control strategy and were unlikely to affect the majority of Medicare's outpatient therapy users. We reported that the hospital outpatient department exemption from the cap was a mitigating factor in the mid-1990s, essentially removing the coverage limits for those users who had access to hospital outpatient departments. CMS-contracted analyses of claims data for 2002, however, show that nearly all the Medicare beneficiaries whose payments would have exceeded the caps did not receive outpatient therapy in hospital outpatient departments. Specifically, an estimated 92 percent (469,850 beneficiaries) of those whose payments would have exceeded the combined physical therapy and speech-language pathology cap--and 98 percent (126,488 beneficiaries) of those whose payments would have exceeded the occupational therapy cap--did not receive therapy services in a hospital outpatient department. These proportions, however, might have been different had the caps been in effect in 2002. Provider groups we spoke with were concerned that a sizable number of beneficiaries with legitimate medical needs whose payments would exceed the caps could be harmed. One group told us that a cap on outpatient therapy services would severely limit the opportunity for patients with the greatest need to receive appropriate care, and another group said that therapy caps could hurt beneficiaries with chronic illnesses. According to a third group, payments can quickly exceed the caps for beneficiaries who suffer from serious conditions such as stroke and Parkinson's disease or who have multiple medical conditions. Statutory mandates since 1997 have required HHS to take certain actions toward developing a payment system for outpatient therapy that considers patients' individual needs for care, but the agency has made little progress toward such a system. In particular, HHS has not determined how to standardize and collect information on the health and functioning of patients receiving outpatient therapy services--a key part of developing a system based on patients' actual needs for therapy. To curb spending growth and ensure that outpatient therapy services are appropriately targeted to those beneficiaries who need them, Congress included provisions related to these services in several laws enacted starting in 1997 (see table 3). These provisions required HHS to report to Congress in 2001 on a revised coverage policy for outpatient therapy services that would consider patients' needs. The provisions also required HHS to report to Congress in 2005 on steps toward developing a standard instrument for assessing a patient's need for outpatient therapy services and on a mechanism for applying such an instrument to the payment process. As of October 2005, HHS had not reported its specific recommendations on revising the coverage policy based on patients' needs. HHS had, however, contracted with researchers to conduct several analyses of Medicare claims data as a means of responding to the mandates. HHS's response, implemented through CMS, to the principal legislative provisions addressing outpatient therapy services has been to contract for a series of studies, first by the Urban Institute and then by AdvanceMed (see table 4). In general, these studies have found that information available from Medicare claims data is insufficient to develop an alternative payment system based on patients' therapy needs, and a patient assessment instrument for outpatient therapy services that collected information on functional status and functional outcomes would be needed to develop such a system. They have also found that a needs-based payment system would be key to controlling costs while ensuring patient access to appropriate therapy. As of October 2005, HHS had taken few steps toward developing a patient assessment instrument for assessing beneficiaries' needs for outpatient therapy. Some health care settings, including inpatient rehabilitation facilities, home health agencies, and skilled nursing facilities, do have patient assessment instruments to collect functional status and other information on Medicare beneficiaries. Officials from HHS's Office of the Assistant Secretary for Planning and Evaluation and CMS told us they were collaborating to examine the consistency of definitions and terms used in these settings. They expected to report to Congress by the end of 2005 (in response to the requirement in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act) on this effort to standardize patient assessment terminology, although they have no plans to include outpatient therapy services in the effort. CMS officials and one of the provider groups we spoke with estimated that the development of a patient assessment instrument for outpatient therapy services would take at least 3 to 5 years. HHS officials said that the complexity of the task and resource constraints precluded them from including outpatient therapy services in their effort to standardize other patient assessment terminology. CMS has, however, funded a demonstration project with a private-sector firm that has developed a patient assessment instrument that collects functional status and functional outcomes for patients who receive outpatient therapy services, primarily physical therapy, in certain facilities. A report from the firm to CMS is expected in summer 2006. Recent assessments of Medicare claims data have shown that the circumstances that initially led to therapy caps--rising Medicare payments for outpatient therapy and a high rate of improper payments--remain. CMS, however, has not implemented its contracted researchers' proposal to strengthen its system of automated checks for denying payment of improper claims. Provider groups we spoke with agreed that Medicare was likely paying for some medically unnecessary therapy services and that improvements could be made to help strengthen the integrity of the payment system. According to recent CMS assessments of Medicare claims data, Medicare payments for outpatient therapy services continue to rise. Over the 4-year period from 1999 through 2002, Medicare spending for outpatient therapy more than doubled, from an estimated $1.5 billion to $3.4 billion, according to the CMS-contracted analysis of 2002 claims data released in 2004. Although outpatient therapy spending for 2003 and 2004 has not been fully estimated, overall Medicare part B expenditures--which include spending on outpatient therapy services--showed rapid growth (15 percent) from 2003 to 2004, according to CMS estimates reported in 2005. CMS attributed this growth to five factors, one of which was increased use of minor procedures such as therapy performed by physicians and physical therapists. Payments for certain therapy services, for example, increased by 24 percent or more from 2003 to 2004. CMS officials told us that many valid reasons may exist for the significant growth in payments for outpatient therapy. For example, they said, some of the increase in therapy services could be due to the growth in recent years of elective services such as knee replacements. CMS has also recently reported that improper payments made for outpatient therapy services have increased substantially in recent years. Specifically, in November 2004, CMS reported that the estimated error rate for claims rose steadily from 10.9 percent in 1998 to 20.4 percent in 2000. CMS reported that most of the errors were due to insufficient documentation to support the services claimed, such as lack of evidence of physician review and certification of treatment plans. In January 2005, CMS reported error rates in a random sample of more than 160,000 fee-for- service claims, which included therapy services, from 2003. The agency found that claims submitted for therapy services were among those with the highest rates of payments made in error because of insufficient documentation or medically unnecessary services. Such services included procedures frequently provided by therapists, such as therapeutic exercise, therapeutic activities, neuromuscular reeducation, electrical stimulation, manual therapy, and physical therapy evaluation. For example, 23.5 percent of claims for therapeutic activities lacked sufficient documentation, resulting in projected improper payments of more than $34 million. Claims for therapeutic exercises had a "medically unnecessary" error rate of 3 percent, with projected improper payments of more than $18 million. Our past work found that CMS needed to do more medical reviews of beneficiaries receiving outpatient therapy services. We reported in 2004, for example, that in Florida, comprehensive outpatient rehabilitation facilities were the most expensive class of providers of outpatient therapy services in the Medicare program in 2002. Per-beneficiary payments for outpatient therapy services to providers in these facilities were two to three times higher than payments to therapy providers in other facilities. We recommended that CMS direct the Florida claims administration contractor to medically review more claims from comprehensive outpatient rehabilitation facilities. CMS's contracted researcher concluded that CMS could improve its claims system by identifying and implementing modifications to the agency's automated claims review system to better target payments to medically appropriate care. In doing their analysis of the 2002 claims, they identified three types of specific edits that they found to be feasible and that would reject claims likely to be improper: Edits to control multiple billings of codes that are meant to be billed only once per patient per visit. The contracted researchers estimated that in 2002, the impact of this type of improper billing amounted to $36.7 million. Edits to control the amount of time that can be billed per patient per visit under a single code, since most conditions do not warrant treatment times exceeding 1 hour. The contracted researchers estimated that in 2002, the impact of this type of improper billing amounted to $24-$100 million, depending on the amount of time per visit billed under a given code. Edits of clinically illogical combinations of therapy procedure codes. In analyzing 2002 Medicare claims data, the contractor found limited system protections to prevent outpatient therapy providers from submitting claims for procedures that are illogical for a given diagnosis. One example, according to the contractor's report, was claiming for manual therapy submitted with a diagnosis of an eye infection. The estimated impact of improper billings based on illogical combinations of diagnosis and procedure codes in 2002 amounted to $16.7 million. CMS officials agreed with the contracted researcher that such edits are worth considering, but the agency had not implemented them as of October 2005. A CMS official told us, however, that CMS is implementing the proposed edits to control multiple billings of codes meant to be billed only once per patient per visit; the agency expects these edits to be in place in early 2006. As of October 2005, CMS was still considering whether to implement the other two types of edits. In addition to the three types of edits identified by the contracted researcher, the researcher proposed routine data analysis of Medicare claims to identify other utilization limits that could be applied to better target Medicare payments. CMS is considering whether and how to implement this type of analysis. Provider groups we spoke with agreed that Medicare was likely paying for some medically unnecessary therapy services and that improved payment edits could help ensure that Medicare did not pay for such services. Nevertheless, representatives from these groups stressed the importance of mechanisms that would allow Medicare to cover payments for beneficiaries who need extensive care. The representatives noted that an exception process, based on a medical review, could help determine the appropriateness of therapy services. Such an exception process could be invoked to review the medical records of beneficiaries whose providers seek permission for coverage of Medicare payments in excess of the caps. CMS officials agreed that an appeal process or waiver from the caps could be a short-term approach to focus resources on needy beneficiaries. They added that possible criteria for waiving the caps could include (1) having multiple conditions; (2) having certain conditions, levels of severity, or multiple conditions suggested by research as having greater need for treatment; (3) having needs for more than one type of service, such as occupational therapy and speech-language pathology; or (4) having prior use of services or multiple episodes in the same year. HHS does not, however, currently have the authority to implement a process, or to conduct a demonstration or pilot project, to provide exceptions to the therapy caps. Medicare payments for outpatient therapy continue to rise rapidly, and 20 percent or more of claims may be improper. To date, however, HHS has made little progress toward a payment system for outpatient therapy services that is based on patients' needs. Furthermore, while CMS is considering ways to reduce improper payments, it has not implemented the contractor's proposals for improving its claims-processing system. HHS has been required for years to take steps toward developing a payment system based on beneficiaries' needs, which would require developing a process for collecting better assessment information. Studies contracted by CMS to respond to requirements under three laws suggest that the department would need to develop a standard patient assessment instrument to define a patient's diagnosis and functional status and thereby determine the patient's medical need for therapy. In response to a statutory requirement to report on the standardization of patient assessment instruments in a variety of settings, HHS and CMS have an effort under way to study and report to Congress on the development of standard terminology that Medicare providers could use to assess patients' diagnosis and functional status. Although this provision requires that outpatient therapy services be included in this effort, HHS and CMS have not done so. Concerns remain that when the current moratorium expires and the caps are reinstated, some beneficiaries who have medical needs for therapy beyond what can be paid for under the caps may not be able to obtain the care they need. Some beneficiaries may not be able to afford to pay for care or may not have access to hospital outpatient departments, which are not subject to the caps. In the absence of patient assessment information, therefore, an interim process, demonstration, or pilot project may be warranted to allow HHS to grant exceptions to the caps. For example, such a project could allow beneficiaries, under circumstances that CMS determines, an exception to the cap on the basis of medical review supported by documentation from providers regarding their patients' needs for extensive therapy. Such a project could also provide CMS with valuable information about the conditions, diseases, and functional status of beneficiaries who have extensive medical needs for therapy. The information gathered through the project could also facilitate development of a standardized patient assessment process or instrument. HHS, however, would need legislative authority to conduct such a project. Although exceptions could increase Medicare payments for outpatient therapy, exceptions could provide one avenue for Medicare coverage above the caps for some beneficiaries who need extensive therapy. Potentially, payment increases due to exceptions could be offset by implementation of the contractor-proposed improvements, such as edits. To provide a mechanism after the moratorium expires whereby certain Medicare beneficiaries could have access to appropriate outpatient therapy services and to obtain better data needed to improve the Medicare outpatient therapy payment policy, including data on the conditions and diseases of beneficiaries who have extensive outpatient therapy needs, Congress should consider giving HHS authority to implement an interim process or demonstration project whereby individual beneficiaries could be granted an exception from the therapy caps. To expedite development of a process for assessing patients' needs for outpatient therapy services and to limit improper payments, we recommend that the Secretary of HHS take the following two actions: ensure that outpatient therapy services are added to the effort already under way to develop standard terminology for existing patient assessment instruments, with a goal of developing a means by which to collect such information for outpatient therapy, and implement improvements to CMS's automated system for identifying outpatient therapy claims that are likely to be improper. We provided a draft of this report to HHS for comment and received a written response from the department (reproduced in app. I). HHS did not comment on the matter for congressional consideration, in which we said that Congress should give HHS authority to implement an interim process or demonstration project whereby individual beneficiaries could be granted an exception from the therapy caps. HHS concurred with our recommendation that it ensure that outpatient therapy services are added to the effort already under way to develop standard terminology for existing patient assessment instruments. The department stated that it is preparing to contract for a 5-month study to develop a policy and payment guidance report as it explores the feasibility of developing a post-acute care patient assessment instrument. In commenting on our recommendation to implement improvements to CMS's automated system for identifying outpatient therapy claims that are likely to be improper, HHS discussed a national edit system to promote correct coding methods and eliminate improper coding. This national edit system has been applied to some therapy-related claims starting in 1996, and HHS plans to apply it more broadly in 2006. While the national edit system is complementary to the edits proposed by CMS's contracted study, CMS can do more by also implementing improvements to its payment system as suggested by the study's specific findings. HHS also indicated that it was exploring other methods for automated evaluation of claims but commented that its claims-processing system cannot always identify an improper claim from the information that is available on claim forms. We agree that the current system cannot always identify an improper claim, given the lack of information on the claim forms about a patient's actual needs for therapy. It was this conclusion that led to our recommendation that HHS include outpatient therapy in its present efforts to improve the collection of patient assessment information. We believe that CMS can make improvements to its current automated system to reduce improper claims, irrespective of its efforts to improve patient assessment information. As we noted in the draft report, CMS's contracted study found certain edits to be feasible using information already provided on claim forms, such as edits of clinically illogical combinations of therapy procedure codes. We are sending copies of this report to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7119 or at steinwalda@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 II. In addition to the contact mentioned above, Katherine Iritani, Assistant Director; Ellen W. Chu; Adrienne Griffin; Lisa A. Lusk; and Jill M. Peterson made key contributions to this report. Medicare: More Specific Criteria Needed to Classify Inpatient Rehabilitation Facilities. GAO-05-366. Washington, D.C.: April 22, 2005. Comprehensive Outpatient Rehabilitation Facilities: High Medicare Payments in Florida Raise Program Integrity Concern. GAO-04-709. Washington, D.C.: August 12, 2004. Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians' Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002. Medicare: Outpatient Rehabilitation Therapy Caps Are Important Controls but Should Be Adjusted for Patient Need. GAO/HEHS-00-15R. Washington D.C.: October 8, 1999. Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in Nursing Homes. GAO/HEHS-95-23. Washington D.C.: March 30, 1995.

Summary:
For years, Congress has wrestled with rising Medicare costs and improper payments for outpatient therapy services--physical therapy, occupational therapy, and speech-language pathology. In 1997 Congress established per-person spending limits, or "therapy caps," for nonhospital outpatient therapy but, responding to concerns that some beneficiaries need extensive services, has since placed temporary moratoriums on the caps. The current moratorium is set to expire at the end of 2005. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required GAO to report on whether available information justifies waiving the caps for particular conditions or diseases. As agreed with the committees of jurisdiction, GAO also assessed the status of the Department of Health and Human Services' (HHS) efforts to develop a needs-based payment policy and whether circumstances leading to the caps have changed. Data and research available are, for three reasons, insufficient to identify particular conditions or diseases to justify waiving Medicare's outpatient therapy caps. First, Medicare claims data--the most comprehensive data for beneficiaries whose payments would exceed the caps--often do not capture the clinical diagnosis for which therapy is received. Nor do they show particular conditions or diseases as more likely than others to be associated with payments exceeding the caps. Second, even for diagnoses clearly linked to a condition or disease, such as stroke, the length of treatment for patients with the same diagnosis varies widely. Third, because of the complexity of patient factors involved, most studies do not define the amount or mix of therapy services needed for Medicare beneficiaries with specific conditions or diseases. Provider groups remain concerned about adverse effects on beneficiaries needing extensive therapy if the caps are enforced. HHS does not, however, have the authority to provide exceptions to the therapy caps. Despite several related statutory requirements, HHS has made little progress toward developing a payment system for outpatient therapy that considers individual beneficiaries' needs. In particular, HHS has not determined how to standardize and collect information on the health and functioning of patients receiving outpatient therapy services--a key part of developing a system based on individual needs for therapy. The circumstances that led to the therapy caps remain a concern. Medicare payments for outpatient therapy are still rising significantly, and increases in improper payments for outpatient therapy continue. HHS could reduce improper payments and Medicare costs by improving its system of automated processes for rejecting claims likely to be improper.