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 therapist. The plan of care is required to contain, among other information, the amount, duration, and frequency of PT services. 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. Medicare does not require that a beneficiary obtain a physician referral to initiate PT services. 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. 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. 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. 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. 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).referred 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 In contrast, the number of non-self- proportion of PT services that were self-referred decreased from about 24 percent in 2004 to about 18 percent in 2010. 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 self- referred 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- referred PT services temporarily declined in 2006, likely due to the reinstatement of the therapy payment cap on PT services. 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 non- self-referred PT services. 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. Self- referring orthopedic surgeons, on average, generally referred fewer PT services than non-self-referring orthopedic surgeons. In addition, self- referring 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 geography.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). 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. 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. 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. 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 self- referring 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 self- referring family practice providers was approximately 43 to 87 percent higher than for their non-self-referring counterparts, depending on the beneficiary practice size category (see table 3). 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). 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. For example, in urban areas, beneficiaries referred by self- referring family practice providers received 12 to 28 percent fewer PT services, on average, compared with beneficiaries referred by non-self- referring family practice providers, depending on the beneficiary practice size category (see table 5). 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). 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 scores 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). 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-self- referring providers in these specialties were more likely to refer beneficiaries who were treated for neurologic conditions or rehabilitation. 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. 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. 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-self- referred 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-self- referring providers of the same specialty. Better understanding the differences in referral patterns between self-referring and non-self- referring 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. 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 self- referring 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. 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 self- referral 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 self- referring 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 self- referring 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. 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, and other value- practices that participate in Medicare Shared Savingsbased 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 self- referring 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, 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 non- self-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. 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. This appendix describes the scope and methodology used to analyze our study objectives: (1) trends in the number of and expenditures for self- referred 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 self- referred or non-self-referred. Specifically, we classified services as self- referred if the provider that referred the beneficiary for a PT service and the provider that performed the PT service were identical or had a To determine providers’ financial relationships, we financial relationship.used the Taxpayer Identification Number (TIN), which is either the Social Security Number or Employer Identification Number that an individual or 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. There may be one or multiple TINs for a medical group practice depending on the organizational structure of the practice. 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. 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 service.variable, which includes payments by Medicare and the beneficiary. 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. 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). 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. We considered all other settings to be rural. 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. 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 payments for all Medicare FFS beneficiaries.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. 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-self- referring providers is an estimate of the change in providers’ referrals for PT services that may be associated with self-referral. Our study has some limitations. First, we may not have identified all self- referred 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 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 Non- Self-Referring Providers, 2010 Physical therapy (PT) service Electrical stimulation (HCPCS 97032) Electrical stimulation, other than wound (HCPCS G0283) Gait training therapy (HCPCS 97116) Manual therapy (HCPCS 97140) Massage therapy (HCPCS 97124) Neuromuscular reeducation (HCPCS 97112) Physical therapy evaluation (HCPCS 97001) Therapeutic activities (HCPCS 97530) Therapeutic exercises (HCPCS 97110) Ultrasound therapy (HCPCS 97035) Electrical stimulation, other than wound (HCPCS G0283) Gait training therapy (HCPCS 97116) Manual therapy (HCPCS 97140) Massage therapy (HCPCS 97124) Neuromuscular reeducation (HCPCS 97112) Physical therapy evaluation (HCPCS 97001) Therapeutic activities (HCPCS 97530) Therapeutic exercises (HCPCS 97110) Ultrasound therapy (HCPCS 97035) Electrical stimulation, other than wound (HCPCS G0283) Gait training therapy (HCPCS 97116) Manual therapy (HCPCS 97140) Massage therapy (HCPCS 97124) Neuromuscular reeducation (HCPCS 97112) Physical therapy evaluation (HCPCS 97001) Therapeutic activities (HCPCS 97530) Therapeutic exercises (HCPCS 97110) Ultrasound therapy (HCPCS 97035) 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.

Summary: 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 self-referral for PT services and Medicare spending for these services. This report examines (1) trends in the number of and expenditures for self-referred 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 self-referring 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-self-referring providers. The Department of Health and Human Services stated that it had no comments on a draft of this report. 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, self-referring 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 non-self-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 self-referring 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.