Comprehensive Outpatient Rehabilitation Facilities: High Medicare
Payments in Florida Raise Program Integrity Concerns (12-AUG-04, 
GAO-04-709).							 
                                                                 
Comprehensive Outpatient Rehabilitation Facilities (CORF) are	 
highly concentrated in Florida. These facilities, which provide  
physical therapy, occupational therapy, speech-language pathology
services, and other related services, have been promoted as	 
lucrative business opportunities for investors. Aware of such	 
promotions, the Chairman, Senate Committee on Finance, raised	 
concerns about whether Medicare could be vulnerable to		 
overbilling for CORF services. In this report, focusing our	 
review on Florida, we (1) compared Medicare's outpatient therapy 
payments to CORFs in 2002 with its payments that year to other	 
facility-based outpatient therapy providers and (2) assessed the 
program's effectiveness in ensuring that payments to CORFs	 
complied with Medicare rules.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-709 					        
    ACCNO:   A11568						        
  TITLE:     Comprehensive Outpatient Rehabilitation Facilities: High 
Medicare Payments in Florida Raise Program Integrity Concerns	 
     DATE:   08/12/2004 
  SUBJECT:   Beneficiaries					 
	     Claims processing					 
	     Health care facilities				 
	     Health care programs				 
	     Insurance claims					 
	     Medical economic analysis				 
	     Medical expense claims				 
	     Medical records					 
	     Patient care services				 
	     Questionable payments				 
	     Therapy						 
	     Comparative analysis				 
	     Outpatient care services				 
	     Questionable billing				 
	     Florida						 
	     Medicare Comprehensive Outpatient			 
	     Rehabilitation Facilities				 
                                                                 
	     Medicare Program					 

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GAO-04-709

United States Government Accountability Office

GAO

           Report to the Chairman, Committee on Finance, U.S. Senate

August 2004

COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES

       High Medicare Payments in Florida Raise Program Integrity Concerns

GAO-04-709

Highlights of GAO-04-709, a report to the Chairman, Committee on Finance,
U.S. Senate

Comprehensive Outpatient Rehabilitation Facilities (CORF) are highly
concentrated in Florida. These facilities, which provide physical therapy,
occupational therapy, speech-language pathology services, and other
related services, have been promoted as lucrative business opportunities
for investors. Aware of such promotions, you raised concerns about whether
Medicare could be vulnerable to overbilling for CORF services. In this
report, focusing our review on Florida, we (1) compared Medicare's
outpatient therapy payments to CORFs in 2002 with its payments that year
to other facility-based outpatient therapy providers and (2) assessed the
program's effectiveness in ensuring that payments to CORFs complied with
Medicare rules.

GAO recommends that CMS direct the Florida contractor to medically review
a larger number of CORF claims. While CMS agreed with our findings, it
noted that the contractor is already taking appropriate steps to monitor
CORF claims. However, given that CORFs continued to bill significantly
more per beneficiary than other outpatient therapy providers under the
current level of scrutiny, we maintain that enlarging the number of CORF
claims reviewed would promote compliance in this vulnerable area.

August 2004

COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES

High Medicare Payments in Florida Raise Program Integrity Concerns

In Florida, CORFs were by far the most expensive type of outpatient
therapy provider in the Medicare program in 2002. Per-patient payments to
CORFs for therapy services were 2 to 3 times higher than payments to other
types of facility-based therapy providers. Higher therapy payments were
largely due to the higher volume of services-more visits or more intensive
therapy per visit-delivered to CORF patients. This pattern of relatively
high CORF payments was evident in each of the eight metropolitan
statistical areas (MSA) of the state where nearly all Florida CORFs
operated and the vast majority of CORF patients were treated. A consistent
pattern of high payments and service levels was also evident for patients
in each of the diagnosis categories most commonly treated by CORFs.
Differences in patient characteristics-age, sex, disability, and prior
inpatient hospitalization-did not explain the higher payments that Florida
CORFs received compared to other types of outpatient therapy providers.

Steps taken by Medicare's claims administration contractor for Florida
have not been sufficient to mitigate the risk of improper billing by
CORFs. After examining state and national trends in payments to CORFs in
1999, the contractor increased its scrutiny of CORF claims to ensure that
Medicare payments made to CORFs were appropriate. It found widespread
billing irregularities in Florida CORF claims, including high rates of
medically unnecessary therapy services. Since late 2001, the contractor
has intensified its review of claims from new CORF providers and required
medical documentation to support certain CORF services considered at high
risk for billing errors. It has also required that supporting medical
records documentation be submitted with all CORF claims for about 650
beneficiaries who had previously been identified as receiving medically
unnecessary services. The contractor's analysis of 2002 claims data for
this limited group of beneficiaries suggests that, as a result of these
oversight efforts, Florida CORFs billed Medicare for substantially fewer
therapy services than in previous years. However, our analysis of all CORF
therapy claims for that year indicates that the contractor's program
safeguards were not completely effective in controlling per-patient
payments to CORFs statewide. With oversight focused on a small fraction of
CORF patients, CORF facilities continued to provide high levels of
services to beneficiaries whose claims were not targeted by the
contractor's intensified reviews.

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

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Leslie G. Aronovitz at (312)
220-7600.

Contents

  Letter

Results in Brief
Background
Florida CORFs Received Higher Average Therapy Payments,

Despite Treating Similar Patients Actions by the Florida Contractor Were
Not Sufficient to Ensure

Appropriate Payments to CORFs Conclusions Recommendation Agency Comments
and Our Evaluation

                                       1

                                      3 5

                                       8

13 18 18 18

Appendix I Objectives, Scope, and Methodology

Appendix II 	Comments from the Centers for Medicare & Medicaid Services

  Appendix III GAO Contact and Staff Acknowledgments 26

GAO Contact 26 Acknowledgments 26

  Tables

Table 1: Therapy Payments and Units of Service Per Patient by Type of
Provider, Florida, 2002 8 Table 2: Therapy Payments Per Patient by Type of
Provider in Selected Florida MSAs, 2002 9 Table 3: Therapy Payments Per
Patient by Provider Type for Selected Diagnosis Categories, Florida, 2002
10 Table 4: Units of Therapy Service Per Patient by Provider Type for
Selected Diagnosis Categories, Florida, 2002 11 Table 5: Medicare Payments
to Selected Florida CORFs for All Types of Services, 2002 17

Abbreviations

CMS Centers for Medicare & Medicaid Services
CORF Comprehensive Outpatient Rehabilitation Facility
CWF Common Working File
HHS OIG Department of Health and Human Services Office of

Inspector General MSA metropolitan statistical area NCH National Claims
History File OPD outpatient department PIP-DCG Principal Inpatient
Diagnostic Cost Group SNF skilled nursing facility

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United States Government Accountability Office Washington, DC 20548

August 12, 2004

The Honorable Charles E. Grassley
Chairman
Committee on Finance
United States Senate

Dear Mr. Chairman:

Outpatient therapy services are a covered benefit under Medicare-the
federal program that finances health services for approximately 40 million
elderly and disabled individuals. Each year, about 9 percent of Medicare
beneficiaries use outpatient therapy services-defined by the Medicare
program as physical therapy, occupational therapy, and speech-language
pathology services-to improve mobility and functioning.1 To qualify for
coverage of outpatient therapy services under Medicare, beneficiaries
must be referred by a physician, have a written treatment plan that is
reviewed periodically by a physician, and need therapy for rehabilitation
rather than maintenance purposes.2 Several types of facility-based
providers offer outpatient therapy services, including outpatient
departments (OPD) at hospitals and skilled nursing facilities (SNF), and
rehabilitation agencies. These providers deliver services in ambulatory
settings such as clinics and community hospital outpatient departments.

In many states, therapy services are also available through Comprehensive
Outpatient Rehabilitation Facilities (CORF). In 1980, Congress recognized
CORFs as potential Medicare participating providers to allow beneficiaries
access to both physician and therapy services in one stand-alone

1Physical therapy treatments-such as whirlpool baths, ultrasound, and
therapeutic exercises-are designed to improve mobility, strength, and
physical functioning, and limit the extent of disability resulting from
injury or disease. Occupational therapy helps patients learn the skills
necessary to perform daily tasks and function independently.
Speechlanguage pathology services include the diagnosis and treatment of
speech, language, and swallowing disorders.

2Medicare does not cover maintenance therapy-therapy services performed to
maintain, rather than improve, a beneficiary's level of functioning.
Examples of maintenance therapy are when a patient's restoration potential
is insignificant in relation to the therapy required to achieve such
potential, when it has been determined that the treatment goals will not
materialize, or when the therapy performed is considered to be a general
exercise program.

outpatient facility.3 CORFs are different from other types of
Medicarecertified outpatient therapy providers in that, in addition to
physical therapy, regulations require that they offer psychological or
social services and the services of a physician who specializes in
rehabilitation medicine.4 They are also unique in their authority to
provide a variety of nontherapy services-such as respiratory treatment or
nursing care-as medically necessary in the context of a patient's
rehabilitation therapy treatment plan.5 In general, services must be
provided on the CORF premises at a single, fixed location. However,
physical therapy, occupational therapy, and speech-language pathology
services may be provided in places other than the CORF's main location,
such as in a patient's home. Back disorders, arthritis, soft tissue
injuries (such as joint sprains and strains), and neurologic disorders
(such as concussion) are common conditions treated at CORFs.

In recent years, CORF marketing consultants have actively promoted the
establishment of CORFs as lucrative business opportunities for investors.
For example, one consultant's marketing materials stated that "every new
CORF office is expected to pre-tax net at least $400,000 to $500,000 after
a start-up period. . . With or without any medical background, you can own
a small medical facility." Aware of such promotions, you raised concerns
about whether Medicare could be vulnerable to overbilling for CORF
services. In fact, in 2000, the Department of Health and Human Services
Office of Inspector General (HHS OIG) reported a high level of improper
billing by outpatient therapy providers in several states.6

3The conditions under which Medicare will pay for outpatient therapy
services provided by a CORF were established by the Omnibus Reconciliation
Act of 1980, Pub. L. No. 96-499, S: 933, 94 Stat. 2599, 2635.

4Rehabilitation medicine is the treatment of individuals with disabling
conditions and diseases, designed to yield improvement in function, level
of independence, and quality of life.

5While CORFs must be able to provide all of the therapy and related
nontherapy services required by each patient's treatment plan, they are
not permitted to provide nontherapy services alone; such services must be
delivered as a component of each patient's rehabilitative therapy
treatment. Furthermore, although each CORF chooses which of these services
to offer, a facility cannot accept a patient unless it can provide all
required services.

6States included in the study were Florida, Louisiana, Michigan, New
Jersey, Pennsylvania, and Texas. See HHS/OIG, Six-State Review of
Outpatient Rehabilitation Facilities, pub. A-04-99-01193 (Washington D.C.:
March 2000).

In this report, we (1) compared Medicare's outpatient therapy payments to
CORFs in 2002 with its payments that year to other facility-based
outpatient therapy providers and (2) assessed the program's effectiveness
in ensuring that payments to CORFs complied with Medicare rules. As agreed
with your staff, we focused our review on Florida providers and Medicare's
Florida claims administration contractor because, with nearly 200 CORFs in
operation at the end of 2002, that state had one-third of the nation's
CORFs and far more of these facilities than any other state.

To address these issues, we analyzed Medicare claims data for services
provided in 2002 (the most current data available) by CORFs,
rehabilitation agencies, hospital OPDs, and SNF OPDs. We also interviewed
officials at the Centers for Medicare & Medicaid Services (CMS)-the
federal agency that oversees the Medicare program-the Florida contractor
responsible for processing and paying Medicare's CORF claims, federal law
enforcement agencies, and therapy industry experts. In addition, we
reviewed relevant investigative reports by the HHS OIG and the Florida
claims administration contractor on the improper billing activities of
some CORFs. (For a detailed description of our methodology and procedures
we followed for evaluating the reliability of the data we used, see app.
I.) This work was performed from May 2003 through July 2004 in accordance
with generally accepted government auditing standards.

In Florida, CORFs were by far the most expensive type of outpatient
therapy provider in the Medicare program in 2002. Per-patient payments to
CORFs for therapy services were 2 to 3 times higher than payments to other
types of facility-based therapy providers. Higher therapy payments were
largely due to the higher volume of services-more visits or more intensive
therapy per visit-delivered to CORF patients. This pattern of relatively
high CORF payments was evident in each of the eight metropolitan
statistical areas (MSA) of the state where nearly all Florida CORFs
operated and the vast majority of CORF patients were treated. A consistent
pattern of high payments and service levels was also evident for patients
in each of the diagnosis categories most commonly treated by CORFs.
Differences in patient characteristics-age, sex, disability, and prior
inpatient hospitalization-did not explain the higher payments that Florida
CORFs received compared to other outpatient therapy provider types.

  Results in Brief

Steps taken by Medicare's claims administration contractor for Florida
have not been sufficient to mitigate the risk of improper billing by
CORFs. After examining state and national trends in payments to CORFs in
1999, the contractor increased its scrutiny of CORF claims to ensure that
Medicare payments made to CORFs were appropriate. It found widespread
billing irregularities in Florida CORF claims, including high rates of
medically unnecessary therapy services. Since late 2001, the contractor
has intensified its review of claims from new CORF providers and required
medical documentation to support certain CORF services considered at high
risk for billing errors. It has also required that supporting medical
records documentation be submitted with all CORF claims for about 650
beneficiaries who had previously been identified as receiving medically
unnecessary services. The contractor's analysis of 2002 claims data for
this limited group of beneficiaries suggests that, as a result of these
oversight efforts, Florida CORFs billed Medicare for substantially fewer
therapy services than in previous years. However, our analysis of all CORF
therapy claims for that year indicates that the contractor's program
safeguards were not completely effective in controlling per-patient
payments to CORFs statewide. With oversight focused on a small fraction of
CORF patients, CORF facilities continued to provide high levels of
services to beneficiaries whose claims were not targeted by the
contractor's intensified reviews.

We recommend that CMS direct the Florida claims administration contractor
to medically review a larger number of CORF claims.

In commenting on a draft of this report, CMS agreed with our findings but
noted that contractors have limited resources for medical review. The
agency also stated that the Florida claims administration contractor is
already taking appropriate steps to address concerns about CORF billing.
We recognize that contractors can achieve efficiencies by targeting their
medical review activities on areas where the financial risk to Medicare is
greatest. However, the impact of medical review comes, in part, from the
sentinel effect of consistently applying medical review to providers'
claims. Given that Florida CORFs continued to bill significantly more per
beneficiary than other outpatient therapy providers even after the
contractor took steps to examine some claims, we maintain that the Florida
contractor could enhance compliance in this area of program vulnerability
by enlarging the number of CORF claims reviewed.

Background

    Medicare Coverage Rules for Outpatient Therapy

All outpatient therapy providers are subject to Medicare part B payment
and coverage rules.7 Payment amounts for each type of outpatient therapy
service are based on the part B physician fee schedule.8 In 2000, Medicare
paid approximately $2.1 billion for all outpatient therapy services, of
which $87.1 million was paid to CORFs.

To meet Medicare reimbursement requirements, outpatient therapy services
must be:

o  appropriate for the patient's condition,

o  expected to improve the patient's condition,

o  reasonable in amount, frequency, and duration,

o  furnished by a skilled professional,

o  	provided with a physician available on call to furnish emergency
medical care, and

o  	part of a written treatment program that is reviewed periodically by a
physician.

CMS relies on its claims administration contractors to monitor provider
compliance with program requirements. Contractors regularly examine claims
data to identify billing patterns by specific providers or for particular
services that are substantially different from the norm. Claims submitted
by these groups of providers-or for specific services-are then selected
for additional scrutiny. Whether such reviews occur prior to payment
(prepayment reviews) or after claims have been paid (postpayment reviews),
the provider is generally required to submit patient records to support
the medical necessity of the services billed. This routine oversight may
lead to additional claim reviews or provider education about Medicare
coverage or billing issues.

7Part B covers physician services and payments to other licensed
practitioners, clinical laboratory and diagnostic services, surgical
supplies and durable medical equipment, and ambulance services. Part A
covers hospital and certain other services.

8Medicare pays 80 percent of the payment amount with a 20 percent
coinsurance payment required from the beneficiary.

    Florida CORF Industry

With 567 facilities nationwide at the end of 2002, the CORF industry is
relatively small. Although CORFs operated in 41 states at the end of 2002,
the industry is highly concentrated in Florida, where 191 (one-third) of
all Medicare-certified CORFs are located. By contrast, the state with the
second largest number of CORFs at the end of 2002 was Texas, with 53
CORFs.

The number of CORF facilities in Florida grew about 30 percent during 2002
and the industry is now largely composed of relatively new, for-profit
providers. The CORF industry in Florida continued to grow in 2003,
reaching 220 facilities by year's end, of which 96 percent were for
profit. The growth in Florida CORFs came after a period of substantial
turnover among CORF owners (many closures and new entrants).9

From 1999 to 2002, Medicare payments to Florida CORFs rose substantially
and far outpaced growth in the number of beneficiaries that used CORFs.
The number of Medicare beneficiaries receiving services from CORFs grew 13
percent, increasing from 33,653 in 1999 to 38,024 in 2002. However, during
the same time period, Medicare expenditures for services billed by CORFs
rose significantly, with total payments increasing 61 percent, from $48.1
million to $77.4 million. Half of all Florida CORFs received an annual
payment of $91,693 or more from Medicare in 1999; by 2002, the median
annual payment more than doubled to $187,680.10

Although CORFs were added to the Medicare program to offer beneficiaries a
wide range of nontherapy services at the same location where they receive
therapy, most Florida CORFs do not provide these types of services. For
those that do, only a small proportion of Medicare

9In part, turnover in the industry may be the result of a new payment
system for Medicare outpatient therapy services that took effect in 1999.
That year, facility providers were switched from a cost-based
reimbursement system-under which payments were based on the cost to the
provider of delivering services-to a fee schedule-where payments are based
on pre-established amounts. Previously, the fee schedule had only applied
to therapy provided by physician practices and independent practitioners.

10These changes in Medicare payments since 1999 reflect, in part, the
industry's varied responses to the new Medicare payment rules for
outpatient therapy. A 2001 study by the Urban Institute reported that CORF
payments per patient for therapy services declined 55 percent nationwide,
from $1,642 in 1998 to $743 in 1999-the first year under the fee schedule
payment system. The study also showed that this adjustment year was
followed by a 61 percent "rebound" in average payments of $1,199 in 2000.
See S. Maxwell, C. Baseggio, and M. Storeygard, Part B Therapy Services
Under Medicare in 1998- 2000: Impact of Extending Fee Schedule Payments
and Coverage Limits, (Washington, D.C.: The Urban Institute, September
2001).

payments are accounted for by these services. In 2002, 98 percent of
Medicare payments to Florida CORFs went to furnish physical and
occupational therapy or speech-language pathology services. The mix of
services reimbursed by Medicare was very different in 1999, when such
therapy accounted for 68 percent of all payments, and the remainder paid
for nontherapy services, such as pulmonary treatments and psychiatric
care.11

In recent years, payments to Florida CORFs have increasingly shifted
toward those made for patients with back and musculoskeletal conditions.
Most notably, patients who presented with back disorders accounted for 16
percent of all Medicare payments to Florida CORFs in 1999 and 29 percent
of payments in 2002. In addition, payments for treating patients diagnosed
with soft tissue injuries increased from 8 percent of Florida CORF
payments in 1999 to 24 percent in 2002. One diagnosis group for which
there was a notable decrease in the proportion of Medicare payments was
pulmonary disorders, which fell from 30 percent of all payments in 1999 to
2 percent in 2002.

In 2002, most of the 191 CORFs in Florida were small, with the median CORF
in the state treating 150 beneficiaries. CORFs accounted for 15 percent of
all Florida Medicare beneficiaries who received outpatient therapy from
facility-based providers that year, and 30 percent of Medicare's payments
for outpatient therapy services to Florida facilitybased providers. In a
few areas, however, CORFs represented a substantial share of the
outpatient therapy market, particularly in south Florida. For example,
CORFs were the predominate providers of outpatient therapy services in
Miami, with 53 percent of all facility-based outpatient therapy patients,
and treated 29 percent of patients who received outpatient therapy from
facility-based providers in nearby Fort Lauderdale.

11Payments for physical therapy services made up the largest share of
Medicare payments to Florida CORF facilities. Physical therapy payments
climbed from 49 percent of all Medicare payments to CORFs in 1999 to 64
percent in 2002. Payments for occupational therapy also increased,
changing from 18 percent of payments in 1999 to 32 percent in 2002. The
CORF service for which there was a substantial decline in payments was
respiratory treatments, which changed from 29 percent of Florida CORF
payments in 1999 to 2 percent of payments in 2002.

  Florida CORFs Received Higher Average Therapy Payments, Despite Treating
  Similar Patients

In 2002, Medicare's therapy payments per patient to Florida CORFs were
several times higher than therapy payments made to other facility-based
outpatient therapy providers in the state. This billing pattern was
evident in each of the eight Florida MSAs that accounted for the majority
of Medicare CORF facilities and patients. Differences in prior
hospitalization diagnoses and patient demographic information did not
explain the disparities in per-patient therapy payments.

Average Therapy Payments Our analysis of claims payment data showed that
per-patient therapy to CORFs Substantially payments to Florida CORFs were
about twice as high as therapy payments Exceeded Payments to to
rehabilitation agencies and SNF outpatient departments, and more than

3 times higher than therapy payments to hospital outpatient
departments.Other Facility-Based (See table 1.) Specifically, at $2,327
per patient, therapy payments forProviders CORF patients were 3.1 times
higher than the per-patient payment of $756

for those treated by outpatient hospital-based therapists.

Table 1: Therapy Payments and Units of Service Per Patient by Type of
Provider, Florida, 2002

Rehabilitation CORFs Hospital OPDs agencies SNF OPDs

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

Units of service per patient 108 37 59

Source: GAO analysis of CMS claims data.

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

Higher therapy payments for Medicare patients treated at CORFs were
largely due to the greater number of services that CORF patients
received.12 As shown in table 1, on average, CORF patients received 108
units of therapy compared with 37 to 59 units of outpatient therapy, on
average, at the other types of outpatient providers. Typically, a unit of
therapy service represents about 15 minutes of treatment with a physical
therapist, occupational therapist, or speech-language pathologist.

12On average, Medicare fees per unit of therapy provided by Florida CORFs
were about the same as the fees per unit of service furnished by other
provider types. In 2002, fees averaged about $22 (CORFs), $22 (SNF OPD),
$21 (hospital OPD), and $19 (rehabilitation agencies).

The pattern of relatively high payments to CORFs was evident in all of the
localities where CORFs were concentrated. In 8 of the 14 MSAs in Florida
that had CORFs in 2002, CORF payments per patient were higher than
payments to all other types of facility-based outpatient therapy
providers. These MSAs together accounted for 86 percent of all Florida
CORF beneficiaries and 90 percent of the state's CORF facilities. In these
localities, per-patient payments to CORFs ranged from 1.2 to 7.4 times
higher than payments to the provider type with the next highest payment
amount.13 For example, in Fort Lauderdale, the 2002 average CORF therapy
payment was $2,900-more than twice the average payment of $1,249 made for
beneficiaries treated by rehabilitation agencies. (See table 2.)

Table 2: Therapy Payments Per Patient by Type of Provider in Selected
Florida MSAs, 2002

Dollars

Hospital Rehabilitation MSA CORFs OPDs agencies SNF OPDs

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

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

                          Miami 2,686 998 1,914 2,025

                           Naples 1,986 859 1,317 856

                         Orlando 3,394 609 1,037 1,266

                         Panama City 6,050 816 793 N/Aa

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

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

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

Source: GAO analysis of CMS claims data.

Note: Table provides average payments for therapy services only.

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

13Five MSAs with elevated CORF payments were in southern Florida (Fort
Lauderdale, Fort Myers-Cape Coral, Miami, Naples, and West Palm Beach-Boca
Raton); two were in the middle of the state (Orlando and Tampa-St.
Petersburg-Clearwater), and one was in the northwest (Panama City). CORFs
operating in Panama City had the highest per-patient payments, but treated
only 37 Medicare patients in 2002. In contrast, CORFs in Miami provided
services to 6,069 Medicare patients that year.

    Patient Characteristics Did Not Explain Higher Average Therapy Payments to
    Florida CORFs

Average Therapy Payment by Diagnosis

Some factors that could account for differences in therapy payment
amounts-patient diagnosis and indicators of patient health care needs- did
not explain the higher payments that some Florida CORFs received compared
with other types of facility-based outpatient therapy providers.

We found that CORFs received higher per-patient therapy payments than
other facility-based providers for patients in each of the four leading
diagnosis categories treated at CORFs. For patients with neurologic
disorders, arthritis, soft tissue injuries, and back disorders, payments
to CORFs were 66 percent to 159 percent higher than payments to
rehabilitation agencies and SNF OPDs and higher yet than payments to
hospital OPDs.14 (See table 3.) Patients treated for back disorders made
up the largest share of Florida CORF patients, at 25 percent. For patients
with this diagnosis, average payments to CORFs-at $1,734-were twice as
high as the average payment of $867 made to rehabilitation agencies-the
next highest paid provider type.

Table 3: Therapy Payments Per Patient by Provider Type for Selected
Diagnosis Categories, Florida, 2002

                                    Dollars

                                            Hospital Rehabilitation  
                 Diagnosis category   CORFs            OPDs agencies SNF OPDs 
              Neurologic disordersa  $2,676              $545 $1,311   $1,032 
                         Arthritisa   2,168                  679 979    1,029 
              Soft tissue injuriesa   1,835                  625 929    1,105 
                    Back disordersa   1,734                  532 867 
           All diagnosis categories  $2,327              $756 $1,094   $1,167 

Source: GAO analysis of CMS claims data.

Note: Table provides average payments for therapy services only.

aThese four diagnosis categories accounted for 74 percent of all Medicare
beneficiaries receiving therapy services exclusively from Florida CORFs in
2002.

The higher therapy payments to CORFs were driven by the higher volume of
therapy services that CORFs provided to their Medicare patients, compared
with the volume of services other facility-based outpatient therapy
providers furnished to patients in the same diagnosis group. As

14While grouping beneficiaries with the same diagnosis allows for
comparison of similar patients, some patients in each grouping are likely
to have higher levels of health care needs than others.

shown in table 4, for all four leading diagnosis categories, CORF Medicare
patients received far more units of therapy, on average, than Medicare
patients treated by other outpatient therapy providers.15 Differences
across provider types were particularly pronounced for Medicare patients
with arthritis. CORFs furnished an average of 100 units of therapy to
beneficiaries treated for arthritis. In contrast, non-CORF outpatient
therapy providers delivered an average of 33 to 53 units of therapy to
Medicare arthritis patients.

Table 4: Units of Therapy Service Per Patient by Provider Type for
Selected Diagnosis Categories, Florida, 2002

                                                      Rehabilitation 
               Diagnosis category CORFs Hospital OPDs       agencies SNF OPDs 
            Neurologic disordersa   115            28             86 
                       Arthritisa   100            33             53 
            Soft tissue injuriesa    87            32             48 
                  Back disordersa    84            27             49 
                    All diagnosis                                    
                       categories   108            37             59 

              Patient Demographics and Prior-Year Hospitalizations

Source: GAO analysis of CMS claims data.

Note: Table provides average units for therapy services only.

aThese four diagnosis categories accounted for 74 percent of all Medicare
beneficiaries receiving services exclusively from Florida CORFs in 2002.

Differences in patient demographic characteristics and prior-year hospital
diagnoses-factors that could indicate variation in patient health care
needs-did not explain most of the wide disparities in therapy payments

15Just as CORFs consistently provided high levels of therapy services,
hospital OPDs were uniformly low across the four common diagnosis
categories in the amount of therapy services delivered. A CMS official
remarked that this may be driven by the traditional practice of hospitals
to employ the same set of therapists for both their inpatient and
outpatient care. Because Medicare's payment system for inpatient
hospitalization provides a set payment amount, based on patient diagnosis,
for each hospital stay, hospital-based therapists may be accustomed to
discharging inpatients from therapy quickly. They may approach outpatient
care in much the same way, despite the fact that Medicare pays on a fee
schedule for therapy patients treated in hospital outpatient departments.

per patient across settings.16 When we considered differences in patient
age, sex, disability, Medicaid enrollment, and 2001 inpatient hospital
diagnoses across provider types, the data showed that patients served by
CORFs could be expected to use slightly more health care services than
patients treated by other facility-based therapy providers.17 However, we
found that, after controlling for these patient differences, average
payments for CORF patients remained 2 to 3 times greater than for those
treated by other provider types.18

Consistent with this finding, therapy industry representatives we spoke
with-including those representing CORFs-reported that, in the aggregate,
CORF patients were not more clinically complex or in need of more
extensive care than patients treated by other outpatient therapy
providers. They told us that patients are referred to different types of
outpatient therapy providers based on availability and convenience rather
than on their relative care needs. One private consultant to CORFs and
other outpatient provider groups noted that there are no criteria to
identify and direct patients to a particular setting for outpatient care,
and that physicians generally refer patients to therapy providers with
whom they have a relationship.

16Recent hospitalization records are one indicator of patient health care
needs. To compare differences in predicted patient health care use across
outpatient therapy provider types, we used CMS's Principal Inpatient
Diagnostic Cost Group (PIP-DCG) model, which uses demographic information
and hospitalization data to predict health care expenditures for each
beneficiary. Among all Florida beneficiaries who received outpatient
therapy services during 2002, 26 percent were hospitalized during 2001.

17We found two exceptions to this finding. First, among patients with
neurologic disorders, those treated by CORFs appeared to be similar in
health status to patients treated by other types of providers. Second,
patients treated by CORFs were shown to require slightly less health care
services than patients using SNF OPDs. The patients using SNF OPDs
comprise only 5 percent of all Florida beneficiaries who received
facility-based outpatient therapy services.

18We used the PIP-DCG score developed for each beneficiary in combination
with 2002 claims payment data to conduct an analysis of covariance. We
found that differences in average payments were statistically significant
at the .01 level across comparative provider types for every diagnosis
category except for beneficiaries with neurologic disorders and
amputations. However, the overall R-Square for the analysis was 0.18,
which indicates that much of the difference we found in average payments
across provider types remains unexplained by patient demographics and
prior hospital diagnosis.

  Actions by the Florida Contractor Were Not Sufficient to Ensure Appropriate
  Payments to CORFs

Despite the Florida contractor's increased scrutiny of CORF claims, our
analysis of Florida CORFs' 2002 billing patterns suggests that some
providers received inappropriate payments that year. In late 2001, after
finding widespread billing irregularities among CORF claims, the Florida
claims administration contractor implemented new strategies for reviewing
claims that were maintained throughout 2002. Although these strategies
were successful at ensuring appropriate claims payments for a limited
number of beneficiaries, our analysis of 2002 CORF claims found that many
CORFs continued to receive very high per-patient payments.

    2001 Investigation by Florida Claims Contractor Revealed Pattern of
    Inappropriate CORF Billing

In 2001, the Medicare claims administration contractor for Florida
reviewed about 2,500 claims submitted by CORFs and other facility-based
outpatient therapy providers for services provided from January 1999
through February 2001.19 Among these claims, the contractor found
widespread billing for medically unnecessary therapy services. These were
therapy services related to maintaining rather than improving a patient's
functioning, as required by Medicare reimbursement requirements for
covering outpatient therapy.

Reviews also found claims for the same beneficiary, made by more than one
CORF, sometimes on the same day.20 The unlikelihood that a patient would
receive treatment from more than one CORF provider when each one was
equipped to provide the patient's full range of needed services caused the
contractor to investigate further. After interviewing a sample of
beneficiaries treated by multiple CORFs, the contractor found that some of
the facilities treating these beneficiaries had common owners. It reported
that the common ownership was significant, suggesting efforts by the
owners to distribute billings for a patient's services across several
providers. The contractor stated that this would allow the CORFs' owners
to avoid the scrutiny of the Medicare contractor, which typically screens
claims aggregated by facility rather than by beneficiary. After conducting
additional reviews of a sample of paid claims from these CORFs, it found
that 82 percent of payments made were inappropriate, largely due to
questions about medical necessity. As a result, the contractor required
these CORFs to repay Medicare approximately 1 million dollars and

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

20Although Medicare does not prohibit beneficiaries from receiving the
same type of services from multiple providers during the same day,
contractor staff indicated that such a situation raises questions about
the medical necessity of services provided.

referred some of the CORFs to CMS and the HHS OIG for further
investigation.21

In late 2001, the Florida claims administration contractor implemented
additional claim review strategies targeting CORF claims. For any new
CORF, the contractor began reviewing for medical necessity, prior to
payment, about 30 of the first claims submitted. The contractor also began
reviewing all therapy claims submitted on behalf of about 650
beneficiaries identified as having high levels of therapy use from
multiple CORFs and other facility-based outpatient therapy providers
during the 2001 investigation. CORFs and other providers submitting
therapy claims for these beneficiaries had to supply documentation of
medical necessity before claims were paid. The contractor also conducted
prepayment reviews for specific therapy services determined to be at high
risk for inappropriate payments, regardless of the beneficiary receiving
services.22 The contractor maintained these intensified claim
documentation and review requirements throughout 2002.

The contractor indicated that the oversight measures put in place for
specific beneficiaries were effective at improving the appropriateness of
claims payments for therapy services made for those beneficiaries.
Specifically, the contractor reported that Florida CORFs billed Medicare
$12.1 million for this group in 2000, $10.2 million in 2001, and $7.3
million during 2002. In addition, the contractor denied an increasing
percentage of the amount billed each year-46 percent in 2001, and 53
percent in 2002- based on its medical records reviews.23

21An outpatient therapy company that owned several CORFs in Florida was
later investigated by the Department of Justice. A settlement in December
2002 for $600,000 resolved allegations of billing for medically
unnecessary services, falsifying patient and facility records, and
providing services outside the state in which the facilities were licensed
to operate.

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

23Other therapy providers subject to these reviews also reduced the amount
of therapy services billed to Medicare. Rehabilitation agencies billed
Medicare $1.5 million for this group of beneficiaries in 2000, $827,000 in
2001, and $709,000 during 2002. The Florida contractor denied 36 percent
of the amount billed by rehabilitation agencies in 2001, and 48 percent in
2002.

    Florida CORFs' High Medicare Payments Continued After Intensified Claim
    Reviews

While the contractor succeeded in ensuring that payments to CORFs for this
limited group of beneficiaries met Medicare rules, our own analysis of
CORF claims submitted in 2002 found several indications that billing
irregularities continued. The indicators included a high rate of
beneficiaries who received services from multiple CORFs, some CORFs that
did not provide any therapy services, and many facilities with very high
per-patient payments.

Our analysis of 2002 Florida CORF claims by facility showed that the
Florida claims administration contractor's efforts to ensure appropriate
CORF payments were not completely effective. We found that 11 percent of
the beneficiaries who received CORF services in Florida were treated by
more than one CORF facility during the year. While Medicare rules do not
prohibit beneficiaries from receiving services from multiple providers in
a single year, this occurs much more frequently among Florida CORFs than
among CORFs in other states. Specifically, in the five other states with
the greatest numbers of CORFs at the end of 2001 (Alabama, California,
Kentucky, Pennsylvania, and Texas), fewer than 4 percent of beneficiaries
received services from more than one CORF during 2002, and in most of
these states, the rate was 1 percent or less.

Although many CORFs treated a few patients who received services from
multiple providers during 2002, a small group of Florida CORFs had very
high rates of "shared" patients that year-suggesting that some CORFs may
have continued to operate in the patterns first detected by the Florida
contractor during its 2001 review. Of the CORFs operating in Florida in
2002, 32 facilities shared more than half of their patients with other
CORF providers. At four CORFs, more than 75 percent of the beneficiaries
were treated by multiple CORF providers during the year.

Staff from the Florida contractor told us that these patterns of therapy
use-receiving services from multiple providers during the same time
period-complicate their ability to monitor appropriate use of therapy
services. Contractor staff routinely analyze claims data to evaluate
appropriate levels of service use and identify trends that may suggest
excessive use. However, these analyses are normally conducted on claims
data aggregated by CORF provider, not aggregated per beneficiary. When
beneficiaries receive outpatient therapy services from multiple providers,
traditional methods of oversight are less likely to detect high levels of
service use and payments.

Our review of 2002 Florida claims data also showed that some CORFs were
not complying with Medicare program rules about furnishing required
services. Although CORFs are permitted to provide nontherapy services,
they must be delivered as part of a beneficiary's overall therapy plan of
care. However, three Florida CORFs received payments exclusively for
nontherapy services-such as pulmonary treatment and oxygen saturation
tests-in 2002.24 Four additional providers billed Medicare primarily for
nontherapy services, with therapy care accounting for less than 10 percent
of their annual Medicare payments.

In addition, we found that a number of the CORFs identified during the
Florida contractor's 2001 investigation continued to have very high
average payments for all services provided in 2002.25 As shown in table 5,
several of these facilities were among 21 CORFs with per-patient payments
that exceeded the statewide CORF average by more than 50 percent. Among
this group of high-cost facilities, the per-patient payment in 2002 ranged
from $3,099 to $6,080, substantially above the average payment of $2,036
across all Florida CORFs.26

24An official from the CMS regional office with oversight responsibility
for Florida reported that some facilities marketing themselves as
"specialized" CORFs have had problems complying with Medicare
requirements. Specifically, the regional office found that some CORFS were
paying a fee to providers (such as therapists or psychologists) to have
the provider's name included on the initial CORF application for Medicare
certification. However, after certification was granted, these providers
never worked for the CORF; in fact, the facilities were only providing
specialized services and not the core CORF services required by Medicare.

25Includes payment for therapy services and other types of services
provided by CORFs, such as physician and nursing services, psychological
services, and pulmonary treatments. In 2002, 2 percent of all Medicare
payments to Florida CORFs were for nontherapy services.

26Overall, we found considerable variation in Medicare per-patient
payments across Florida CORFs. The top quartile of CORFs received payments
of $2,070 or more, while the lowest quartile received payments of $982 or
less. The median per-patient payment across all Florida CORFs was $1,498.

Table 5: Medicare Payments to Selected Florida CORFs for All Types of
Services, 2002

                   Total Medicare              Number of  Average payment per 
            CORF         payments beneficiaries treated           beneficiary 
               A           $6,080                      1               $6,080 
               B          400,355                     70                5,719 
                          346,893                     69                5,027 
               D        1,260,324                    255                4,942 
               E        1,648,748                    337                4,892 
               F          879,629                    193                4,558 
               G        1,709,567                    390                4,384 
               H          740,252                    169                4,380 
                          154,780                     36                4,299 
               J          914,198                    241                3,793 
              Ka        6,066,325                  1,600                3,791 
                          705,499                    189                3,733 
               M          309,082                     88                3,512 
               N          631,009                    184                3,429 
              Oa          398,526                    117                3,406 
               P          544,950                    163                3,343 
               Q        1,467,888                    447                3,284 

              Ra              5,387,964          1,723              3,127 
              Sa              2,415,257           775               3,116 
              T                632,862            204               3,102 
              Ua              1,152,947           372               3,099 
          All others         $49,656,466         30,401            $1,633 
            Total            $77,429,600         38,024            $2,036 

Source: GAO analysis of CMS claims data.

Note: This analysis includes all Medicare payments to Florida CORFs for
therapy services (physical therapy, occupational therapy, and
speech-language pathology services) and other types of CORF services. In
2002, 98 percent of Medicare payments to Florida CORFs were for therapy
services. We included all beneficiaries in this analysis, regardless of
their total therapy payments for the year and duration of Medicare
fee-for-service enrollment.

aThese facilities were among those identified by the Florida claims
administration contractor during its 2001 investigation as having high
levels of medically unnecessary services and questionable billing
practices.

These relatively high 2002 payments suggested that Florida CORFs responded
to the contractor's targeted medical reviews selectively by reducing the
services provided to the small number of patients whose

claims were under scrutiny. Other patients, outside the scope of the
contractor's criteria for medical review, continued to receive high levels
of services. The contractor continues to rely on the medical review
criteria originally established in late 2001. However, contractor staff
reported ongoing concerns about the extent to which CORFs bill for
services that may not meet the program's requirements for payment. In
particular, they cited the practice of delivering therapy services over
relatively long periods of time that only maintain, rather than improve, a
patient's functional status.27

Conclusions 	Sizeable disparities between Medicare therapy payments per
patient to Florida CORFs and other facility-based outpatient therapy
providers in 2002-with no clear indication of differences in patient
needs-raise questions about the appropriateness of CORF billing practices.
After finding high rates of medically unnecessary therapy services to
CORFs, CMS's claims administration contractor for Florida took steps to
ensure appropriate claim payments for a small, targeted group of CORF
patients. Despite its limited success, billing irregularities continued
among some CORFS and many CORFs continued to receive relatively high
payments the following year. This suggests that the contractor's efforts
were too limited in scope to be effective with all CORF providers.

Recommendation

Agency Comments and Our Evaluation

To ensure that Medicare only pays for medically necessary care as outlined
in program rules, CMS should direct the Florida claims administration
contractor to medically review a larger number of CORF claims.

CMS officials reviewed a draft of this report and agreed with its
findings. Specifically, the agency noted that "disproportionately high
payments made to CORFs indicate a need for medical review of these
providers." The agency also pointed out that, given the high volume of
claims submitted by providers, contractors must allocate their limited
resources

27One Medicare rule offers CORFs unique operating circumstances that may
contribute to providing services over longer periods of time. CORFs may
provide therapy services for 60 days before the patient's physician must
reevaluate the patient and certify that continuing therapy services would
result in continuing improvement of patient function. 42 C.F.R. S: 410.105
(c)(2)(2003). In contrast, other facility-based outpatient therapy
providers must reevaluate patients every 30 days. 42 C.F.R. S: 424.24
(c)(4).

for medical review in such a way as to maximize returns. Furthermore, CMS
stated that the Florida claims administration contractor is already taking
appropriate steps to address concerns about CORF billing and is prepared
to take additional steps if necessary.

We recognize that contractors can achieve efficiencies by targeting their
medical review activities at providers or services that place the Medicare
trust funds at the greatest risk. However, the impact of medical review
comes, in part, from the sentinel effect of consistently applying medical
review to providers' claims. Thus, while we support the contractor's focus
on new CORF providers, we continue to believe that enlarging the number of
CORF claims reviewed would promote compliance with medical necessity
requirements. Given that Florida CORFs continued to bill significantly
more per beneficiary than other outpatient therapy providers even after
the contractor took steps to examine some claims, compliance could be
enhanced by aggressively addressing this vulnerability. CMS's comments
appear in appendix II.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from
its issue date. At that time, we will send copies of this report to the
Administrator of CMS and to other interested parties. In addition, this
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If you or your staff have any questions about this report, please call me
at
(312) 220-7600. Another contact and key contributors are listed in
appendix III.

Sincerely yours,

Leslie G. Aronovitz
Director, Health Care-Program

Administration and Integrity Issues

Appendix I: Objectives, Scope, and Methodology

In this report we (1) compared Medicare's outpatient therapy payments to
CORFs in 2002 with its payments that year to other facility-based
outpatient therapy providers and (2) assessed the program's effectiveness
in ensuring that payments to CORFs complied with Medicare rules. As agreed
with the requester's staff, we limited the scope of our review to
facility-based outpatient therapy providers and beneficiaries in Florida.
Florida accounted for one-third of all CORF facilities at the end of 2002.

Our primary data source was CMS's National Claims History (NCH) 100%
Nearline File. The NCH file contains all institutional and
noninstitutional claims from the Common Working File (CWF)-the system that
CMS uses to process and pay Medicare claims through its contractors across
the country. We also reviewed data from CMS's Medicare Provider of Service
Files, which contain descriptive information on CORF facility
characteristics, such as location, type of ownership, and the date of each
provider's initial program certification. Finally, we interviewed
representatives of CMS's central and regional offices, the Florida claims
administration contractor, federal law enforcement agencies, and the
therapy industry.

To describe the Florida CORF industry and operations, we gathered Medicare
claims data from CMS's NCH File for the years 1999 through 2002. In
addition to reviewing trends in total Medicare payments to CORFs, we
examined changes in the patient case mix by identifying the primary
diagnoses listed on claims for beneficiaries treated by CORFs. We also
obtained descriptive information on CORFs' characteristics from the
Provider of Service Files for 1999 through 2003.

This work was performed from May 2003 through July 2004 in accordance with
generally accepted government auditing standards.

Comparison of Medicare In this analysis, we compared Medicare therapy
payments to four types of Outpatient Therapy facility-based outpatient
therapy providers: CORFs, rehabilitation Payments by Provider agencies,
hospital OPDs, and SNF OPDs. Although CORFs are authorized

to offer a wide range of services, we limited our comparison to a
commonType set of therapy services: physical therapy services,
occupational therapy services, and speech-language pathology services.

Appendix I: Objectives, Scope, and Methodology

To compare Medicare's therapy payments to Florida CORFs with therapy
payments to other types of facility-based outpatient rehabilitation
therapy providers, we examined 2002 Medicare beneficiary claims data from
the NCH File.1 We used the NCH file to identify all beneficiaries who
resided in Florida and received outpatient therapy services from in-state
providers during 2002. By limiting our review to beneficiaries who were
enrolled in part B for all 12 months of the year, we excluded those in
managed care and those with less than a full year of fee-for-service
coverage. Using beneficiary identification numbers, we aggregated each
beneficiary's total outpatient therapy claims from all provider types. We
summed the annual number of therapy units billed for each beneficiary as
well as the annual line-item payment amounts.2 This allowed us to assign
each beneficiary to a provider comparison group.

To compare Medicare expenditures for similar patients, we assigned each
beneficiary to a diagnosis category based on the primary diagnoses listed
in their outpatient therapy claims for the year.3 Our diagnosis groups
included

o  stroke,

o  spinal cord injury,

o  neurologic disorders,

o  hip fractures,

o  back disorders,

o  amputation,

o  cardiovascular disorders-circulatory,

o  cardiovascular disorders-pulmonary,

o  rehabilitation for unspecified conditions,

o  arthritis,

1This was the latest year for which complete CMS claims data were
available.

2To ensure that each beneficiary included in our study received services
from only one type of outpatient rehabilitation therapy provider during
2002, we also examined therapy claims from physician practices and
therapists in independent practice. Beneficiaries who received services
from more than one type of facility-based provider, or from a
facilitybased provider and a nonfacility-based provider (such as a
physician's office), were excluded from our analysis. In addition, we
limited the analysis to beneficiaries whose annual therapy payments were
$100 or more.

3We based our diagnosis categories on an approach originally developed by
rehabilitation researchers. See Joan L. Buchanan, J. David Rumpel, and
Helen Hoenig, "Outpatient Institutional Rehabilitation Services 1987-1990:
Who Provides Them and How Do They Compare?" (Santa Monica, CA:
RAND/UCLA/Harvard Center for Health Care Financing Policy Research, 1993).

Appendix I: Objectives, Scope, and Methodology

o  soft tissue/musculoskeletal injuries,  o  ortho-surgical,

o  multiple diagnoses4 and  o  other.

To consider differences in payment by provider type at the substate level,
we compared annual per-patient payments for CORFs and other outpatient
facility providers in each of Florida's 20 metropolitan statistical areas.

Variation in treatment patterns and payments (for the same diagnosis
category) across provider types may suggest that one type of provider
treats a patient population with greater needs for service. To consider
patient differences, we applied CMS's Principal Inpatient Diagnostic Cost
Group (PIP-DCG) model.5 By comparing patients' use of hospital services
and inpatient diagnoses (in the calendar year prior to the year they
received therapy) and demographic information such as age, sex,
disability, and Medicaid enrollment, the PIP-DCG model allowed a
comparison of anticipated patient care needs across provider types. We
used the PIP-DCG score developed for each beneficiary in combination with
the 2002 therapy payment data to conduct an analysis of covariance.

  Evaluation of the Florida Contractor's Efforts to Ensure Appropriate CORF
  Claim Payments

To review strategies used by the Florida claims administration contractor
to ensure proper CORF payments, we interviewed representatives of CMS's
central and regional offices and representatives from the contractor. The
contractor provided us with the results of its 2001 investigation of
Florida CORFs and its subsequent reports on CORF billing patterns. In
addition, we interviewed federal law enforcement agencies involved in
investigations of Florida CORF facilities.

To assess the effectiveness of the contractor's oversight strategies, we
reviewed information developed by the contractor on changes in CORF
billing practices. We also analyzed 2002 claims data for CORF services to
identify any CORFs with disproportionately high Medicare payments. This

4Florida beneficiaries with more than one condition listed as their
primary diagnosis on therapy claims in 2002 were assigned to the multiple
diagnosis category.

5The PIP-DCG model is an algorithm that uses base-year inpatient
diagnoses, along with demographic factors, to predict total health
spending in the following year. CMS has used the PIP-DCG model to
determine relative risk factors and predict health expenditures for
beneficiaries enrolled in its Medicare+Choice program and, as a result,
has risk adjusted payments to participating health plans.

                 Appendix I: Objectives, Scope, and Methodology

analysis included payment data for all claims-for both therapy and
nontherapy services. In contrast to our comparison of per-patient payments
by provider type, in this analysis we included all beneficiaries,
regardless of their total annual therapy payments and duration of Medicare
fee-for-service enrollment.

  Assessment of Data Reliability

We did not independently verify the reliability of CMS's Medicare claims
data. However, we determined that CMS's Medicare claims data were
sufficiently reliable for the purposes of this engagement. CMS operates a
Quality Assurance System designed to ensure the accuracy of its Medicare
NCH and CWF data files. Specifically, the agency has procedures in place
to (1) ensure that files have been transmitted properly and completely,
(2) check the functioning of contractor claims edits, and (3) sample
claims from the files that exhibit unusual or inconsistent coding
practices (indicating that data elements may be unreliable). In addition,
we consulted with CMS's technical staff as necessary to ensure the
accuracy and relevance of the data elements used in our analysis. We also
screened the files and excluded claims that were denied, claims superseded
by an adjustment claim, and claims for services in other years.

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

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

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact Rosamond Katz, (202) 512-7148

Acknowledgments 	In addition to the contact named above, Jennifer Grover,
Rich Lipinski, and Hannah Fein made key contributions to this report.

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