Medicare: Early Resolution of Overcharges for Therapy in Nursing Homes is
Unlikely (Letter Report, 08/16/96, GAO/HEHS-96-145).
Pursuant to a congressional request, GAO reviewed the Health Care
Financing Administration's (HCFA) progress in curbing overbilling for
occupational speech and physical therapy services.
GAO found that: (1) therapy charges billed to Medicare by skilled
nursing facilities (SNF) and rehabilitation agencies have more than
doubled since 1990; (2) some providers are exploiting weaknesses in
Medicare's payment system, since HCFA places no absolute dollar limit on
Medicare reimbursements for occupational and speech therapy; (3) HCFA is
unable to determine whether a claim is reasonable prior to payment,
since SNF are not required to specify how much therapy time they are
billing for specific services; (4) HCFA has taken a number of interim
actions to curb inappropriate charges, such as implementing salary
equivalency guidelines for those SNF providing occupational and speech
therapy services; and (5) HCFA officials have emphasized the importance
of more systematic legislative approaches, such as unified billing, to
solve the problem of therapy overcharges.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-96-145
TITLE: Medicare: Early Resolution of Overcharges for Therapy in
Nursing Homes is Unlikely
DATE: 08/16/96
SUBJECT: Health care programs
Health insurance cost control
Overpayments
Billing procedures
Therapy
Nursing homes
Medical services rates
Health care services
Medical expense claims
IDENTIFIER: Medicare Program
HCFA Common Procedure Coding System
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Committee on Commerce, House
of Representatives
August 1996
MEDICARE - EARLY RESOLUTION OF
OVERCHARGES FOR THERAPY IN NURSING
HOMES IS UNLIKELY
GAO/HEHS-96-145
Salary Guidelines for Therapy Services
(108282)
Abbreviations
=============================================================== ABBREV
BLS - Bureau of Labor Statistics
HCFA - Health Care Financing Administration
HHS - Department of Health and Human Services
OPT - outpatient rehabilitation therapy company
SNF - skilled nursing facility
Letter
=============================================================== LETTER
B-272062
August 16, 1996
The Honorable John D. Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives
Dear Mr. Dingell:
Medicare is the nation's largest single payer for health care. In
1995, it spent an estimated $177 billion, or 12 percent of the
federal budget. On average, Medicare spending has grown by over 10
percent a year since 1990. The costs of some services, however, have
risen at a much faster rate. These services include occupational,
speech, and physical therapy provided by hospitals, skilled nursing
facilities (SNF), rehabilitation agencies, and home health agencies.
Therapy charges billed to Medicare by such institutional providers
have more than doubled, rising from $4.8 billion in 1990 to $10.4
billion in 1993, the latest year for which these data are available.
In March 1995, we reported that some providers were exploiting
weaknesses in Medicare's payment system for therapy services
delivered to nursing home patients.\1 Two weaknesses that we
identified were especially notable. First, the Health Care Financing
Administration (HCFA), Medicare's administrator, places no absolute
dollar limits on Medicare reimbursements for occupational and speech
therapy. Second, charges for therapy services are not linked through
billing codes to the amount of time spent with the patient or to the
specific treatment provided; it is not readily determinable whether a
charge is for 15, 30, or 45 minutes of treatment. These weaknesses
make it difficult for HCFA to control the amount Medicare pays for
occupational or speech therapy.
Our report recommended that to avoid paying more than a prudent
purchaser would, HCFA should (1) develop salary guidelines that set
explicit limits on the amount Medicare will pay for occupational and
speech therapists' services and (2) require that bills for these
services specify time spent with patients. HCFA generally agreed
with our recommendations and estimated in December 1995 that
implementing salary guidelines for occupational and speech
therapists--combined with adjusting existing salary guidelines for
physical and respiratory therapists--could save $1.4 billion over 7
years.
Because implementing these guidelines could prevent making further
excessive payments from an already stressed Medicare budget, you
asked us to follow up on our earlier work to (1) determine HCFA's
progress in curbing overbilling and (2) assess the prospects of early
resolution to the overbilling problem.
To respond to your request, we performed additional analyses of data
we collected during our study reported in March 1995. To be more
current, we also reviewed 618 charges for services provided to 238
patients in SNFs with more than 100 beds. The charges were submitted
by seven providers to one claims-processing contractor and were paid
in January 1996. In addition, we examined selected contracts between
SNFs and rehabilitation companies. To determine the steps that have
been taken to prevent overbilling from occurring and HCFA's ability
to quickly resolve the problem of overbilling, we interviewed HCFA
officials and reviewed documents. We also reviewed an industry study
of therapists' salaries and interviewed industry representatives
about their views on HCFA's initiatives to curb overbilling. Our
work was done between December 1995 and July 1996 in accordance with
generally accepted government auditing standards.
--------------------
\1 Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy
in Nursing Homes (GAO/HEHS-95-23, Mar. 30, 1995).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Our recent work continues to show that SNFs and therapy companies are
billing Medicare very high charges for occupational and speech
therapy. In addition, the billing units on which these charges are
based are not defined--either within the industry or on the claims
submitted.
We also found that the weaknesses we reported over a year ago--the
lack of salary guidelines to set limits on Medicare reimbursements
for occupational and speech therapists' services and unclear billing
units for these services--still exist. Although HCFA recognized as
early as 1990 that Medicare was being inappropriately charged for
occupational and speech therapy, it is still working to establish
salary equivalency guidelines for these services. Between 1993 and
1995, HCFA proposed guidelines based on a Bureau of Labor Statistics
(BLS) survey of average salaries of hospital therapists, but the
industry was not satisfied and conducted its own survey. HCFA
received the survey results in April 1996 and is analyzing them.
The prospect for a quick resolution to the billing problem with
therapy services is unlikely. Historically, it has taken HCFA years
to reduce high payment rates for supplies or services. Given the
usual time involved in meeting federal notification and publication
requirements for changing Medicare prices, salary equivalency
guidelines may not be implemented until at least summer 1997.
Reporting last September on this issue,\2 we asked the Congress to
consider granting HCFA legislative relief from these requirements.
Our recent work reinforces the need for legislative relief that would
allow HCFA to promptly set maximum limits on the basis of market
surveys and other methods of assessing the reasonableness of rates
or--if the existing formal notification and rulemaking process is
preserved--to make interim adjustments while the process takes place.
--------------------
\2 Medicare Spending: Modern Management Strategies Needed to Curb
Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995).
BACKGROUND
------------------------------------------------------------ Letter :2
In 1990, legislation took effect that required SNFs and other nursing
facilities\3 to assess and provide for their residents' needs for
therapy services.\4 Subsequently, the number of rehabilitation
agencies providing physical, occupational, and speech therapy
increased dramatically--as did Medicare spending on therapy services
delivered in nursing homes.\5
Most nursing home residents receive their therapy services from
outpatient rehabilitation therapy companies (OPT) that send their
employees to the nursing home. Once approved to participate in
Medicare, either a SNF or an OPT can bill Medicare. Both are
regarded by Medicare as institutional providers and, as billing
providers, are reimbursed on a cost basis. SNFs and OPTs must file
annual reports detailing the actual costs of services that were
delivered to Medicare beneficiaries and billed to the program
throughout the preceding year.\6 HCFA claims-processing contractors
reconcile these actual reported costs with the interim payments made
to providers throughout the year, either by making additional
payments to providers or by collecting overpayments from them. In
the reconciliation process, the contractor determines whether the
claimed costs are "reasonable."
Medicare has a number of principles to ensure that only reasonable
costs are used in determining its final payment, such as a prudent
purchaser principle. Under this principle, Medicare compares claimed
costs with the "going rate" for the item or service. For example, if
a SNF contracts with an OPT at $500 for 1 hour of therapy services
and the going rate is $100 per hour, only $100 would be approved for
inclusion in the cost report during the year-end settlement; the $400
would be disallowed.
Two problems occur in applying the prudent purchaser and other
principles. First, to ensure that these rules are followed,
Medicare's claims-processing contractors must audit cost reports.
But because auditing is resource intensive and funds for auditing are
limited, therapy costs are rarely audited. Second, establishing a
"going rate" may involve conducting a survey of current practice and
pricing among comparable providers in the same geographic area, which
may also be resource intensive. For these reasons, if the SNF in the
example above included the full $500 per hour contract cost in its
cost report, there is little assurance that this amount would be
adjusted downward.
Under certain billing conditions, salary guidelines have helped
Medicare limit the amount it will pay for certain services. For
example, reimbursements for OPT-provided physical therapy services
that are billed by SNFs and subject to salary equivalency
guidelines\7 (and, hence, are referred to as capped) increased 646
percent between 1989 and 1995. Speech therapy and occupational
therapy reimbursements, for which similar guidelines have not been
imposed (referred to as uncapped), have grown at about two and three
times this rate, respectively, as shown in figure 1.
Figure 1: Comparative Growth
Rates in Charges for Capped and
Uncapped Therapies Billed by
SNFs
(See figure in printed
edition.)
Source: GAO analysis of national claims data provided by HCFA.
The absence of information on the amount of time spent providing a
service also makes it difficult to determine whether a claim is
reasonable prior to payment. Under current HCFA regulations, OPTs
and SNFs are not required to specify on their claims how much therapy
time they are billing for or what specific service was provided.
Instead, OPTs can choose one of at least six methods to bill
Medicare. Although each of these methods requires costs to be
associated with a "unit," claims generally do not specify what the
unit denotes. In these cases, the Medicare claims-processing
contractor does not know the amount of time involved in delivering
the therapy services or what the services included, making it all the
more difficult to detect inflated charges and identify unreasonable
costs.
--------------------
\3 SNFs are nursing homes that maintain a full-time staff of medical
professionals who provide daily care for patients with complex
medical or rehabilitative needs. Other nursing homes do not offer
this level of care, do not choose to participate in Medicare, or have
patients who do not require this level of care. In this report, the
term "nursing facilities" includes both categories.
\4 Omnibus Budget Reconciliation Act of 1987, 42 U.S.C. 1395i-3(b),
42 U.S.C. 1396r(b).
\5 Medicare's basic nursing home benefit covers a portion of
posthospitalization costs for up to 100 days in a SNF. Patients in
SNFs and nursing homes who have exhausted their coverage or who do
not qualify for the SNF-level of care can still receive therapy
services that are paid for by Medicare.
\6 If a SNF submits a bill for OPT-provided services (in lieu of the
OPT billing Medicare directly), the amount the SNF paid the OPT
becomes part of the SNF's therapy costs along with therapy-related
costs for services and supplies and general and administrative
expenses.
\7 These guidelines were established in 1975. In 1983, salary rates
were recalculated and have since been adjusted annually by an
inflation factor. The American Physical Therapy Association,
however, claims that the current physical therapy rates are well
below market and that occupational therapy and speech therapy charges
are higher than would be expected to compensate for the low physical
therapy rates.
LIMITED PROGRESS MADE TO
CONTROL OVERBILLING FOR
OCCUPATIONAL AND SPEECH THERAPY
SERVICES
------------------------------------------------------------ Letter :3
SNFs and OPTs are continuing to charge excessively high rates for
therapy services, particularly occupational and speech therapy, when
services are provided under arrangement.\8 Charges for claims paid
during January 1996 by one contractor showed extreme variations
similar to those found in our March 1995 study. Because salary
guidelines and units of service have not been established, Medicare
has no easy way to determine whether any of these charges were
excessive or whether they resulted in excessive payments, but that is
most likely the case.
--------------------
\8 "Under arrangement" refers to a contractual relationship whereby
the OPT bills the SNF for services it provides and the SNF in turn
bills Medicare. The OPT's charges become the SNF's costs.
HCFA ATTEMPTS TO IMPLEMENT
SALARY GUIDELINES HAVE NOT
YET BEEN SUCCESSFUL
---------------------------------------------------------- Letter :3.1
Since 1990, HCFA has taken a number of interim and long-term actions
to curb inappropriate charges for SNF therapy services. HCFA has
focused its efforts on implementing salary equivalency guidelines for
those providing occupational and speech therapy services under
arrangement.
Between 1990 and 1992, HCFA received numerous complaints about
inappropriate charges for therapy services. In 1993, it established
a task force to address the problem. As a result of this task force,
HCFA sent a series of memorandums in 1993 and 1994 to its
claims-processing contractors, advising them of the nature of
existing problems--such as inflated therapy service charges--and
providing guidance on how to focus review activities.\9 HCFA outlined
a number of steps that contractors could take to ensure that services
were medically necessary and to help determine whether costs were
reasonable and allowable. For example, HCFA suggested that
contractors audit any provider with therapy costs exceeding $95 per
hour. However, this measure was probably ineffective: "Per hour"
rates cannot be determined without intensive auditing because units
of service are not defined in units of time. Moreover, some
providers that had been billing significantly less than $95 per hour
reacted by simply raising their charges close to that level.
In 1995, HCFA developed draft salary guidelines for those providing
occupational and speech therapy, and revised guidelines for other
therapies, reviewing for this purpose 22 separate data sources. The
recommended levels were based on the 75th percentile of hospital
salaries for therapists (as surveyed by BLS) plus a 5-percent
differential to adjust for likely differences between hospital and
SNF salaries.\10 In August 1995, a clearance package containing a
notice of proposed rulemaking was sent to the Secretary of the
Department of Health and Human Services (HHS). Forwarding this
package was a significant step, given the complex and lengthy process
that HCFA must go through to lower payment rates.
At this point, however, officials of the rehabilitation industry
complained that the HCFA guidelines were inappropriate and out of
date because they were based on 1991 hospital salaries for
therapists. Industry representatives offered to commission their own
survey of SNFs that employ therapists. HCFA agreed and put
implementation of salary guidelines on hold pending completion of the
survey. HCFA officials told us that, in their judgment, this would
increase the prospects for developing fair and effective guidelines
and reduce the chance of a time-consuming and expensive legal
challenge.
HCFA reviewed the design for this survey, which ultimately
encompassed both hospitals and SNFs. The raw survey data and an
industry analysis were delivered to HCFA in April 1996. However, the
survey response rate was low (10 percent for hospitals and 30 percent
for SNFs), which raises questions about how representative the data
are.\11
HCFA is conducting its own analysis of the results to determine if
they are meaningful. According to HCFA, a proposed regulation should
be published shortly after its analysis is complete. The final
regulation is then likely to be issued sometime in 1997.
--------------------
\9 In April 1994, HCFA also took the unusual step of arranging with
the Journal of the American Medical Association to publish an appeal
from the HCFA Administrator for physicians to resist pressure to
authorize excessive therapy services.
\10 The Clinton administration's legislative proposal subsequently
recommended a 10-percent differential.
\11 Official government surveys generate a much higher response rate.
The BLS White Collar Pay Survey (one component of which was the
hospital salary data survey on which the draft guidelines were based)
had an overall response rate of 82 percent. Typically, BLS response
rates exceed 80 percent.
HCFA HAS NOT DEFINED UNITS
OF SERVICE
---------------------------------------------------------- Letter :3.2
Claims for therapy services are required to specify the number of
service units provided; claims-processing contractors' databases
store this information in terms of "units" or "services." These
units, however, are not defined. In our March 1995 report, we
recommended that HCFA define units on the basis of time, such as
15-minute intervals. In commenting on that report, HCFA said it did
not agree with using time as the basis and believed it would be
better to have therapy units defined by the procedures actually
performed. HCFA has not yet defined billable therapy units for SNFs
in terms of either the exact procedure furnished or the amount of
time actually spent with the patient.\12 Therefore, Medicare does not
know how much service it is buying at the time it pays the claim.
Neither HCFA nor the industry observe any standard usage for "unit"
or "service," as illustrated by the wide variation in "per unit"
charges. While some interpret "unit" as 15 minutes, there is no
consensus.\13 We analyzed data from five HCFA claims-processing
contractors\14 for 1988 through 1993 and found extreme variations in
"per unit" charges. For each therapy type, per unit charges for the
highest quartile of providers were more than double those of the
lowest quartile, and differences among individual providers were even
more extreme. Results were similar for our more recent data set.
For this follow-on, we also reviewed a range of hourly rates
identified in contracts between OPTs and SNFs under the jurisdiction
of one HCFA contractor. In those contracts that specified hourly
rates for occupational therapy, the rates varied considerably, from
$54 to $210 per hour.
--------------------
\12 The Clinton administration's current Medicare legislative
proposals include a provision to require use of HCFA's Common
Procedure Coding System to identify more precisely what services were
performed.
\13 This uncertainty does not apply in all circumstances. The 1996
Medicare resource-based relative value fee schedule has several codes
for at-home training done by occupational and physical therapists.
These codes have values of about $18 for each 15-minute period.
\14 These claims data were provided by five Aetna Life Insurance
Company field offices (California, Connecticut, Florida, Illinois,
and Pennsylvania).
PROSPECTS POOR FOR RAPID
RESOLUTION OF THE PROBLEM
------------------------------------------------------------ Letter :4
As we reported in 1995, Medicare has paid substantially more than
market rates for some services, which not only increases Medicare
costs but also can encourage providers to supply excessive services.
We also reported that HCFA has generally been slow in addressing
overpricing problems. Delay in drafting and implementing regulatory
changes such as price corrections and salary guidelines is inherent
in the rulemaking process established by the Administrative
Procedures Act\15 as well as in the complexities of intra- and
interagency coordination (see fig. 2).
Figure 2: HCFA's Regulatory
Process
(See figure in printed
edition.)
For it to fully satisfy formal rulemaking requirements, HCFA has
projected that it could take 7 years or longer from the time it
learned of the problem, and almost 3 years from the time it started
assembling salary data, to establish salary equivalency guidelines
for professionals providing therapy services. HCFA, therefore, has
drafted proposed legislative language under which salary equivalency
guidelines for occupational and speech therapists would be
established directly by statute, negating the need for formal
rulemaking. The proposal was included in the December 1995 summary
of the President's Medicare proposal.
In our September 1995 report, we suggested a similar approach to the
effect that the Congress consider allowing the Secretary of HHS to
set maximum prices on the basis of market surveys or, if the formal
rulemaking process is preserved, allowing the Secretary to make an
interim adjustment in fees while the studies and rulemaking take
place.
HCFA officials consider the establishment of salary guidelines the
most urgent step in solving the problem of inappropriate therapy
charges. They do not believe it is absolutely necessary to achieve a
standard definition of a therapy unit, such as a 15-minute interval,
especially since this process would take another 2 or 3 years. Their
reasoning is that salary guidelines would provide the necessary link
(through the cost report settlement process) between hours of therapy
time and costs claimed. Auditors could then confirm that Medicare
payments did not exceed salary limits.
However, as discussed earlier, such an approach is vulnerable to
abuse because few cost reports are audited in sufficient detail to
permit such judgments to be made and any audit may be delayed a year
or more even when one is performed. Moreover, as long as units are
not defined on a time basis as we suggested or on the basis of the
exact procedures performed as HCFA believes would be better,
Medicare's claims reviewers--even after salary guidelines are
implemented--will not be sure of the amount of services being
provided. This in turn makes it more difficult to assess the medical
necessity for therapy services.
For a long-term solution to the problem of therapy overcharges, HCFA
officials emphasized the importance of more systematic legislative
approaches, such as requiring unified billing. We presented this
option in a report released earlier this year:\16 Unified (or
consolidated) billing would require nursing facilities to bill
Medicare for all services they are authorized to furnish to patients.
OPTs rendering these services would be prohibited from directly
billing Medicare; financial liability and medical responsibility
would reside with the nursing facility. This would make it easier
for Medicare to identify all the services furnished to residents,
which in turn would facilitate controlling payments for these
services.
--------------------
\15 5 U.S.C. 551.
\16 Fraud and Abuse: Providers Target Medicare Patients in Nursing
Facilities (GAO/HEHS-96-18, Jan. 24, 1996).
CONCLUSION
------------------------------------------------------------ Letter :5
Despite HCFA's efforts to deal with the problem, SNFs and OPTs
continue to bill Medicare high charges for occupational and speech
therapy. To correct this problem without expending large amounts of
administrative resources, HCFA needs to implement salary equivalency
guidelines for occupational and speech therapists as soon as
possible. Given HCFA's experience with payments for physical
therapy, such guidelines should help moderate payment growth rates.
Legislation to limit reimbursement, as we suggested last September,
is the most practical way to enable Medicare to avoid continuing
excessive payments for overpriced services.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :6
In a letter dated June 19, 1996, HCFA generally agreed with our
concerns about inappropriate billing and delivery of therapy
services. It also agreed with the first recommendation in our March
1995 report that HCFA should develop salary guidelines to establish
explicit cost limits on occupational and speech therapy services,
though not necessarily with our assessment of the current status of
these guidelines. HCFA officials did not entirely agree with our
second recommendation, that bills for these services specify the time
spent with patients.
In its comments on a draft of this report, HCFA claimed that "the
emphasis on excessive charges obscures the fact that Medicare is not
actually paying the reported charges," and asked that our report
"specifically state that GAO has not identified any specific
instances in which excessive charges are actually paid." As discussed
on pages 3 and 4 of this report, the amount Medicare actually pays is
not known until long after the service is rendered and the claim
processed. Although aggregate payments are eventually determinable,
existing databases do not provide actual payment data for any
individual claim--hence, our focus on charges. In any case, we found
HCFA's own estimate of a potential $1.4 billion in savings over 7
years as a result of implementing salary guidelines (and revising
those already in place) to be persuasive evidence that excessive
payments are being made.
With regard to the uniform definition of time units, we concur with
HCFA that "Ideally, we would prefer reporting that would identify the
exact procedure furnished, not just on the basis of time units."
Either way of defining the unit of service for therapy would be
better than leaving the unit undefined. More specific claims would
make it easier to determine whether charges are appropriate for the
actual services provided and whether the patients needed those
services.
We also concur with HCFA on the importance of systematic approaches,
such as unified billing, to resolving concerns over payment for
therapy services. As we stated in correspondence last September,\17
unified billing would make it easier for Medicare to identify all the
services furnished to a facility's residents, which in turn would
make it easier to control payments for those services.
Other HCFA comments were incorporated in the report where
appropriate. See the appendix for a copy of HCFA's comments.
--------------------
\17 Preventing Abusive Medicare Billing (GAO/HEHS-95-260R, Sept. 5,
1995).
---------------------------------------------------------- Letter :6.1
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter. At that time, we will send copies to
the Secretary of HHS, the Administrator of HCFA, interested
congressional committees, and other interested parties. We will also
make copies available to others on request.
Please call Barry Tice, Assistant Director, at (202) 512-7119 if you
or your staff have any questions about this report. Other major
contributors include Audrey Clayton, Andrea Kamargo, Steve Machlin,
and Karen Sloan.
Sincerely yours,
Edwin P. Stropko
Associate Director, Health
Financing and Public Health Issues
(See figure in printed edition.)Appendix
COMMENTS FROM THE HEALTH CARE
FINANCING ADMINISTRATION
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
*** End of document. ***