October 2001

Legislative Watch

By George G. Olsen, JD

The Therapy Caps: Déjà Vu All Over Again
lthough the moratorium on the $1,500 caps on outpatient rehabilitation services does not expire until December 31, 2002, rehabilitation professionals, the federal government, and Congress are already grappling with several critical issues related to the caps including: (1) whether, upon termination of the moratorium, the $1,500 limits should be allowed to go into effect; (2) whether the caps should be modified in some respect or be repealed in their entirety; and (3) whether the caps should be replaced by some other payment methodology for outpatient rehabilitation services.

After careful consideration, the rehabilitation community has concluded that because the therapy caps are harmful to patients and providers alike, they should be completely repealed. To this end, a broad coalition of rehabilitation interests has embarked on a legislative effort to repeal the $1,500 limits. Participants in this joint undertaking include the National Association of Rehabilitation Providers and Agencies (formerly the National Association of Rehabilitation Agencies), the American Physical Therapy Association (APTA), the Private Practice Section of APTA, the American Occupational Therapy Asso- ciation (AOTA), the American Speech-Language Hearing Association (ASHA), the National Association for the Support of Long-Term Care (NASL), and the American Medical Rehabilitation Providers Association (AMRPA).

A Bit of History
The $1,500 caps on outpatient rehabilitation services were created by Congress in the Balanced Budget Act of 1997 and made effective as of January 1, 1999. This law also required outpatient therapy providers to be paid pursuant to the physician fee schedule as of January 1, 1999 and mandated a 10% reduction on Medicare payments off of reasonable costs for such providers in 1998. Subsequently, in late 1999, Congress enacted the Balanced Budget Refinement Act of 1999 that established a moratorium on the caps beginning on January 1, 2000, until the end of 2001. This statute also required the Centers for Medicare and Medicaid Services (CMS; formerly HCFA) to make recommendations to Congress regarding (1) a mechanism to assure the appropriate utilization of outpatient therapy services; and (2) an alternative payment policy based on diagnostic categories, functional status, and prior use of therapy.

The following year, Congress again addressed the therapy caps in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. This law extended the moratorium for another year, through calendar year 2002. The legislation also extended the requirement that the Secretary of Health and Human Services (HHS) conduct focused medical reviews of Part B therapy claims, especially skilled nursing facility (SNF) claims, until the year 2003.

New Repeal Legislation
On September 4, 2001, with the strong encouragement and support of the rehabilitation sector, Senator John Ensign (R-Nev) introduced S 1394, the Medicare Access to Rehabilitation Services Act of 2001. This bill would repeal the $1,500 limits on outpatient rehabilitation services for all providers including independently practicing physical therapists. The bill was referred to the Senate Finance Committee for consideration. Representatives of rehabilitation providers and patients will now pursue grassroots and other advocacy efforts to secure additional cosponsors for the legislation. A companion measure will soon be introduced in the House of Representatives.

While every effort will be made to include the repeal proposal in any Medicare proposal that Congress may take up this year, it is not absolutely necessary that the bill be passed this year. Since the moratorium remains in force and effect throughout calendar year 2002, Congressional action next year would be timely. However, communications beginning now from providers and patients to Congressmen and Senators in support of legislation to repeal the outpatient therapy caps will be critical to the effort's success.

Recent OIG Report
In August 2001, the HHS Office of Inspector General (OIG) released a report entitled "Physical, Occupational, and Speech Therapy for Medicare Nursing Home Patients-Medical Necessity, Cost, and Documentation Under the $1500 Caps." (A copy of this report may be obtained at http://www.hhs.gov/oig/oei/reports/a533.pdf.) The purpose of the study was to analyze "the medical necessity, cost, and medical record documentation of physical, occupational, and speech therapy provided to nursing home patients in calendar year 1999 and billed to Medicare Part B by nursing homes, rehabilitation agencies, or hospital outpatient departments."

The OIG study was predicated on a multistage stratified cluster sample of all Part B physical, occupational, and speech therapy claims for services provided to SNF patients during the period January 1 through June 30, 1999. The claims were extracted from the Medicare Common Working File. This methodology yielded a national random sample of 320 Medicare patients. According to the report, several teams of "certified and/or licensed physical and occupational therapists and speech- language pathologists" conducted on-site review of the medical records of all but two of the patients in the sample. These reviewers employed medical review instruments to evaluate the medical necessity, underutilization, overutilization, and quality of care furnished during the relevant period.

The OIG conducted interviews at a total of 132 facilities-97 skilled nursing facilities, 28 outpatient hospital departments, and seven rehabilitation agencies located in 18 states. Based on its review, the OIG reached several findings.

First, "the $1,500 therapy caps did not prevent Medicare SNF beneficiaries from receiving necessary and appropriate therapy." According to the report, less than 2% of Medicare beneficiaries reached either of the therapy caps. The OIG concluded: "Nationally, 0.5 percent of Medicare Part B patients who began therapy between January and June 1999 reached or exceeded the $1,500 occupational therapy cap within six months, and only 1.7 percent of patients reached or exceeded the shared $1,500 physical and speech therapy cap. The average Medicare allowance for patients who received occupational therapy was $516, and the average Medicare allowance for physical and speech therapy patients was $503."

Second, "in approximately eighty-two percent of therapy episodes, beneficiaries required no additional therapy." With regard to the remaining 18%, the OIG found that approximately 12% of the patients required additional therapy. No conclusion could be reached concerning the remaining 6%.

Third, "patients received therapy beyond the caps because SNFs ignored the caps or were unaware of them." The report stated that nursing facility administrators told the OIG that they "rarely discontinued therapy when patients reached the therapy caps." Instead, when patients reached the cap they were presented with the option of switching to another type of insurance or paying for the rehabilitation services out of their own pockets. In some cases, the SNFs continued to provide rehabilitative care and absorbed the costs. Interviews with facility administrators also revealed that some SNFs were unaware of the therapy limits.

Fourth, despite the caps, 14% of all therapy was not medically necessary. The report determined that "[m]edical reviewers deemed that eighty-eight percent of physical therapy was medically necessary, eighty-six percent of occupational therapy was medically necessary, and sixty-seven percent of speech therapy was medically necessary." The reasons why 14% of therapy services was found to be medically unnecessary included (i) patients were not appropriate candidates for services based on their condition; (ii) treatment goals were met but therapy continued; (iii) therapy objectives were not being achieved and a reevaluation was not conducted; or (iv) skilled therapy was provided instead of routine maintenance that was more appropriate to the patient's condition.

Fifth, "Medicare allowed approximately $28 million for unnecessary therapy in the first six months of 1999." The $28 million was comprised of $15 million for unnecessary physical therapy, $6.4 million for occupational therapy, and $7.5 million for speech therapy services. The report observed that these payments were made while the caps were in place.

Sixth, "patients who reached or exceeded the caps received medically unnecessary services." The report estimated that 80% of the 2% of Medicare beneficiaries who reached either of the caps received some unnecessary therapy. For SNF patients who exceeded the occupational therapy cap, unnecessary therapy ranged between zero and $1,500 while for physical therapy and speech, the range was zero to $1,900.

In terms of fiscal impact on the Medicare program, the OIG reported that Medicare erroneously allowed approximately $48.5 million for Part B therapy for skilled nursing home patients during the first 6 months of 1999. This includes $28.7 million for medically unnecessary therapy, $12.2 million for undocumented therapy units, and $7.6 million for inadequately documented therapy units. These three categories represent an overall error rate of 24.7% of the total allowed amount of approximately $196.5 million for Part B therapy during the first 6 months of 1999.

In light of these findings, the OIG recommended that CMS should:

(1) encourage fiscal intermediaries to continue educating nursing homes on Part B billing and Medicare requirements for record documentation and retention, with an emphasis on proper documentation of physician's orders in patient records;
(2) instruct fiscal intermediaries to conduct focused medical reviews in order to identify and collect Part B therapy overpayments;
(3) continue working collaboratively with the national therapy associations to assure that they provide accurate and comprehensive information to their members on proper documentation of therapy in medical records; and
(4) consider options when developing a new reimbursement system for Part B therapy, such as (1) reimbursement based on an episode of therapy and (2) prior authorization for therapy that exceeds a separate monetary cap for each type of therapy.

CMS agreed to consider the OIG's recommendations.

As the OIG report illustrates, passing legislation to repeal the caps will be challenging. For this reason, it is critical that rehabilitation providers and patients contact their members of Congress and encourage them to support full repeal of the therapy caps.

George G. Olsen, JD, is a partner of the firm Williams & Jensen, PC, Washington, DC. He is also legal counsel for the National Association of Rehabilitation Providers and Agencies.

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