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March 2003

By Cherilyn G. Murer, JD, CRA

When Congress adjourned on November 22, 2002, it seemingly left many providers and their Medicare beneficiaries out to lunch. With Congress’ adjournment, the $1,500 annual cap on physical, speech, and occupational therapy, which had been suspended through the end of 2002, went into effect on January 1, 2003. As we shall see, the suspension of the cap is, for the time being, a victim of politics that have nothing to do with the cap itself.

The therapy cap, which applies to all outpatient therapy venues, with the significant exception of hospital outpatient departments, is a combined $1,500 cap for physical and speech therapy. A separate $1,500 cap applies to occupational therapy. The cap, which is intended to apply annually per beneficiary, is based on total services paid, not just the portion that Medicare pays. Thus, under the cap, Medicare will pay $1,200 per beneficiary per year (80%) and the beneficiary will pay $300 per year (the 20% co-payment).

HISTORY OF THE CAP

Concerned by perceived differences in therapy billing between hospital outpatient departments and other venues, Congress imposed the $1,500 therapy cap on all freestanding therapy providers in the Balanced Budget Act of 1997. Implementation problems with the cap became apparent as soon as it went into effect on January 1, 1999.

Unable to fully track payments on a per-beneficiary basis across the full spectrum of therapy providers, CMS imposed transitional rules requiring all providers, other than physical therapists in private practice, to track the cap within their facilities. Thus, the cap, which was intended as a per-beneficiary cap, became, in effect, a per-facility cap.

Due to these inequities, and the basic inequity of the cap itself, Congress passed a 2-year moratorium on enforcement of the cap beginning January 1, 2000, and later passed a 1-year extension, suspending it through December 31, 2002.

The 107th Congress saw several efforts to keep the cap from going into effect after 2002, including bills introduced in both the House and the Senate that would have permanently repealed the cap. These bills, however, were tabled in favor of a compromise provision that was added to the “Medicare Prescription Drug Bill,” the Medicare Modernization and Prescription Drug Act of 2002, which would have extended the suspension of the cap an additional 2 years through December 31, 2004.

The therapy cap was not the controversial portion of the Medicare Prescription Drug Bill. It was partisan wrangling over the extent of the prescription drug benefit that doomed the bill in the Senate. Unfortunately, the Senate did not decide to kill the Medicare Prescription Drug Bill until just before Labor Day, and with the mid-term elections giving control of the House and Senate to the Republicans, neither Congress nor the White

House was willing to engage seriously discuss a new Medicare bill before the 108th Congress was seated. Politics ensured the therapy cap would take effect on January 1, 2003, but whether the cap will ever be enforced is a decidedly different question. CMS has yet to issue any program memoranda for compliance with the cap, and given its difficulties with enforcement of the cap in 1999, it would not be surprising if CMS waits as long as possible to see whether Congress will eliminate the need for regulatory enforcement.

Congressional rescue should not be long in coming. Funding of federal agencies ran out on January 11, 2003, so Congress will be forced to convene early in the new term. Congressional support for some type of cap relief, in the form of continued suspension, if not outright repeal, is strong, and rehabilitation industry representatives will be lobbying hard for early action as soon as possible.

Thus, early cap relief is a strong possibility. It is not, however, a certainty. It is always possible that cap relief will again fall victim to the same type of partisan politics that doomed the Medicare Prescription Drug Bill. Therefore, therapy service providers need to be prepared to comply with the law as written. In that regard, providers may wish to consider two therapy service venues that offer shelter from the cap’s effect on their reimbursement: provider-based facilities and comprehensive outpatient rehabilitation facilities (CORFs).

IS PROVIDER-BASED A SOLUTION?

Under CMS regulations, a “provider-based entity” is a facility or organization owned and operated by a main provider (usually a hospital) to provide health care services of a different type than are offered by the main provider itself. Physician practices, cancer centers, minor care centers, rural health clinics, and outpatient diagnostic centers are a few examples of the types of facilities for which CMS has granted provider-based status. The regulations state that CMS will not make provider-based determinations for facilities where such status will not affect either the facility’s reimbursement or the beneficiary’s co-payment liability. As long as the cap was suspended, a facility’s payment for outpatient physical, speech, or occupational therapy was unaffected by whether or not the facility was hospital-owned, and CMS would not make provider-based determinations for facilities offering only those therapies. With the cap coming into effect, however, provider-based status can make a big difference in reimbursement, because hospital outpatient departments are exempt from the cap limits.

Being wholly acquired by a hospital, however, is not a realistic option for the vast majority of rehabilitation practices, and except in rare cases, 100% ownership by the hospital is a requirement for provider-based status. Moreover, provider-based facilities are subject to a number of CMS requirements that do not apply to freestanding facilities, including ensuring that the appropriate reporting relationships exist between the outpatient department staff and the main hospital’s administration, that the medical director of the outpatient department maintains the appropriate reporting relationship with the chief medical officer of the main hospital, that the outpatient department can be identified in the main hospital’s Medicare cost report, that the patient records of the outpatient department and the main hospital are fully integrated, and that, in its advertising, billing, and correspondence, the outpatient department is held out to the public as part of the main hospital and not as a separate entity.

THE CORF ADVANTAGE

CORFs are not subject to the restrictions placed on provider-based facilities regardless of whether the CORF is freestanding or wholly or partially owned by a hospital. In fact, because all CORFs are reimbursed by Medicare under the same fee schedule regardless of ownership, they are specifically excluded from provider-based status. Although a CORF is not exempt from the therapy cap, it is unique among all therapy providers in its ability to ameliorate the effects of the cap without compromising the quality of patient care.

Unlike other therapy practice venues, a CORF has the ability to bill Medicare directly for nursing, psychology, durable medical equipment, drugs and biologicals, immunizations, and respiratory therapy in addition to social services, physical therapy, occupational therapy, and speech therapy. In terms of the cap, this broad range of reimbursable services allows the CORF to draw from a patient population that is not completely dependent on physical or occupational therapy. Moreover, even for patients who do require such therapy, the CORF’s ability to diversify services allows its clinical staff to design a rehabilitation program for the patient that maximizes a favorable outcome without putting unnecessary pressure on physical and occupational therapy components of the plan. In other words, of all free-standing therapy venues, the CORF is in the best position to weather the effects of the therapy cap without a commensurate reduction in the quality of services afforded to patients. In this regard, it should be noted that CORFs enjoy a key medical management advantage over other venues such as rehabilitation agencies. CMS regulations applied to rehabilitation agencies require physicians to review the patient’s plan of care at least every 30 days, whereas a CORF requires a physician to review the plan of care every 60 days. This ability to plan a longer range, more complex rehabilitation program enhances the CORF’s ability to shift some of the reimbursement burden away from physical and occupational therapy without compromising the quality of care offered to Medicare beneficiaries.

The most likely outcome is that Congress will take action to reimpose the suspension of, if not outright eliminate, the cap. In the event that relief is not forthcoming, for the majority of rehabilitation providers for whom provider-based status is not a viable option, the CORF format, with its diversification of services, is the best way to maximize patient care while minimizing the damaging financial impact of these draconian limits.

Cherilyn G. Murer, JD, CRA, is CEO and founder of the Murer Group, a legal-based health care management consulting firm in Joliet, Ill, specializing in strategic analysis and business development. She may be reached at (815) 727-3355 or via the Web: www.murer.com

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March 2003