To control rising costs and improper payments, Congress established  therapy caps for all nonhospital providers in the Balanced Budget Act of  1997. In December 2003, the Medicare  Prescription Drug, Improvement, and Modernization Act of 2003 placed  the most recent moratorium on the caps, extending from December 8,  2003, through December 31, 2005. Medicare Claims Data Do Not Always Capture Clinical Diagnoses or Show Consistent Patterns That Would Justify Waiving Therapy Caps

Although Medicare claims data constitute the most comprehensive  available information for Medicare beneficiaries who have received  outpatient therapy, they do not always capture the clinical diagnosis for  which beneficiaries receive therapy. Moreover, current Medicare guidelines for  processing claims permit institutional providers, such as outpatient  rehabilitation facilities and skilled nursing facilities, to submit services  from all three therapy types on the same claim form, with one principal  diagnosis for the claim; a claim seeking payment for occupational therapy  and for speech-language pathology might therefore be filed under “other  physical therapy.”
Analysis of 2002 claims data does not show any particular conditions or  diseases that are more likely than others to be associated with payments  exceeding the therapy caps for physical therapy and speech-language  pathology combined or for occupational therapy. Available Research Does Not Define Amount or Mix of Outpatient Therapy Needed for Medicare Beneficiaries with Specific Diseases or Conditions

Available research on the efficacy of outpatient therapy for people aged 65  and older with specific conditions and diseases also appears insufficient to  justify a waiver of particular conditions or diseases from the therapy caps. Further, because of the complexity of patient factors involved, these  studies cannot be generalized to all patients with similar diseases or  conditions. Provider groups we spoke with were concerned that a sizable number of  beneficiaries with legitimate medical needs whose payments would  exceed the caps could be harmed. HHS Has Made Little Progress toward a Payment System Based on Patients’ Needs

Statutory mandates since 1997 have required HHS to take certain actions  toward developing a payment system for outpatient therapy that considers  patients’ individual needs for care, but the agency has made little progress  toward such a system. In particular, HHS has not determined how to  standardize and collect information on the health and functioning of  patients receiving outpatient therapy services—a key part of developing a  system based on patients’ actual needs for therapy. Circumstances That Led to Therapy Caps Remain

Recent assessments of Medicare claims data have shown that the  circumstances that initially led to therapy caps—rising Medicare payments  for outpatient therapy and a high rate of improper payments—remain. HHS does not,  however, currently have the authority to implement a process, or to  conduct a demonstration or pilot project, to provide exceptions to the  therapy caps. Recommendations for Executive Action

To expedite development of a process for assessing patients’ needs for  outpatient therapy services and to limit improper payments, we  recommend that the Secretary of HHS take the following two actions:    ensure that outpatient therapy services are added to the effort already  under way to develop standard terminology for existing patient  assessment instruments, with a goal of developing a means by which to  collect such information for outpatient therapy, and  implement improvements to CMS’s automated system for identifying  outpatient therapy claims that are likely to be improper.
Why GAO Did This Study

For years, Congress has wrestled with rising Medicare costs and improper payments for outpatient therapy services--physical therapy, occupational therapy, and speech-language pathology. In 1997 Congress established per-person spending limits, or "therapy caps," for nonhospital outpatient therapy but, responding to concerns that some beneficiaries need extensive services, has since placed temporary moratoriums on the caps. The current moratorium is set to expire at the end of 2005. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required GAO to report on whether available information justifies waiving the caps for particular conditions or diseases. As agreed with the committees of jurisdiction, GAO also assessed the status of the Department of Health and Human Services' (HHS) efforts to develop a needs-based payment policy and whether circumstances leading to the caps have changed.

What GAO Found

Data and research available are, for three reasons, insufficient to identify particular conditions or diseases to justify waiving Medicare's outpatient therapy caps. First, Medicare claims data--the most comprehensive data for beneficiaries whose payments would exceed the caps--often do not capture the clinical diagnosis for which therapy is received. Nor do they show particular conditions or diseases as more likely than others to be associated with payments exceeding the caps. Second, even for diagnoses clearly linked to a condition or disease, such as stroke, the length of treatment for patients with the same diagnosis varies widely. Third, because of the complexity of patient factors involved, most studies do not define the amount or mix of therapy services needed for Medicare beneficiaries with specific conditions or diseases. Provider groups remain concerned about adverse effects on beneficiaries needing extensive therapy if the caps are enforced. HHS does not, however, have the authority to provide exceptions to the therapy caps. Despite several related statutory requirements, HHS has made little progress toward developing a payment system for outpatient therapy that considers individual beneficiaries' needs. In particular, HHS has not determined how to standardize and collect information on the health and functioning of patients receiving outpatient therapy services--a key part of developing a system based on individual needs for therapy. The circumstances that led to the therapy caps remain a concern. Medicare payments for outpatient therapy are still rising significantly, and increases in improper payments for outpatient therapy continue. HHS could reduce improper payments and Medicare costs by improving its system of automated processes for rejecting claims likely to be improper.