CMS Proposes Payment, Policy Changes for Inpatient Rehabilitation Facilities in Fiscal Year 2007

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would update payment rates for services by inpatient rehabilitation facilities (IRFs) and modify payment policies for fiscal year (FY) 2007.  The proposed policies, if finalized, are estimated to increase Medicare payments to approximately 1,240 IRFs in FY 2007 by $40 million.  The new payments and policies would apply to discharges on or after October 1, 2006, through September 30, 2007.

“The policies we are proposing reflect the Medicare program’s ongoing commitment to ensuring that beneficiaries who need intensive rehabilitation services in an inpatient setting have access to appropriate care,” said Mark B. McClellan, M.D., Ph.D. 

The proposed rule provides for an update to IRF payment rates, based on the rehabilitation, psychiatric, and long-term care (RPL) market basket of 3.4 percent.  The RPL market basket is designed to capture inflation in the costs of goods and services required to provide the specialized services offered by these facilities, similar to the market basket that applies to general acute care hospitals.

This proposed rule also proposes changes that would implement certain provisions in the Deficit Reduction Act of 2005 affecting IRFs.  In addition, the proposed rule describes CMS’ efforts to integrate post acute benefit structures in a way that will provide for more consistent patient classification, as well as facilitate consistent payment for services furnished to beneficiaries regardless of the setting in which the post acute care is provided.

The IRF Prospective Payment System (PPS) was first implemented on January 1, 2002 beginning with IRFs’ cost reporting periods on or after that date.  The objective of the IRF PPS is to increase the accuracy of the payments made to the facilities for the resources they use to furnish care to Medicare beneficiaries, and to enhance the efficient delivery of quality care.  Since first implementing this prospective payment system, CMS has increased the payment rates each federal fiscal year.

The number of IRFs has increased since the implementation of the IRF PPS but recently the total number has been holding relatively steady.  However, there are significant state and regional differences in the distribution of IRFs.  The ratio of IRFs to the Medicare population is significantly higher in the West South Central states of Texas, Oklahoma, Louisiana, and Arkansas - as well as in Kansas, Indiana, and Alaska - than in the rest of the country. 

The proposed rule would amend existing regulations regarding the three-year phase-in of a 75 percent compliance threshold – a requirement that when fully phased-in requires at least 75 percent of an IRF’s patient population have one of the 13 designated medical conditions, as well as need intensive inpatient rehabilitation services.  As provided in the Deficit Reduction Act, the proposed rule delays the imposition of the full 75 percent threshold by one year.  Thus, for providers with cost reporting periods that start on or after July 1, 2006 and before July 1, 2007, the compliance threshold will be 60 percent.  For providers with cost reporting periods starting on or after July 1, 2007 and before July 1, 2008, the compliance threshold will be 65 percent, while the 75 percent threshold will be imposed for providers with cost reporting periods beginning on or after July 1, 2008.  In addition, comorbidities that meet the criteria as specified in the regulations may continue to be used to determine the compliance percentage for cost reporting periods that begin before July 1, 2008.

The proposed rule would increase the outlier threshold for high cost outlier cases from $5,129 to $5,609.  At this level, CMS projects that estimated outlier payments would equal 3 percent of total estimated payments under the IRF PPS.  In addition, the proposed rule would apply a 2.9 percent reduction in the standard payment amount for FY 2007, to offset the effect of changes in coding that do not reflect real changes in patient acuity. 

The proposed IRF PPS rule appeared in the May 15, 2006 Federal Register.  Comments will be accepted until July 7, 2006, and a final rule will be published later this year, to be effective for IRF discharges occurring on or after October 1, 2006 through September 30, 2007.

Note:  For more information, see the CMS web site at:
www.cms.hhs.gov/InpatientRehabFacPPS/

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House Members Request Legislation to Extend Therapy Cap Exception Process

Over a third of the House asked committee leaders in charge of Medicare to extend the exceptions process for beneficiaries who exceed caps for Medicare-paid outpatient therapy.

"While problems have arisen during the launch of the exceptions process, we believe that if those problems are rectified, this process remains a viable option for ensuring access to necessary services in a fiscally responsible manner," according to a letter sent by 177 members.

The group asked the leaders to consider legislation for passage in 2006 that would address the caps. The letter was sent to Ways and Means Committee Chairman William M. Thomas (R-CA) and Rep. Charles Rangel (D-NY), the ranking member; and Energy and Commerce Committee Chairman Joe Barton (R-TX) and Rep. John Dingell (D-MI), the ranking member.

The two outpatient caps--one for physical therapy and speech-language pathology, and the other for occupational therapy--had been in law since enactment of the Balanced Budget Act of 1997, but had been mostly stopped by moratoria.

The Deficit Reduction Act, signed by President Bush in February, allowed the caps to be enacted but permitted beneficiaries to request an exception if their therapy exceeds the caps--$1,740 per beneficiary per year in 2006. If the Centers for Medicare & Medicaid Services does not make a decision within 10 days, the services are to be deemed medically necessary.

Since the DRA authorized the exceptions process just for 2006, "we respectfully request an extension of this exceptions process for a minimum of the 2007 calendar year," the letter said. "This will allow the Centers for Medicare and Medicaid Services (CMS) to continue to monitor the implementation of this policy and assist in the development of a long-term alternative to the therapy cap."

If this does not occur, the caps will be back in place on Jan. 1, 2007, which "will result in restricted access to rehabilitation services and a shift in patients and costs to inpatient settings."

H.R. 916, introduced by Rep. Philip S. English (R-PA), would repeal the caps.

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CMS Inpatient Rehab Facility Proposal Makes Pay Changes, Delays 75 Percent Rule

The Medicare program announced a proposed rule that would make payment and policy changes for inpatient rehabilitation facilities.

Published in the May 15 Federal Register, the proposed rule would increase the payments to inpatient rehabilitation facilities (IRFs) in fiscal year 2007 by approximately $40 million, the Centers for Medicare & Medicaid Services said in a release. Fiscal 2007 starts Oct. 1, 2006.

CMS also said the proposal would amend existing rules on the three-year phase-in of a 75 percent compliance threshold, under which 75 percent of an IRF's patient population must have one of 13 designated medical conditions, in addition to needing intensive rehab services. CMS has noted in the past that IRFs get paid at a higher rate than other hospitals.

As provided in the Deficit Reduction Act, signed into law by the president in February, the proposal would delay imposition of the full 75 percent threshold by one year. This means the compliance threshold will be 60 percent for the providers with cost-reporting periods that start on or after July 1, 2006, and before July 1, 2007, the Medicare agency said. For providers with cost-reporting periods starting on or after July 1, 2007, and before July 1, 2008, the proposal's compliance threshold will be 65 percent. CMS said the 75 percent threshold will be imposed for providers with cost-reporting periods starting on or after July 1, 2008.

The proposal provides for an update to IRF pay rates, based on the rehabilitation, psychiatric, and long-term care marketbasket (inflation index) of 3.4 percent, CMS said.

CMS noted that the IRF prospective payment system was implemented on Jan. 1, 2002, with the objective of increasing accuracy of payments made to facilities for the resources they use to furnish care to Medicare patients. "Since first implementing this prospective payment system, CMS has increased the payment rates each federal fiscal year," the agency said in its release.

CMS noted that the number of IRFs increased since implementation of that pay system, but recently the total number "has been holding relatively steady." CMS said there are significant differences across the country in the distribution of IRFs, with the ratio of such facilities to the Medicare population "significantly higher" in Alaska, Arkansas, Indiana, Kansas, Louisiana, Oklahoma, and Texas, compared to the rest of the nation.

Outliers, History

The Medicare agency said in its statement that the proposal would increase the outlier threshold for high-cost cases from $5,129 to $5,609. At this level, CMS said, it projects that estimated outlier payments would equal 3 percent of total estimated payments under the prospective payment system for these facilities. CMS also said the proposal would apply a 2 percent reduction in the standard payment amount for fiscal 2007 to offset the effect of changes in coding that do not reflect real changes in patient activity.

In October 2005, the Medicare Payment Advisory Commission, which advises Congress, said IRFs are prospering under their Medicare payment system, with the number of facilities and program reimbursement rapidly rising over the last few years. However, at that time, a provider group, the American Medical Rehabilitation Providers Association, said the Medicare 75 percent rule was "severely" compromising patient access to IRFs.

In December 2005, CMS said in a memo that enforcement of the 75 percent rule for Medicare inpatient rehabilitation facilities was helping to ensure that Medicare beneficiaries were getting their rehabilitation care in more appropriate, low-cost settings, while maintaining beneficiaries' access to high quality care. "Medicare pays IRFs at a higher rate than other hospitals because IRFs are designed to offer specialized rehabilitation care to patients with the most intensive needs," CMS said in the memo findings, which were disputed by industry groups.

OIG Finds 90 Percent of Physicians' Claims for Physical Therapy Services Were Wrong

More than 90 percent of all physical therapy claims paid by Medicare to physicians in the first six months of 2002 did not meet program requirements and resulted in $136 million in overpayments, the Department of Health and Human Services Office of Inspector General said in a report released May 4.

The OIG further found that unusual physician billing patterns and high volumes of claims between 2002 and 2004 indicate Medicare physical therapy claims are vulnerable for abuse.

The OIG initially reported its interim results to the Centers for Medicare & Medicaid Services in October 2003, and the recent findings represent the completed medical review of physical therapy claims data. The final results were sent in a memo, titled Physical Therapy Billed by Physicians (OEI-09-02-00200), to CMS Deputy Administrator Leslie V. Norwalk.

Nearly 60 percent of the inappropriate claims from the first half of 2002 were for physical therapy services furnished under incomplete plans of care, the OIG's Office of Evaluation and Inspections found. Those findings, when projected to the national population of therapy billed by doctors, represent about $87 million in claims allowed by Medicare in the first half of 2002, the report stated.

Inappropriate Documentation

More than 25 percent of the claims were for services not medically necessary, and all of those services were provided under incomplete plans of care, the report stated. Additionally, 34 percent of claims were submitted without appropriate documentation, which also prohibited reviewers from evaluating the quality of therapy services provided.

In its analysis of a wider range of claims data, the OIG found that about 4 percent of all physicians who submitted physical therapy claims between 2002 and 2004 accounted for more than half of all allowed claims.

In addition, the OIG found that small numbers of physicians--compared to the universe of claims data--billed significantly more for physical therapy and for more patients with higher cost, noting that the doctors' specialties did not account for the variations.

'Incident-to' Services

The OIG analysis found problems with the so-called "incident-to" rule that allows physicians to bill for "an unlimited amount of physical therapy rendered at the same time, as long as the physician is 'directly supervising the staff rendering the services.'"

However, the OIG noted that, because physicians are not required by the Medicare rule to indicate on their claims whether services were rendered incident-to their professional services, claims appear as if doctors personally render all the services.

Furthermore, OIG said it could not determine from claims data, whether physicians billing for incident-to services had directly supervised those services and whether the number of patients for whom services had been provided in a day was possible.

The OIG acknowledged that CMS made some changes to the incident-to rule, but said that more could be done to reduce vulnerabilities. For example, OIG said that CMS should consider requiring the same licensure standards for staff who render physical therapy incident-to a physicians services as are required of independently practicing physical therapists. In addition, the report stated that the rule set limits on the number of staff a physician may supervise at one time.

"These conditions represent a vulnerability that could partially account for the noncovered and undocumented care described above and could be placing beneficiaries at risk of receiving services that do not meet professionally recognized standards of care," according to the report.

Therapists' Group Says OIG Underscores Its Concerns

The American Physical Therapy Association President Ben F. Massey Jr. said that the OIG's findings underscore long-standing concerns in the physical therapy community, and that the problems needed to be addressed with congressional action.

"The findings in the OIG report released this week are alarming, but hardly surprising," Massey said. "The American Physical Therapy Association (APTA) has been warning Congress, the Centers for Medicare & Medicaid Services, and the Inspector General for more than a decade that the billing of physical therapy services in physician offices is a major problem for Medicare."

APTA called the OIG's findings late in coming, but nevertheless helpful in acknowledging that current Medicare regulations "fall short" of needed reform and that Congress must act to ensure that only physical therapists provide physical therapy services for which Medicare is billed.

However, APTA said Congress should go further than the OIG's recommendations and eliminate physical therapy as a service that doctors can bill Medicare as incident-to a physician's professional services rendered in a physician's office. In addition, the group said Congress should eliminate the Stark physician self-referral law exception for in-office ancillary services.

"The ability of physicians to control the referral of Medicare patients to physical therapy services in which they have a financial interest is obviously too great a risk to both patient care and the financial integrity of the Medicare program," Massey said.

The report is available at http://www.oig.hhs.gov/oei/reports/oei-09-02-00200.pdf.

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