Physical therapy providers are the target of a recent HHS Office of Inspector General (OIG) report that identified millions of dollars in overpayments for improperly billed Medicare services. The OIG selected a stratified random sample from a universe of all physical therapy service claims during a six-month audit period in 2013. The audit showed 61 percent of Medicare claims for outpatient physical therapy services did not comply with Medicare requirements, resulting in an estimated $367 million in alleged overpayments across the industry. The OIG cites ineffective CMS controls as the cause of the problem and chiefly recommends that CMS contractors notify providers of potential overpayments so that providers can investigate and return identified overpayments. CMS, however, disputed some of the OIG’s finding and did not concur with the chief recommendation of the report.

Background

In 2013, the Medicare Part B program paid approximately $1.8 billion for outpatient physical therapy services provided to beneficiaries.

For Medicare Part B to cover outpatient physical therapy services, the services must be medically reasonable and necessary, provided in accordance with a plan of care established by a physician or qualified physical therapist and periodically reviewed by a physician, and the need for such services must be certified by a physician. Payment also requires that the claims be supported by proper documentation and be correctly coded.

The OIG reviewed whether claims were medically reasonable and necessary based on the criteria summarized below: 

• The services are considered under accepted standards of medical practice to be a specific and effective treatment for the patient’s condition.
• The services are of such a level of complexity and sophistication or the condition of the patient shall be such that the services required can be safely and effectively performed only by a therapist or under the supervision of a therapist.
• There must be an expectation that the patient’s condition will improve significantly in a reasonable (and generally predictable) period of time, or the services must be necessary for the establishment of a safe and effective maintenance program required in connection with a specific disease state.
• The amount, frequency, and duration of the services must be reasonable under acceptable standards of practice.

OIG Findings

The OIG reviewed 300 claims in a stratified random sample and determined that 184 claims did not comply with one or more of Medicare’s requirements, totaling $12,741 in alleged overpayments. The sample universe was extracted from CMS’s National Claims History file and consisted of all Medicare Part B outpatient physical therapy services provided by therapists within the office setting (i.e., place of service code of 11) from July 1 through December 31, 2013—approximately 9 million claims. The breakdown of OIG’s findings included:

• 89 claims where OIG’s medical reviewers determined that the amount, frequency, and duration of the physical therapy services were not reasonable and consistent with standards of practice.
• 30 claims where the OIG did not find any evidence that the medical records showed that the services provided would have been effective.
• 28 claims where the therapy services did not require the skills of a therapist.
• 26 claims where the medical reviewers determined that the expected rehabilitation potential was insignificant in relation to the extent and duration of the physical therapy services required to achieve that potential or that the beneficiary did not improve significantly enough in a reasonable period of time to justify continued treatment.
• 145 claims where therapists received Medicare reimbursement for claims that did not meet Medicare coding requirements, including missing modifiers, incorrect codes, and timed units that did not match those identified in the treatment notes.
• 112 claims where therapists received Medicare reimbursement for services that were not provided in accordance with one or more Medicare documentation requirements including deficiencies in the plan of care, treatment notes, and recertification documentation.

OIG Recommendations

The OIG recommends that CMS (1) instruct the Medicare Administrative Contractors to notify providers of potential overpayments so that those providers can exercise reasonable diligence to investigate and return any identified overpayments, (2) establish mechanisms to better monitor the appropriateness of outpatient physical therapy claims, and (3) educate providers about Medicare requirements for submitting outpatient physical therapy claims for reimbursement.

Though CMS agreed with the OIG’s second and third recommendations, CMS challenged the OIG’s first recommendation. In a response to the OIG’s draft report findings, CMS stated that it did not agree with the OIG’s medical review contractor regarding the claims identified as not complying with Medicare coverage and payment requirements. CMS stated that it “will review a sample of medical records from the OIG before determining whether potential overpayments need to be investigated and returned in accordance with the 60-day [overpayment] rule.”  Since issuance of the draft report in late October 2017, the OIG contacted CMS to determine the status of its review of a sample of claims. As of the end of February 2018, CMS had not completed this review. CMS also argued that the “significant improvement” requirement for physical therapy services is an inaccurate interpretation of CMS’s coverage policy and is contrary to policy changes following the 2013 court-approved settlement agreement in Jimmo v. Sebelius.

The OIG Report is available here. A CMS fact sheet on the Jimmo v. Sebelius settlement agreement is available here.