The growth in Medicare outpatient spending for rehabilitation therapies put the budget out of balance causing the government to react by placing spending caps on the amount of therapy a beneficiary could receive in any one year.
From 1980 through the mid 1990’s, Medicare’s costs for outpatient therapy services rose steadily. Examples of inappropriate billing practices were common, resulting from regulatory ambiguity and weaknesses in Medicare’s payment rules. In 1995, average salaries for physical, occupational and speech therapists’ in hospitals and skilled nursing facilities ranged from $12 to $25 per hour, while Medicare had been charged $600 per hour or more. In 1999, the Office of Inspector General reported that Medicare reimbursed skilled nursing facilities almost $1 billion for physical and occupational therapy that was claimed improperly, because the therapy was not medically necessary or was provided by staff who did not have the appropriate skills for the patients’ medical conditions. To control rising costs and improper payments, Congress reacted by establishing therapy payment caps for all non-hospital providers in the Balanced Budget Act of 1997.
Circumstances that led to therapy caps did not appear to change after the caps were established. CMS assessments of Medicare claims data show that Medicare payments for outpatient therapy rose steadily and that the rate of improper payments increased substantially from 1999 through 2002.
From 1999 through 2002 little changed in the circumstances leading to the initiation of the therapy caps. CMS review of Medicare claims data show that payment for outpatient therapy rose steadily and at the rates of improper payment substantially increased. In fact, within that time outpatient therapy more than doubled from an estimated $1.5 Billion to $3.4 Billion while error rates continued to increase from 11 percent in 1998 to more than 20 percent in year 2000. Medicare was likely paying for some medically unnecessary therapy services requiring something be done to strengthen the integrity of Medicare program.
A study of Medicare claims from 1998 to 2000 confirmed the fee schedule for outpatient therapy services was responsible for controlling the growth in Medicare cost, not the $1500 cap on those services. The long-awaited DynCorp report supported arguments that the therapy cap should be repealed.