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entitled 'Medicare: More Specific Criteria Needed to Classify Inpatient 
Rehabilitation Facilities' which was released on April 22, 2005.

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Report to the Senate Committee on Finance and the House Committee on 
Ways and Means:

United States Government Accountability Office:

GAO:

April 2005:

Medicare:

More Specific Criteria Needed to Classify Inpatient Rehabilitation 
Facilities:

Inpatient Rehabilitation Services:

GAO-05-366:

GAO Highlights:

Highlights of GAO-05-366, a report to Senate Committee on Finance and 
House Committee on Ways and Means:

Why GAO Did This Study:

Medicare classifies inpatient rehabilitation facilities (IRF) using the 
“75 percent rule.” If a facility can show that during 1 year at least 
75 percent of its patients required intensive rehabilitation for 1 of 
13 specified conditions, it may be classified as an IRF and paid at a 
higher rate than is paid for less intensive rehabilitation in other 
settings. Medicare payments to IRFs have grown steadily over the past 
decade. In this report, GAO (1) identifies the conditions—on and off 
the list—that IRF Medicare patients have and the number of IRFs that 
meet a 75 percent threshold, (2) describes IRF admission criteria and 
Centers for Medicare & Medicaid Services (CMS) review of admissions, 
and (3) evaluates use of a list of conditions in the rule. GAO analyzed 
data on Medicare patients (the majority of patients in IRFs) admitted 
to IRFs in FY 2003, spoke to IRF medical directors, and had the 
Institute of Medicine (IOM) convene a meeting of experts.

What GAO Found:

In fiscal year 2003, fewer than half of all IRF Medicare patients were 
admitted for having a condition on the list in the 75 percent rule, and 
few IRFs admitted at least 75 percent of their patients for one of 
those conditions. The largest group of patients had orthopedic 
conditions, not all of which were on the list in the rule, which had 
been suspended in 2002. Almost half of all patients with conditions not 
on the list were admitted for orthopedic conditions, and among those 
the largest group was joint replacement patients. Although some joint 
replacement patients may need admission to an IRF, GAO’s analysis 
showed that few of these patients had comorbidities that suggested a 
possible need for the IRF level of services. Additionally, GAO found 
that only 6 percent of IRFs in fiscal year 2003 were able to meet a 75 
percent threshold. 

IRFs varied in the criteria used to assess patients for admission, and 
CMS has not routinely reviewed IRF admission decisions. IRF officials 
reported that the criteria they used to make admission decisions 
included patient characteristics such as function, as well as 
condition. CMS, working through its fiscal intermediaries, has not 
routinely reviewed IRF admission decisions.

The experts IOM convened and other clinical and nonclinical experts GAO 
interviewed differed on whether conditions should be added to the list 
in the 75 percent rule but agreed that condition alone does not provide 
sufficient criteria to identify the types of patients appropriate for 
IRFs. The experts IOM convened questioned the strength of the evidence 
for adding conditions to the list, finding the evidence for certain 
orthopedic conditions particularly weak, and they called for further 
research to identify the types of patients that need inpatient 
rehabilitation and to understand the effectiveness of IRFs. Other 
experts did not agree on whether conditions, including a broader 
category of joint replacements, should be added to the list. Experts, 
including those IOM convened, generally agreed that condition alone is 
insufficient for identifying appropriate types of patients for 
inpatient rehabilitation, since within any condition only a subgroup of 
patients require the level of services of an IRF, and contended that 
functional status should also be considered.

What GAO Recommends:

GAO recommends that CMS take several actions, including refining the 
rule to describe more thoroughly the subgroups of patients within a 
condition that require IRF services, possibly using functional status 
or other factors in addition to condition, to help ensure that IRFs can 
be classified appropriately and that only patients needing IRF services 
are admitted. CMS generally agreed with the recommendations.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-366].

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Marjorie Kanof at (202) 512-7114.

[End of Section]

Contents:

Letter:

Results in Brief:

Background:

Fewer Than Half of All IRF Medicare Patients in 2003 Were Admitted for 
Conditions on List in Rule, and Few IRFs Were Able to Meet a 75 Percent 
Threshold:

IRFs Vary in the Criteria Used to Assess Patients for Admission, and 
CMS Does Not Routinely Review IRFs' Admission Decisions:

Experts Differed on Adding Conditions to List in Rule but Agreed That 
Condition Alone Does Not Provide Sufficient Criteria:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Comments from National Associations and Our 
Evaluation:

Appendix I: List of Conditions in CMS's 75 Percent Rule:

Appendix II: Scope and Methodology:

Appendix III: Rates of IRF Medicare Admissions from Hospitals by Top 19 
DRGs of Patients Admitted to IRFs, Fiscal Year 2003:

Appendix IV: Comments from the Centers for Medicare & Medicaid Services:

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: Proportion of All IRF Medicare Patients Who Had Condition on 
List in Rule, by Condition as Defined by Impairment Group, Fiscal Year 
2003:

Table 2: IRFs That Met Varying Threshold Levels for Medicare Patients 
Admitted with Any of 13 Conditions on List in Rule in Fiscal Year 2003:

Table 3: Criteria That Characterize Appropriate Patients for Admission, 
as Reported by 12 IRFs:

Figures:

Figure 1: Conditions of All Medicare Patients Admitted to IRFs, as 
Defined by Impairment Group, Fiscal Year 2003:

Figure 2: Distribution of IRF Medicare Patients Who Did Not Have 
Condition on List in Rule, by Condition as Defined by Impairment Group, 
Fiscal Year 2003:

Abbreviations:

CMG: case-mix group: 
CMS: Centers for Medicare & Medicaid Services: 
DRG: diagnosis-related group: 
FI: fiscal intermediary: 
ICD-9-CM: International Classification of Diseases, Ninth Revision, 
Clinical Modification: 
IOM: Institute of Medicine:
IPPS: inpatient prospective payment system: 
IRF: inpatient rehabilitation facility: 
IRF-PAI: Inpatient Rehabilitation Facility--Patient Assessment 
Instrument: 
IRF PPS: inpatient rehabilitation facility prospective payment system: 
MEDPAR: Medicare Provider Analysis and Review:
NIH: National Institutes of Health:
PPS: prospective payment system:
SNF: skilled nursing facility:

[End of Section]

United States Government Accountability Office:

Washington, DC 20548:

April 22, 2005:

The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:

The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:

The number of inpatient rehabilitation facilities (IRF) and Medicare 
payments to these facilities have grown steadily over the past decade. 
IRFs are intended to serve patients recovering from medical conditions 
that typically require an intensive level of rehabilitation in an 
inpatient setting.[Footnote 1],[Footnote 2] The number of IRFs grew 
from 907 in 1992 to 1,256 in 2003. Medicare payments to IRFs grew from 
$2.8 billion in 1992 to an estimated $5.7 billion for the care of over 
500,000 Medicare patients in 2003, and payments are projected to grow 
to almost $9 billion per year by 2015. Because patients treated at IRFs 
require more intensive rehabilitation than is provided in other 
settings, such as an acute care hospital or a skilled nursing facility 
(SNF),[Footnote 3] Medicare pays for treatment in an IRF at a higher 
rate than it pays for treatment in other settings. To distinguish IRFs 
from other settings for payment purposes and to ensure that Medicare 
patients needing less intensive services are not in IRFs, the Centers 
for Medicare & Medicaid Services (CMS) relies on a regulation commonly 
known as the "75 percent rule," which was initially issued in 1983 and 
most recently revised in 2004.[Footnote 4] The 2004 rule, which is 
being implemented over a 3-year transition period, states that if a 
facility can show that during a 12-month period at least 75 percent of 
all its patients, including its Medicare patients, required intensive 
rehabilitation services for the treatment of at least 1 of the 13 
conditions listed in the rule,[Footnote 5] it may be classified as an 
IRF.[Footnote 6] The rule allows the remaining 25 percent of patients 
to have other conditions not listed in the rule. An IRF that does not 
comply with the requirements of the 75 percent rule may lose its 
classification as an IRF and therefore no longer be eligible for 
payment at a higher rate. In addition to the 75 percent rule, IRFs must 
meet six other facility criteria to be classified as an IRF.[Footnote 7]

IRF compliance with the requirements of the rule has been problematic, 
and some IRFs have questioned the requirements of the rule. CMS data 
indicate that in 2002 only 13 percent of IRFs had at least 75 percent 
of patients in 1 of the 10 conditions on the list at that time. CMS 
suspended enforcement of the rule in 2002. IRF officials have contended 
that the list of conditions in the rule should be updated because of 
changes in medicine that have occurred since the list was established 
in 1983 and the concomitant expansion of the population that could 
benefit from inpatient rehabilitation services. They have noted that 
their patients are older than the population served in 1983 and are 
surviving longer with conditions they may not have survived in earlier 
years. CMS issued a final rule--effective July 1, 2004--that increased 
the number of conditions from 10 to 13, adding, for example, certain 
hip and knee joint replacements.[Footnote 8] The 2004 final rule also 
laid out a 3-year transition period during which enforcement of the 
rule is to be resumed, with the threshold for percentage of patients 
meeting the condition requirements being lowered to 50 percent for the 
first year and rising in stages to reach 75 percent for the IRF's cost 
reporting period starting on or after July 2007.

IRFs need to be correctly classified to be distinguished from settings 
in which less intensive rehabilitation is provided because the 
difference in payments to IRFs and payments to these other settings can 
be substantial. For example, the estimated Medicare per case payment in 
2004 for a patient who underwent a major joint and limb replacement of 
a lower extremity was $17,135 to an IRF and $6,165 to a SNF. Similarly, 
the estimated per case payment for a patient with a stroke was $34,196 
to an IRF and $8,905 to a SNF.[Footnote 9] Therefore, if IRFs are not 
correctly classified, Medicare is at risk of making large overpayments 
to incorrectly classified facilities. Medicare is also at risk of 
overpayment for individual patients in an IRF if patients are admitted 
who could be treated in a less intensive setting. IRFs are required to 
assess patients prior to admission to ensure they require the level of 
services provided in an IRF, and CMS is responsible for evaluating the 
appropriateness of individual admissions after the patient has been 
discharged through reviews for medical necessity conducted under 
contract by its fiscal intermediaries (FI).

The Conference Report that accompanied the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 directed us to issue a 
report, in consultation with experts in the field of physical medicine 
and rehabilitation, to assess whether the current list of conditions 
represents a clinically appropriate standard for defining IRF services 
and, if not, to determine which additional conditions should be added 
to the list.[Footnote 10] In this report, we (1) identify the 
conditions that IRF Medicare patients have, the number of these 
patients considered to have 1 of the 13 conditions, and the number of 
IRFs that meet the requirements of the 75 percent rule; (2) describe 
how IRFs assess patients for admission and whether CMS reviews 
admission decisions; and (3) evaluate the approach of using a list of 
conditions in the 75 percent rule to classify IRFs.[Footnote 11]

To identify the conditions that IRF Medicare patients have, the number 
of patients considered to have 1 of the 13 conditions, and the number 
of IRFs that meet the requirements of the 75 percent rule, we obtained 
the Inpatient Rehabilitation Facility--Patient Assessment Instrument 
(IRF-PAI) records from CMS for Medicare patients admitted to IRFs in 
fiscal year 2003. We conducted our analyses on Medicare patients only, 
because CMS records contained data on the largest number of IRFs and 
the majority of patients in IRFs are covered by Medicare.[Footnote 
12],[Footnote 13] The IRF-PAI records contain, for each Medicare 
patient, the impairment group code[Footnote 14] identifying the 
patient's primary condition and the diagnostic code from the 
International Classification of Diseases, Ninth Revision, Clinical 
Modification (ICD-9-CM) identifying the patient's comorbid 
condition.[Footnote 15] We used these codes to determine whether we 
considered the patient's primary or comorbid condition to be linked to 
a condition on the list in the rule.[Footnote 16] We also obtained and 
analyzed Medicare claims records for fiscal year 2003 to identify 
patients that had been discharged from an acute care hospital to an 
IRF. We assessed the reliability of the IRF-PAI data by interviewing 
agency officials knowledgeable about the data and by interviewing other 
researchers who had conducted analyses using the IRF-PAI data. For both 
the IRF-PAI data and the claims data we performed electronic testing of 
required data elements. We determined that the data were sufficiently 
reliable for this analysis. Although we applied different threshold 
levels to illustrate the impact of the transition period on the number 
of IRFs that meet the requirements of the rule, we did not assess the 
appropriateness of any threshold level. Our analyses used 
administrative data only, and estimates could be different if medical 
records were used.[Footnote 17]

To determine how IRFs assess patients for admission and whether CMS 
reviews admission decisions, we conducted structured interviews. We 
interviewed the medical director at each of 12 IRFs selected to vary by 
region and level of compliance with the 75 percent rule. We also 
interviewed the medical director (or designee) at each of the 10 FIs 
that covered the states in which the 12 IRFs are located (out of a 
total of 30 FIs). In addition, we interviewed an official representing 
each of CMS's 10 regional offices to determine whether any IRFs had 
ever been declassified based on failure to comply with the 75 percent 
rule, and we interviewed three insurers and one regional managed care 
organization about their procedures for referring enrollees to IRFs.

To evaluate the approach of using a list of conditions in the 75 
percent rule to classify IRFs, we contracted with the Institute of 
Medicine (IOM) of The National Academies to convene a 1-day meeting of 
clinical experts in physical medicine and rehabilitation, including 
physicians, rehabilitation nurses, physical therapists, occupational 
therapists, a speech and language therapist, and clinical researchers 
in the field (referred to in this report as "the experts IOM convened").

In total, we talked with 106 individuals, of whom 65 were clinicians, 
including the experts IOM convened. We conducted our work from May 2004 
through April 2005 in accordance with generally accepted government 
auditing standards. (For a complete description of our scope and 
methodology, see app. II.)

Results in Brief:

In fiscal year 2003, fewer than half of all IRF Medicare patients were 
admitted for having a condition on the list in the 75 percent rule, and 
few IRFs admitted at least 75 percent of their patients for one of 
those conditions. The largest group of patients admitted to IRFs in 
2003 had orthopedic conditions, not all of which were on the list in 
the rule. In addition, fewer than half of all IRF patients were 
admitted for a primary condition that was on the list, with the 
proportion increasing to over three-fifths when comorbid conditions on 
the list were counted, as they would be during the rule's 3-year 
transition period. Almost half of patients with conditions that were 
not on the list were admitted for orthopedic conditions, and among 
those the largest group was joint replacement patients. Although some 
joint replacement patients may need admission to an IRF, our analysis 
showed that few of these patients had comorbidities that suggested a 
possible need for the intensity of services offered by an IRF. 
Additionally, we found that only 6 percent of IRFs in fiscal year 2003 
were able to meet a 75 percent threshold, and many IRFs may not be able 
to meet the requirements of the rule as the threshold increases to 75 
percent during the transition period. CMS has not generally 
declassified IRFs based on their failure to comply with the 75 percent 
rule.

IRFs varied in the criteria used to assess patients for admission, and 
CMS has not routinely reviewed IRFs' admission decisions. Among the IRF 
officials we interviewed, the criteria varied by facility and included 
patient characteristics such as function in addition to condition. 
Admission decisions may also be influenced by an IRF's level of 
compliance with the 75 percent rule's list of conditions. The IRF 
officials we interviewed reported that they tracked their facility's 
level of compliance with the rule's list of conditions and that the 
decision to admit a given patient could be affected by the IRF's 
compliance level at that time. CMS, working through its FIs, has not 
routinely reviewed IRF admission decisions, although it reported that 
such reviews could be used to target problem areas.

The experts IOM convened and other experts we interviewed differed on 
whether conditions should be added to the list in the 75 percent rule 
but agreed that condition alone does not provide sufficient criteria to 
identify types of patients appropriate for IRFs. The experts IOM 
convened questioned the strength of the evidence for adding conditions 
to the list in the rule. They reported that the evidence on the 
benefits of IRF services is variable and the evidence on the benefits 
of such services for certain orthopedic conditions is particularly 
weak, and they called for further research to identify the types of 
patients that need inpatient rehabilitation and to understand the 
effectiveness of IRFs in comparison with other settings of care. Other 
experts we interviewed did not agree on whether conditions, including a 
broader category of joint replacements, should be added to the list in 
the rule. Experts, including those convened by IOM, agreed that 
condition alone is insufficient for identifying appropriate types of 
patients for inpatient rehabilitation, since within any condition only 
a subgroup of patients require the level of services of an IRF, and 
contended that functional status should also be considered. The experts 
IOM convened suggested factors to use in classifying IRFs, including 
both patient and facility characteristics.

To help ensure that IRFs can be classified appropriately and that only 
patients needing the IRF level of services are admitted to them, we 
recommend that CMS ensure that FIs routinely conduct targeted reviews 
for medical necessity for IRF admissions; that CMS conduct additional 
activities to encourage research on the effectiveness of intensive 
inpatient rehabilitation and factors that predict patient need for 
these services; and that CMS use the information obtained from reviews 
for medical necessity, research activities, and other sources to refine 
the rule to describe more thoroughly the subgroups of patients within a 
condition that require IRF services, possibly using functional status 
or other factors in addition to condition.

In commenting on a draft of this report, CMS stated that our work would 
be of assistance to the agency in examining issues related to patient 
coverage and the classification of IRFs. CMS generally agreed with our 
recommendations. Although CMS indicated its intent to follow our 
recommendation to more thoroughly describe subgroups of patients within 
a condition, it said it wanted to carefully consider this action and 
potentially base its descriptions on future research. We clarified 
language in the recommendation to encourage CMS to obtain research for 
this effort. CMS agreed on the need to encourage research and said it 
would collaborate with the National Institutes of Health (NIH). CMS 
also agreed that targeted reviews for medical necessity are necessary 
and said that it expected resources to be directed toward areas of 
risk. In its technical comments, CMS also noted we analyzed data from 
fiscal year 2003, when the rule was not being enforced, and said that 
this could have affected our findings. Other organizations that 
reviewed the report--the American Hospital Association, the American 
Medical Rehabilitation Providers Association, and the Federation of 
American Hospitals--also raised concerns about our use of fiscal year 
2003 data. We analyzed a sample of data from July through December 
2004, the first 6 months after the rule took effect, and found no 
material difference for the same time period in fiscal year 2003 data.

Background:

While the 75 percent rule has been in effect in one form or another for 
over two decades, the current payment system and review procedures for 
IRFs went into effect in recent years.

History of the 75 Percent Rule:

The Social Security Amendments of 1983 changed the Medicare hospital 
payment system from a cost-based retrospective reimbursement system to 
a prospective system known as the inpatient prospective payment system 
(IPPS), under which hospitals receive a per discharge payment for a 
diagnosis-related group (DRG).[Footnote 18] However, the amendments 
excluded "rehabilitation hospitals," and so IRFs continued to be paid 
under a reasonable-cost-based retrospective system. Before the IPPS was 
implemented, CMS consulted with the Joint Commission on Accreditation 
of Healthcare Organizations (JCAHO)[Footnote 19] and other accrediting 
organizations to determine how to classify IRFs, that is, distinguish 
them from other facilities for payment purposes. The 75 percent rule 
was established for that purpose in 1983.[Footnote 20] To develop the 
original list of conditions in the 75 percent rule, CMS relied, in 
part, on information from the American Academy of Physical Medicine and 
Rehabilitation, the American Congress of Rehabilitation Medicine, the 
National Association of Rehabilitation Facilities, and the American 
Hospital Association.[Footnote 21] According to CMS, the conditions on 
the list accounted for approximately 75 percent of the admissions to 
IRFs when the original list was developed. In January 2002 a 
prospective payment system (PPS) was implemented for IRFs--known as the 
inpatient rehabilitation facility prospective payment system (IRF PPS).

On June 7, 2002, CMS suspended the enforcement of the 75 percent rule 
after its study of FIs, which have responsibility under contract with 
CMS for verifying compliance with the rule, revealed that they were 
using inconsistent methods to determine whether an IRF was in 
compliance and that in some cases IRFs were not being reviewed for 
compliance at all. Specifically, CMS found that only 20 of the 29 FIs 
conducted reviews for IRF compliance with the 75 percent rule and that 
the FIs that did these reviews used different methods and data sources. 
In 2004, CMS standardized the verification process that the FIs were to 
use to determine if an IRF met the classification criteria, including 
how to determine whether a patient is considered to have 1 of the 13 
conditions.

The 2004 Final Rule:

When the final rule was made effective on July 1, 2004, a transition 
period was established for IRFs to meet the requirements of the rule. 
In addition to lowering and then increasing the threshold, the 
transition period allows a patient to be counted toward the required 
threshold if the patient is admitted for either a primary or comorbid 
condition on the list in the rule. But at the end of the transition 
period, a patient cannot be counted toward the required threshold on 
the basis of a comorbidity on the list in the rule. The requirements of 
the transition period are as follows:[Footnote 22]

* July 1, 2004, to June 30, 2005: 50 percent threshold, counting 
comorbidities:

* July 1, 2005, to June 30, 2006: 60 percent threshold, counting 
comorbidities:

* July 1, 2006, to June 30, 2007: 65 percent threshold, counting 
comorbidities:

Effective July 1, 2007, the threshold will be 75 percent, not counting 
comorbidities.

During the 3-year transition period, CMS plans to analyze claims and 
patient assessment data to evaluate if and how the 75 percent threshold 
should be modified. In addition, the agency has announced its 
willingness to consider alternative policy proposals to the 75 percent 
rule submitted during this period. In the past, CMS has declined 
requests to modify the rule's threshold or list of conditions, citing a 
lack of supporting or objective data from the clinical community. 
However, in the final rule, the agency solicited "objective data or 
evidence from well-designed research studies" that would support a 
change in the rule's 75 percent threshold or list of 
conditions.[Footnote 23] Also, because of the relative absence of 
clinical research studies in the peer-reviewed medical literature, CMS 
contracted with NIH to convene one meeting of a research panel to 
review the current medical literature[Footnote 24] and identify 
priorities for conducting studies on inpatient rehabilitation.

Payment and Review for Medical Necessity:

Beginning in January 2002, CMS implemented the IRF PPS to pay IRFs on a 
per-discharge basis. Payment is contingent on an IRF's completing a 
patient assessment after admission and transmitting the resulting data 
to CMS. The Inpatient Rehabilitation Facility--Patient Assessment 
Instrument (IRF-PAI) includes identification of an impairment group 
code that identifies the impairment group, or the condition that 
requires admission to rehabilitation. The patient's comorbidities are 
also recorded on the IRF-PAI.

The impairment group code is combined with other information on the IRF-
PAI to classify the patient into 1 of 100 case-mix groups (CMG). 
Patients are assigned to a CMG based on the impairment group code, age, 
and levels of functional and cognitive impairment. The CMG determines 
the payment the IRF will receive for a patient. Each CMG is weighted to 
account for the relative difference in resource use across all CMGs. 
Within each CMG, the weighting factors are "tiered" based on the 
estimated effect of comorbidities. Each CMG has four payment tiers 
reflecting the level of comorbidities.[Footnote 25]

CMS contracts with FIs, the entities that conduct compliance reviews, 
to conduct reviews for medical necessity to determine whether an 
individual admission to an IRF was covered under Medicare. FIs were 
specifically authorized to conduct reviews for medical necessity for 
inpatient rehabilitation services beginning in April 2002.[Footnote 26] 
According to the Medicare Benefit Policy Manual, two basic requirements 
must be met if inpatient hospital stays for rehabilitation services are 
to be covered: (1) the services must be reasonable and necessary, and 
(2) it must be reasonable and necessary to furnish the care on an 
inpatient hospital basis, rather than in a less intensive facility, 
such as a SNF, or on an outpatient basis.[Footnote 27] Determinations 
of whether hospital stays for rehabilitation services are reasonable 
and necessary must be based on an assessment of each beneficiary's 
individual care needs.

Fewer Than Half of All IRF Medicare Patients in 2003 Were Admitted for 
Conditions on List in Rule, and Few IRFs Were Able to Meet a 75 Percent 
Threshold:

Fewer than half of all IRF Medicare patients in fiscal year 2003 were 
admitted for conditions on the list in the 75 percent rule. The 
patients admitted in 2003 had a variety of conditions, not all of which 
were on the list in the rule. Nearly half of the patients admitted for 
conditions not on the list were admitted for orthopedic conditions. The 
largest group of patients admitted for orthopedic conditions not on the 
list were admitted for joint replacements that did not meet the list's 
specific criteria for joint replacement. Relatively few of these 
patients had comorbid conditions that suggested a possible need for the 
intensive level of rehabilitation provided in IRFs. Additionally, we 
found that based on the fiscal year 2003 data few IRFs were able to 
meet a 75 percent threshold.

Medicare Patients Admitted to IRFs in 2003 Had Variety of Conditions:

Medicare patients were admitted to IRFs in fiscal year 2003 with a 
variety of conditions, as defined by the impairment group codes we 
analyzed. Forty-two percent of the 506,662 Medicare patients admitted 
to IRFs in 2003 were admitted with orthopedic conditions, representing 
the largest category of patients.[Footnote 28] Figure 1 shows the 
distribution of all the conditions, based on impairment group codes, 
for which patients were admitted to IRFs in fiscal year 2003. The 
largest impairment group consisted of patients admitted for joint 
replacement.[Footnote 29]

Figure 1: Conditions of All Medicare Patients Admitted to IRFs, as 
Defined by Impairment Group, Fiscal Year 2003:

[See PDF for image]

Source: GAO analysis of CMS IRF-PAI data.

[End of figure]

Fewer Than Half of All IRF Medicare Patients Were Admitted for 
Conditions on List in Rule:

Fewer than half of the Medicare patients (222,316 of the 506,662 
patients) admitted in fiscal year 2003 were admitted for a primary 
condition that was on the list in the 75 percent rule. Using the 
impairment group codes assigned to these patients at the time of their 
admission, we determined that in fiscal year 2003 less than 44 percent 
of IRF admissions had a primary condition that was on the list in the 
rule. However, when comorbid conditions that were on the list were 
counted--as they would be during the transition period--the number of 
patients having a listed condition rose to 311,740 (62 percent) of IRF 
patients in that year. (See table 1.)

Table 1: Proportion of All IRF Medicare Patients Who Had Condition on 
List in Rule, by Condition as Defined by Impairment Group, Fiscal Year 
2003:

Condition, as defined by impairment group: Joint replacements;
Total number of patients in impairment group: 121,528;
Patients whose primary condition was on list in rule: Number: 15,761;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 13.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 61,890;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 50.9.

Condition, as defined by impairment group: Stroke;
Total number of patients in impairment group: 85,516;
Patients whose primary condition was on list in rule: Number: 85,516;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 85,516;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Hip fracture;
Total number of patients in impairment group: 51,467;
Patients whose primary condition was on list in rule: Number: 51,467;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 51,467;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Other orthopedic conditions;
Total number of patients in impairment group: 40,359;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 11,168;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 27.7.

Condition, as defined by impairment group: Medically complex;
Total number of patients in impairment group: 29,148;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 6,363;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 21.8.

Condition, as defined by impairment group: Cardiac;
Total number of patients in impairment group: 28,011;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 4,296;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 15.3.

Condition, as defined by impairment group: Debility;
Total number of patients in impairment group: 27,208;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 5,784;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 21.3.

Condition, as defined by impairment group: Neurologic conditions;
Total number of patients in impairment group: 23,422;
Patients whose primary condition was on list in rule: Number: 9,933;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 42.4;
Patients whose primary or comorbid condition was on list in rule: 
Number: 16,846;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 71.9.

Condition, as defined by impairment group: Spinal cord dysfunction;
Total number of patients in impairment group: 21,207;
Patients whose primary condition was on list in rule: Number: 21,207;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 21,207;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Brain dysfunction;
Total number of patients in impairment group: 17,733;
Patients whose primary condition was on list in rule: Number: 15,694;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 88.5;
Patients whose primary or comorbid condition was on list in rule: 
Number: 16,885;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 95.2.

Condition, as defined by impairment group: Arthritis;
Total number of patients in impairment group: 16,195;
Patients whose primary condition was on list in rule: Number: 5,372;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 33.2;
Patients whose primary or comorbid condition was on list in rule: 
Number: 7,874;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 48.6.

Condition, as defined by impairment group: Amputation;
Total number of patients in impairment group: 14,448;
Patients whose primary condition was on list in rule: Number: 13,165;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 91.1;
Patients whose primary or comorbid condition was on list in rule: 
Number: 13,652;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 94.5.

Condition, as defined by impairment group: Pain syndromes;
Total number of patients in impairment group: 10,925;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 2,078;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 19.0.

Condition, as defined by impairment group: Pulmonary disorders;
Total number of patients in impairment group: 10,009;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 1,393;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 13.9.

Condition, as defined by impairment group: Other disabling impairments;
Total number of patients in impairment group: 5,258;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 1,113;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 21.2.

Condition, as defined by impairment group: Major multiple trauma;
Total number of patients in impairment group: 3,658;
Patients whose primary condition was on list in rule: Number: 3,658;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 3,658;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Burns;
Total number of patients in impairment group: 345;
Patients whose primary condition was on list in rule: Number: 345;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 345;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Congenital deformities;
Total number of patients in impairment group: 198;
Patients whose primary condition was on list in rule: Number: 198;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 100.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 198;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 100.0.

Condition, as defined by impairment group: Developmental disability;
Total number of patients in impairment group: 27;
Patients whose primary condition was on list in rule: Number: 0;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 0.0;
Patients whose primary or comorbid condition was on list in rule: 
Number: 7;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 25.9.

Condition, as defined by impairment group: Total (overall percentage);
Total number of patients in impairment group: 506,662;
Patients whose primary condition was on list in rule: Number: 222,316;
Patients whose primary condition was on list in rule: Percentage of 
patients in impairment group: 43.9;
Patients whose primary or comorbid condition was on list in rule: 
Number: 311,740;
Patients whose primary or comorbid condition was on list in rule: 
Percentage of patients in impairment group: 61.5.

Source: GAO analysis of CMS IRF-PAI data.

Note: CMS's Medicare Claims Processing Manual lists the specific codes 
that we used to determine whether a patient's condition was on the list 
in the rule. See CMS, "Medicare Claims Processing," CMS Manual System, 
pub. 100-04, Transmittal 347 (Baltimore, Md.: Oct. 29, 2004.)

[End of table]

The amount of increase that occurred when comorbid conditions were 
counted varied by impairment group. For some impairment groups, the 
percentage of patients who had a condition on the list in the rule 
substantially increased when comorbidities were counted. For example, 
the percentage of joint replacement patients having a listed condition 
increased from 13 percent to 51 percent by virtue of their 
comorbidities. The comorbidity that qualified over 90 percent of this 
group was some form of arthritis.[Footnote 30] In contrast, the 
increase was lower for patients in the medically complex, cardiac, 
debility, pain syndrome, and pulmonary disorder impairment groups, 
increasing between 14 percentage points and 22 percentage points. The 
comorbidity that qualified about one-third of cardiac and debility 
patients was stroke, and the comorbidity that qualified over one-third 
of pulmonary patients was a neurological condition.

Almost Half of IRF Medicare Patients That Did Not Have Condition on 
List in Rule Were Admitted for Orthopedic Conditions:

Almost half of the 194,922 IRF Medicare patients that did not have a 
condition on the list in the rule, either as a primary condition or as 
a comorbid condition, were admitted for orthopedic conditions. (See 
fig. 2.) The single largest group of patients who did not have a 
condition on the list were the joint replacement patients whose 
condition did not meet the list's specific criteria for joint 
replacements.[Footnote 31] Over 30 percent of patients who did not have 
a condition on the list had been admitted to IRFs for joint 
replacement, with another 15 percent having been admitted for "other 
orthopedic," that is, any orthopedic condition other than hip fractures 
or joint replacements. The next largest group, cardiac patients, 
represented 12 percent.

Figure 2: Distribution of IRF Medicare Patients Who Did Not Have 
Condition on List in Rule, by Condition as Defined by Impairment Group, 
Fiscal Year 2003:

[See PDF for image]

[A] Includes joint replacement patients who had a unilateral procedure 
and were under age 85, and therefore did not meet the specific criteria 
for joint replacements set out in the 75 percent rule. Codes from CMS 
for body mass index were not available.

[End of figure]

Relatively Few Medicare Joint Replacement Patients in IRFs Had Comorbid 
Conditions That Suggested Possible Need for IRF Level of Services:

Although some joint replacement patients may need the level of services 
of an IRF, such as those who have a comorbid condition that 
significantly affects their level of function, our analysis of the case-
mix groups used for payment purposes suggests that relatively few of 
the Medicare joint replacement patients currently admitted by IRFs fit 
this description.[Footnote 32] In particular, 87 percent of joint 
replacement patients admitted in fiscal year 2003 had unilateral 
procedures and were less than 85 years of age, and thus did not fit the 
criteria for joint replacement on the list in the rule based on their 
primary condition. Of the joint replacement patients who did not fit 
the criteria based on their primary condition, over 84 percent were in 
a payment tier with no comorbidities that affected costs.[Footnote 33]

Few IRFs Were Able to Meet a 75 Percent Threshold:

Only 6 percent of IRFs were able to meet the requirements of full 
implementation of the rule that would be in place at the end of the 
transition period, that is, a 75 percent threshold not counting 
comorbidities. Our analysis of fiscal year 2003 data for Medicare 
patients admitted to IRFs, which used the current list of 13 
conditions, showed that as the threshold level increased from 50 
percent to 75 percent and both primary and comorbid conditions were 
counted, progressively fewer IRFs were able to meet the higher 
threshold levels. (See table 2.) In addition, when the count was based 
only on whether the patient's primary condition was on the list in the 
rule, as it would be after the transition period, even fewer IRFs met 
the requirements of the rule. However, many IRFs were able to meet the 
lower thresholds that would be in place earlier in the transition 
period. Over 80 percent of IRFs were able to meet a 50 percent 
threshold based on the primary conditions or comorbid conditions of the 
patients they admitted in 2003.

Table 2: IRFs That Met Varying Threshold Levels for Medicare Patients 
Admitted with Any of 13 Conditions on List in Rule in Fiscal Year 2003:

Compliance threshold: 50 percent;
Percentage of IRFs that met threshold based on either primary condition 
or related comorbid conditions: 85;
Percentage of IRFs that met threshold based solely on primary 
condition: 39.

Compliance threshold: 60 percent;
Percentage of IRFs that met threshold based on either primary condition 
or related comorbid conditions: 62;
Percentage of IRFs that met threshold based solely on primary 
condition: 20.

Compliance threshold: 65 percent;
Percentage of IRFs that met threshold based on either primary condition 
or related comorbid conditions: 50;
Percentage of IRFs that met threshold based solely on primary 
condition: 14.

Compliance threshold: 75 percent;
Percentage of IRFs that met threshold based on either primary condition 
or related comorbid conditions: 27;
Percentage of IRFs that met threshold based solely on primary 
condition: 6.

Source: GAO analysis of CMS IRF-PAI data.

[End of table]

Some IRF officials are concerned that they may have to limit admissions 
in order to comply with the rule and that some IRFs may have to close 
or reduce beds.[Footnote 34] Some of the IRF officials we interviewed 
reported that as the threshold of the rule increases they expect to 
limit admissions for patients with conditions not on the list in the 
rule. One IRF official estimated that the facility's revenues would 
decrease by 40 percent by the third year of the rule's transition 
period, severely harming the facility financially and affecting access 
to care, and another IRF official reported that the facility expected 
its census to drop by half, which would affect the number of beds it 
could operate and staff it could employ. An IRF official whose facility 
was meeting the 75 percent threshold said that if the facility fell 
below the threshold, it would limit admissions to remain in compliance.

IRFs have not generally been declassified based on the failure to 
comply with the 75 percent rule, and CMS recently clarified 
instructions for FIs to use to conduct compliance assessments. 
Officials from CMS's 10 regional offices reported that no IRFs had been 
declassified in at least the past 5 years.[Footnote 35] When CMS found 
that FIs were using different approaches to conduct compliance 
assessments, it determined that one cause was that the CMS manuals did 
not detail the methodology FIs should use to perform the reviews. 
Following CMS's modifications of the rule, it issued new instructions 
in a program transmittal that defined and standardized the procedures 
that FIs are to use to conduct compliance assessments, and some FI 
officials we interviewed reported that instructions were clearer and 
more detailed than in prior years.

IRFs Vary in the Criteria Used to Assess Patients for Admission, and 
CMS Does Not Routinely Review IRFs' Admission Decisions:

The criteria IRFs used to assess patients for admission varied by 
facility, and CMS has not routinely reviewed IRFs' admission decisions. 
In particular, IRFs used a range of criteria in making admission 
decisions, including patient characteristics such as function, in 
addition to condition. Admission decisions may also be influenced by an 
IRF's level of compliance with the 75 percent rule's list of 
conditions. CMS, working through its FIs, has not routinely reviewed 
IRF admission decisions for medical necessity, although the CMS 
officials reported that such reviews could be used as a means to target 
problems.

IRFs Use Variety of Criteria, Including Functional Status, to Assess 
Patients for Admission:

The IRF officials we interviewed varied in the criteria they used to 
characterize the patients that were appropriate for admission. (See 
table 3.) The number of criteria they reported using ranged from two to 
six, with no IRF reporting that it relied on a single criterion for 
admission.

Table 3: Criteria That Characterize Appropriate Patients for Admission, 
as Reported by 12 IRFs:

Criteria: Potential to return to home/community, discharge plan;
Number of IRFs reporting use of criterion: 8.

Criteria: Need for/ability to tolerate 3 hours of therapy daily;
Number of IRFs reporting use of criterion: 8.

Criteria: Functional level/potential for functional improvement;
Number of IRFs reporting use of criterion: 6.

Criteria: Medical issues, requirement for inpatient monitoring, level 
of medical stability;
Number of IRFs reporting use of criterion: 6.

Criteria: Need for two types of therapies;
Number of IRFs reporting use of criterion: 3.

Criteria: Cognitive ability to learn;
Number of IRFs reporting use of criterion: 3.

Criteria: Patient willingness to participate in therapy;
Number of IRFs reporting use of criterion: 2.

Criteria: Need for 24-hour nursing care;
Number of IRFs reporting use of criterion: 2.

Criteria: Family support, expectations;
Number of IRFs reporting use of criterion: 2.

Criteria: Diagnosis;
Number of IRFs reporting use of criterion: 2.

Criteria: Need for multidisciplinary approach;
Number of IRFs reporting use of criterion: 1.

Criteria: 3-to 4-week length of stay;
Number of IRFs reporting use of criterion: 1.

Criteria: Age;
Number of IRFs reporting use of criterion: 1.

Criteria: Comorbidities that affect function;
Number of IRFs reporting use of criterion: 1.

Source: GAO analysis of IRF officials' interview responses.

[End of table]

Whereas some IRF officials reported that they used function to 
characterize patients who were appropriate for admission (e.g., 
patients with a potential for functional improvement), as shown in 
table 3, others said they used function to characterize patients not 
appropriate for admission (e.g., patients whose functional level was 
too high, indicating that they could go home, or too low, indicating 
that they needed to be in a SNF). In combination, all the IRF officials 
we interviewed evaluated a patient's function when assessing whether a 
patient needed the level of services of an IRF, and almost half of the 
IRF officials interviewed stated that function was the main factor that 
should be considered in assessing the need for IRF services.

The IRF officials we interviewed reported that they did not admit all 
the patients they assessed. They estimated that the proportion of 
patients they assessed but did not admit ranged from 5 percent to 58 
percent.[Footnote 36] Most patients were admitted to IRFs from an acute 
care hospital, and the IRF officials reported receiving referrals from 
as few as 1 hospital to as many as 55 hospitals.[Footnote 37] The IRF 
typically received a request from a physician in the acute care 
hospital requesting a medical consultation from an IRF physician, or 
from a hospital discharge planner or social worker indicating that they 
had a potential patient. An IRF staff member--usually a physician and/
or a nurse[Footnote 38]--conducted an assessment prior to admission to 
determine whether to admit a patient.

Admission Decisions May Also Be Influenced by IRF's Level of Compliance 
with Rule's List of Conditions:

In addition to individual patient characteristics, admission decisions 
may also be influenced by an IRF's level of compliance with the 75 
percent rule's list of conditions. All the IRF officials we interviewed 
were able to track their own facility's compliance level regularly, and 
said they tracked it generally on a daily, weekly, or monthly basis. 
Some IRF officials we interviewed reported that the admission decision 
for a given patient may be affected by the IRF's compliance level at 
that time. For example, on a day when the facility is at the required 
level of compliance a patient with a certain condition that is not on 
the list in the rule may be admitted, but on another day when the 
facility is below its compliance level a patient with the same 
condition might not be admitted.[Footnote 39] Half of the IRF officials 
said that when the rule is enforced they expect they will try to admit 
more patients with conditions on the list in the rule.

CMS Has Not Routinely Reviewed Admission Decisions:

CMS, working through its FIs, has not routinely reviewed IRF admission 
decisions for medical necessity. Among the 10 FI officials we 
interviewed, over half were not conducting reviews of patients admitted 
to IRFs. Those that were doing reviews used different approaches for 
selecting records to be reviewed, such as focusing only on the largest 
IRFs that failed to comply with the rule or requesting a few records 
from each IRF in its service area. CMS officials estimated that less 
than 1 percent of admissions in facilities excluded from IPPS, such as 
IRFs, are reviewed, and reported that such reviews could be used as a 
means to target problems or vulnerabilities.

Among the experts IOM convened and other experts we interviewed, it was 
stated that because there has been no routine review for medical 
necessity in IRFs, some IRFs have become "sloppy" in their admitting 
practices and have taken a "laissez-faire attitude" toward admitting 
patients. This perspective is borne out through ad hoc studies done by 
three FIs that found inadequate justification for admission. For 
example, in one study an FI official reviewed about 3,000 medical 
charts and reported that the need for inpatient rehabilitation was 
unclear in about 30 percent to 40 percent of the IRF patients' charts 
reviewed.[Footnote 40] The other two FIs reviewed fewer cases, but 
found a higher proportion of patients in IRFs who did not appear to 
need inpatient rehabilitation.

In contrast to CMS's approach, private payers rely on individual 
preauthorization to ensure that the most appropriate patients are 
admitted to IRFs. Of the three major insurers and one managed care plan 
whose officials we interviewed, all required preauthorization for each 
admission to an IRF when determining whether a specific patient should 
be admitted, judging each case individually. In making their decisions, 
they relied on a variety of factors, which differed from payer to 
payer, including diagnosis, symptoms, treatment plan, the need for and 
the patient's ability to participate in 3 hours of daily therapy, the 
need for care by a physiatrist,[Footnote 41] and the potential for an 
IRF admission to provide an earlier discharge from the acute care 
hospital (compared to a possibly longer stay in the acute care hospital 
with discharge to home or a SNF). Three private payers we spoke with 
indicated that IRFs are generally paid on a per diem basis, and all 
said that patients are monitored by the insurer or health plan 
throughout their IRF stay.

Experts Differed on Adding Conditions to List in Rule but Agreed That 
Condition Alone Does Not Provide Sufficient Criteria:

The experts IOM convened and other experts we interviewed differed on 
whether conditions should be added to the list in the 75 percent rule 
but agreed that condition alone does not provide sufficient criteria to 
identify the types of patients appropriate for IRFs. The experts IOM 
convened questioned the strength of the evidence for adding conditions 
to the list. They reported that the evidence on the benefits of IRF 
services--particularly for certain orthopedic conditions--is variable, 
and they called for further research. Other experts did not agree on 
whether conditions, including a broader category of joint replacements, 
should be added to the list. The experts IOM convened and other experts 
agreed that condition alone is insufficient for identifying appropriate 
patients and contended that functional status should also be 
considered. The experts IOM convened suggested factors to use in 
classifying IRFs, including both patient and facility characteristics.

Experts IOM Convened Questioned Evidence for Adding Conditions to List 
in Rule, Finding Evidence for Certain Orthopedic Conditions 
Particularly Weak, and Called for More Research:

The experts IOM convened generally questioned the strength of the 
evidence for the conditions suggested for addition to the list in the 
rule. Some of them reported that there was little information available 
on the need for inpatient rehabilitation for cardiac, transplant, 
pulmonary, or oncology patients. One of them stated that inpatient 
rehabilitation may be the best way of caring for patients who have 
weakened physically due to long hospital stays but added that "we 
simply do not know." The same expert also cited a study that showed 
that inpatient rehabilitation services made a difference for patients 
with metastatic spine cancer and noted that this result was unexpected 
and could indicate that "clinical intuition" on the benefits of 
inpatient rehabilitation may not always be reliable.

For conditions currently on the list in the rule, the experts IOM 
convened reported varying degrees of strength in the evidence on the 
benefits of IRF services. Although the experts IOM convened did not 
comment on every condition on the list, the group generally agreed that 
the data on the benefits of intensive inpatient rehabilitation for 
stroke are "incontrovertible." For certain other conditions on the 
list, such as spinal cord injury and traumatic brain injury, they 
reported that it is reasonable to expect intensive inpatient 
rehabilitation to provide good outcomes because these patients need 
intensive training about self-care and patients with traumatic brain 
injury may also require behavioral services. One expert questioned the 
strength of the evidence related to hip fractures, saying it was 
unclear whether patients with a hip fracture would be better served by 
sending them home right away, by putting them in an IRF, or by giving 
them some combination of intensive inpatient rehabilitation, home 
health care, or care in a SNF.

The condition the experts IOM convened discussed most was joint 
replacement, which was the most common condition for patients admitted 
to IRFs and is included on the list of conditions in the rule but only 
under certain circumstances. In general, they reported that, except for 
a few subpopulations, uncomplicated unilateral joint replacement 
patients rarely need to be admitted to an IRF.[Footnote 42] For 
example, one of the experts said that admission to an IRF of a healthy 
person with an uncomplicated joint replacement is an example of a 
practice that is not evidence-based, and others said that there are no 
data and little evidence on the effectiveness of intensive inpatient 
rehabilitation for elective joint replacement patients. Another expert 
stated that the evidence on the benefits of IRF services for hip 
fracture and joint replacement patients is "very, very weak," that 
orthopedics is the "heart of the issue" related to the list of 
conditions in the rule, and that a panel of clinicians should be 
convened to focus solely on the orthopedic conditions.

Most of the experts IOM convened called for more research in several 
areas, including which types of patients can be treated best in IRFs 
and the effectiveness of IRFs in comparison with other settings of 
care. CMS has also identified questions for a future research agenda 
that can assess the efficacy of rehabilitation services in various 
settings.[Footnote 43] CMS may also undertake other activities, such as 
periodically holding additional meetings with researchers or 
encouraging observational studies, as well as soliciting comments from 
the public for additional studies.

IRF Officials Differed on Whether Conditions, Including More Broadly 
Defined Joint Replacement, Should Be Added to List in Rule:

There was no general agreement among the IRF officials we consulted on 
whether conditions should be added to the list in the rule, and if so, 
which conditions. In our interviews with IRF officials, three-quarters 
identified various conditions that should be added. Of these, all 
suggested the addition of cardiac conditions, and some identified other 
conditions, such as pulmonary conditions, transplants, and more joint 
replacements than are currently on the list. The reasons these IRF 
officials gave for adding these conditions included that these patients 
can become weakened physically during a hospital stay and need services 
in an IRF to regain their strength and also that their experience shows 
they can achieve good outcomes for these patients. The remaining IRF 
officials said no conditions should be added. Some reasons they cited 
were that these patients can be treated in a less intensive setting, 
the conditions are too broad to be meaningful, and using a list of 
conditions is the wrong approach. IRF officials differed regarding the 
addition of joint replacement patients. Half of them suggested that 
joint replacement be more broadly defined to include more patients, 
saying, for example, that the current requirements were too restrictive 
and arbitrary, and a couple of them said that unilateral joint 
replacement patients are not generally appropriate for IRFs.

Experts Contended That Functional Status, in Addition to Condition, 
Should Be Used to Identify Appropriate Types of Patients for Intensive 
Inpatient Rehabilitation:

The experts IOM convened contended that condition alone was 
insufficient for identifying which patients, or types of patients, 
required the level of services available in an IRF and generally agreed 
that functional status should also be used. A patient's condition was 
perceived as an acceptable starting point to understanding patient 
needs and as a way to characterize the patients served by IRFs. But the 
experts IOM convened generally agreed that condition, by itself, was 
insufficient and that more information was needed. They said that 
condition alone fails to identify the subgroup within each condition 
that is most appropriate for intensive inpatient rehabilitation. For 
example, one of them noted that although an IRF could be filled with 
patients that have conditions on the list in the rule, the patients 
could be completely inappropriate for that setting. Another expert at 
the meeting reported general agreement among the group that using 
diagnosis alone is not sufficient.[Footnote 44]

In addition to the experts convened by IOM, other experts we 
interviewed also said that condition alone was insufficient because 
having a condition on the list in the rule does not automatically 
indicate the need for intensive inpatient rehabilitation (e.g., even 
though stroke is on the list, only a subgroup of stroke patients 
require IRF services) and having a condition not on the list does not 
necessarily mean the patient does not need IRF services (e.g., although 
there is no cardiac condition on the list, a subgroup of cardiac 
patients need the level of services of an IRF). In addition, the FI and 
IRF officials we interviewed generally reported as well that condition 
alone was insufficient. Over half the FI officials we interviewed said 
that condition is insufficient by itself to determine the need for 
intensive inpatient rehabilitation, and some said that diagnosis is 
only a starting point. As noted earlier, all the IRF officials reported 
using a variety of criteria, beyond condition, to assess patients for 
admission, including function.

Among the experts convened by IOM, functional status was identified 
most frequently as the information required in addition to condition. 
Half of the experts IOM convened commented on the need to add 
information about functional status, such as functional need, 
functional decline, motor and cognitive function, and functional 
disability. To measure both diagnosis and function, one of them 
suggested using the case-mix groups because they combine both 
dimensions.

Experts we interviewed also raised some concerns, however, about using 
function as a measure of need for intensive inpatient rehabilitation. 
The concerns voiced by the FI officials we interviewed included the 
potential for abuse by qualifying more patients for admissions and the 
potential for difficulty in adjudicating claims. One FI official said 
that moving toward an assessment of functional status would require a 
better instrument than currently exists.[Footnote 45] Another expert we 
interviewed said that using only functional status could lead to 
including custodial patients that are currently in SNFs. Officials at 
CMS also expressed concerns regarding how to measure the need for 
intensive inpatient rehabilitation based on functional status because a 
patient can have a low functional status but not need intensive 
inpatient rehabilitation.

Experts IOM Convened Suggested Factors to Consider Using to Classify 
IRFs:

Almost all the experts IOM convened said that IRF classification should 
include characteristics of the patients served, but a couple said that 
IRF classification should not include patient characteristics. Among 
those expressing the need to use patient characteristics, function was 
identified most often, although it was mentioned that it would be hard 
to operationalize. Some of the experts IOM convened also suggested that 
the percentage threshold be set at a lower level than 75 percent (for 
example, 60 percent or 65 percent) as a compromise until more 
information becomes available to modify the list in the rule.

The experts IOM convened who opposed using patient characteristics to 
classify IRFs suggested that IRFs be classified with just the other six 
facility criteria, potentially looking at state licensure requirements 
for additional facility criteria that could be applied specifically to 
IRFs. These experts (as well as others we interviewed) said that no 
other facility is classified using both patient and facility 
characteristics and that IRFs are unique in being subjected to this 
approach. However, Medicare does classify other facilities that are 
exempt from IPPS using a characteristic about the patients served in 
those facilities.[Footnote 46] Furthermore, other experts at the 
meeting did not agree that the six certification criteria were 
sufficient for distinguishing IRFs since long-term care hospitals could 
likely meet these criteria as well.[Footnote 47]

Conclusions:

Our analysis of Medicare data shows that there are Medicare patients in 
IRFs who may not need the intensive level of rehabilitation services 
these facilities offer. Just over half of all Medicare patients 
admitted to IRFs in fiscal year 2003 were admitted for a condition that 
was not on the list in the 75 percent rule. Of those patients whose 
primary or comorbid condition was not on the list, the largest group 
was joint replacement patients whose condition did not fit the list's 
specific criteria for joint replacement. The experts IOM convened and 
other experts we interviewed reported that unilateral, uncomplicated 
joint replacement patients rarely need to be in an IRF. These experts 
also reported that patients who may not need to be in an IRF may have 
been admitted because CMS has not been routinely reviewing the IRFs' 
admission decisions to determine whether they were medically justified. 
Increased scrutiny of individual admissions through routine reviews for 
medical necessity following patient discharge could be used to target 
problems and vulnerabilities and thereby reduce the number of 
inappropriate admissions in the future.

While some patients do not need to be in an IRF, the need for IRF 
services may be more difficult to determine for other patients. The 
experts convened by IOM called for more research to understand the 
effectiveness of intensive inpatient rehabilitation, reporting that the 
evidence for the effectiveness of IRF services varied in strength for 
conditions on the list and was particularly weak for certain orthopedic 
conditions. CMS has also recognized the need for more research in this 
area and asked NIH to convene one meeting to help identify research 
priorities for inpatient rehabilitation. Research studies that can 
produce information on a timely basis, such as observational studies or 
meetings of clinical experts with specialized expertise, would be 
especially helpful in this effort.

The presence of patients in IRFs who may not need that level of 
services and the calls for more research on the effectiveness of 
inpatient rehabilitation lead us to conclude that greater clarity is 
needed in the rule about what types of patients are most appropriate 
for rehabilitation in an IRF. There was general agreement among the 
experts we interviewed, including the experts convened by IOM, that 
condition alone is not sufficient to identify the most appropriate 
types of patients since within any condition only a subgroup of 
patients require the level of services of an IRF. We believe that if 
condition alone is not sufficient to identify the most appropriate 
types of patients, it would not be useful to add more conditions to the 
list at the present time. There was also general agreement among the 
experts that more information is needed to characterize appropriate 
types of patients, and the most commonly identified factor was 
functional status. However, some of the experts convened by IOM 
recognized the challenge of operationalizing a measure of function, and 
some experts questioned the ability of current assessment tools to 
predict which types of patients will improve if treated in an IRF. 
Despite the challenge, more clearly delineating the most appropriate 
types of patients would offer more direction to IRFs--and to the health 
professionals that refer patients to them--about which types of 
patients can be treated in IRFs.

We believe that action to conduct reviews for medical necessity and to 
produce more information about the effectiveness of inpatient 
rehabilitation could support future efforts to refine the rule over 
time to increase its clarity about which types of patients are most 
appropriate for IRFs. These actions could help to ensure that Medicare 
does not pay IRFs for patients who could be treated in a less intensive 
setting and does not misclassify facilities for payment.

Recommendations for Executive Action:

To help ensure that IRFs can be classified appropriately and that only 
patients needing intensive inpatient rehabilitation are admitted to 
IRFs, we recommend that the CMS Administrator take three actions:

* CMS should ensure that FIs routinely conduct targeted reviews for 
medical necessity for IRF admissions.

* CMS should conduct additional activities to encourage research on the 
effectiveness of intensive inpatient rehabilitation and the factors 
that predict patient need for intensive inpatient rehabilitation.

* CMS should use the information obtained from reviews for medical 
necessity, research activities, and other sources to refine the rule to 
describe more thoroughly the subgroups of patients within a condition 
that are appropriate for IRFs rather than other settings, and may 
consider using other factors in the descriptions, such as functional 
status.

Agency Comments and Comments from National Associations and Our 
Evaluation:

In commenting on a draft of this report, CMS stated that our work would 
be of assistance to the agency in examining issues related to patient 
coverage and the classification of inpatient rehabilitation facilities. 
CMS generally agreed with our recommendations and provided technical 
comments, which were incorporated as appropriate. CMS agreed that 
targeted reviews for medical necessity are necessary and said that it 
expected its contractors to direct their scarce resources toward areas 
of risk. CMS said that it has expanded its efforts to provide greater 
oversight of IRF admissions through local policies that have been 
implemented or are being developed by the FIs. CMS also agreed with our 
recommendation to encourage additional research and noted that it has 
expanded its activities to guide future research efforts by encouraging 
government research organizations, academic institutions, and the 
rehabilitation industry to conduct both general and targeted research. 
CMS said that it would collaborate with NIH to determine how best to 
promote research. CMS also stated that, while it expected to follow our 
recommendation to describe subgroups of patients within a medical 
condition, it would need to give this action careful consideration 
because it could result in a more restrictive policy than the present 
regulations. CMS noted that future research could guide the agency's 
descriptions of subgroups. Although CMS indicated its intention to 
follow this recommendation, we clarified the language in the 
recommendation to encourage CMS to obtain research and other 
information to undertake this effort. CMS's written comments are 
reprinted in appendix IV.

We also received oral comments on a draft of this report from 
representatives of the American Hospital Association, the American 
Medical Rehabilitation Providers Association, and the Federation of 
American Hospitals. All three groups noted that we applied the criteria 
for a rule that was effective July 1, 2004, to data from fiscal year 
2003, when IRFs were operating under a different list of conditions. 
They stated that a difference between the lists of conditions in these 
2 years was in the definition of polyarthritis, which affected the 
circumstances under which joint replacement patients were counted under 
the rule. They reported that in fiscal year 2003, IRFs admitted 
Medicare joint replacement patients who they believed were within the 
criteria of the rule in effect at that time, but may not have been 
within the criteria of the rule that took effect July 1, 2004. In its 
technical comments, CMS also raised concerns about our use of fiscal 
year 2003 data. We analyzed the admission of joint replacement patients 
to IRFs and found no material change between the same time periods in 
2003 and 2004, as noted in the report. In addition, all three groups 
supported the call for more research. The three groups also provided 
technical comments, which we incorporated where appropriate.

We are sending copies of this report to the Administrator of CMS and 
other interested parties. We will also make copies available to others 
on request. In addition, the report will be available at no charge on 
the GAO Web site at [Hyperlink, http://www.gao.gov].

If you or your staffs have any questions about this report, please call 
me at (202) 512-7114 or Linda T. Kohn at (202) 512-4371. The names of 
other staff members who made contributions to this report are listed in 
appendix V.

Signed by:

Marjorie Kanof:
Managing Director, Health Care:

[End of section]

Appendix I: List of Conditions in CMS's 75 Percent Rule:

A facility may be classified as an IRF if it can show that, during a 12-
month period[Footnote 48] at least 75 percent of all its patients, 
including its Medicare patients, required intensive rehabilitation 
services for the treatment of one or more of the following 
conditions:[Footnote 49]

1. Stroke.

2. Spinal cord injury.

3. Congenital deformity.

4. Amputation.

5. Major multiple trauma.

6. Fracture of femur (hip fracture).

7. Brain injury.

8. Neurological disorders (including multiple sclerosis, motor neuron 
diseases, polyneuropathy, muscular dystrophy, and Parkinson's disease).

9. Burns.

10. Active, polyarticular rheumatoid arthritis, psoriatic arthritis, 
and seronegative arthropathies resulting in significant functional 
impairment of ambulation and other activities of daily living that have 
not improved after an appropriate, aggressive, and sustained course of 
outpatient therapy services or services in other less intensive 
rehabilitation settings immediately preceding the inpatient 
rehabilitation admission or that result from a systemic disease 
activation immediately before admission, but have the potential to 
improve with more intensive rehabilitation.

11. Systemic vasculidities with joint inflammation, resulting in 
significant functional impairment of ambulation and other activities of 
daily living that have not improved after an appropriate, aggressive, 
and sustained course of outpatient therapy services or services in 
other less intensive rehabilitation settings immediately preceding the 
inpatient rehabilitation admission or that result from a systemic 
disease activation immediately before admission, but have the potential 
to improve with more intensive rehabilitation.

12. Severe or advanced osteoarthritis (osteoarthritis or degenerative 
joint disease) involving two or more major weight bearing joints 
(elbow, shoulders, hips, or knees, but not counting a joint with a 
prosthesis) with joint deformity and substantial loss of range of 
motion, atrophy of muscles surrounding the joint, significant 
functional impairment of ambulation and other activities of daily 
living that have not improved after the patient has participated in an 
appropriate, aggressive, and sustained course of outpatient therapy 
services or services in other less intensive rehabilitation settings 
immediately preceding the inpatient rehabilitation admission but have 
the potential to improve with more intensive rehabilitation. (A joint 
replaced by a prosthesis no longer is considered to have 
osteoarthritis, or other arthritis, even though this condition was the 
reason for the joint replacement.)

13. Knee or hip joint replacement, or both, during an acute 
hospitalization immediately preceding the inpatient rehabilitation stay 
and also meet one or more of the following specific criteria:

a. The patient underwent bilateral knee or bilateral hip joint 
replacement surgery during the acute hospital admission immediately 
preceding the IRF admission.

b.The patient is extremely obese, with a body mass index of at least 50 
at the time of admission to the IRF.

c.The patient is age 85 or older at the time of admission to the IRF.

[End of section]

Appendix II: Scope and Methodology:

In undertaking this work, we analyzed data on Medicare patients 
admitted to inpatient rehabilitation facilities (IRF) and also 
interviewed a wide variety of experts in the field to obtain various 
perspectives. We used several different sources of data, including data 
from the Centers for Medicare & Medicaid Services (CMS) about Medicare 
patients admitted to IRFs; interviews with officials at IRFs, fiscal 
intermediaries (FI), CMS regional offices, and private insurers; a 1-
day meeting of clinical experts in the field of physical medicine and 
rehabilitation; and interviews with other clinical and nonclinical 
experts and researchers in the field of rehabilitation as well as 
officials from professional associations of various disciplines 
involved in inpatient rehabilitation. In total, during this engagement, 
we spoke with 106 individuals, of whom 65 were clinicians. We conducted 
our work from May 2004 through April 2005 in accordance with generally 
accepted government auditing standards.

To identify the conditions that IRF patients have, we obtained from CMS 
the Inpatient Rehabilitation Facility--Patient Assessment Instrument 
(IRF-PAI) records for all IRF admissions of Medicare patients for 
fiscal year 2003 (October 1, 2002, to September 30, 2003), which have 
data on patient age and sex, impairment group code and case-mix group 
(CMG) classification, and comorbid conditions. To assess whether 
individual patients were considered to have 1 of the 13 conditions 
defined by the list of conditions in CMS's 75 percent rule, we applied 
the criteria laid out in CMS's Medicare Claims Processing 
Manual.[Footnote 50] This document lists the specific impairment group 
codes and ICD-9-CM diagnostic codes for comorbid conditions entered 
into the patient's IRF-PAI record that were used to identify patients 
who belonged in the 13 conditions.[Footnote 51] We conducted our 
analyses on Medicare patients only because CMS records contained data 
on the largest number of IRFs and the majority of patients in IRFs are 
covered by Medicare. Prior work by RAND found that the percentage of 
Medicare patients with the conditions on the list in the rule was a 
good predictor of the percentage of total patients in the conditions on 
the list in the rule.[Footnote 52] We analyzed these data at the 
patient level to compare compliance with the rule across impairment 
groups. To permit a discrete assignment of each patient to one 
impairment group, we gave priority to the impairment group code 
designated at admission.[Footnote 53] To assess the extent to which 
Medicare patients in IRFs with joint replacements had comorbidities, we 
examined their distribution among the four payment tiers assigned under 
the prospective payment system for IRFs. The assigned CMG in the IRF-
PAI data set includes a letter prefix that indicates that the patient 
either had no comorbidities related to the cost of providing inpatient 
rehabilitation or had one or more comorbidities expected to have a low, 
medium, or high impact on those costs. We calculated the proportion of 
joint replacement patients that fell into the no-comorbidity group, 
both overall and within each of the six joint replacement CMGs. To do 
our supplementary analysis on a sample of 2004 data, we compared the 
proportion of Medicare patients admitted to an IRF whose primary 
condition was joint replacement from July through December 2003 to the 
proportion of such patients from July through December 2004, using data 
from IRF-PAI records. We computed the proportion of Medicare patients 
admitted to IRFs that were joint replacement patients, ranked the 
facilities according to the proportion of Medicare joint replacement 
patients in 2003, and calculated the difference across the two time 
periods.

To determine the number of IRFs that met the requirements of the 75 
percent rule, we aggregated Medicare patients treated at the same IRF 
and calculated the total percentage of each IRF's patients that were 
admitted with a primary condition or a comorbid condition on the list 
in the rule. We examined the distribution of compliance levels across 
IRFs, applying the different thresholds that the rule phases in over 
several years, but we did not assess the appropriateness of any 
threshold level. To determine whether any IRFs had ever been 
declassified based on failure to comply with the 75 percent rule, we 
interviewed officials at CMS's 10 regional offices.

Our analyses rely on Medicare billing information, and we determined 
that these data were sufficiently reliable for this analysis. We 
followed the instructions CMS provided to FIs to "presumptively verify 
compliance" using the list of codes in the Medicare Claims Processing 
Manual to estimate how many patients have one of the conditions on the 
list in the rule as recorded on the IRF-PAI instrument. FIs use the 
list of codes in this manual as a first step to estimate how many 
patients have one of the conditions on the list in the rule. To assess 
the reliability of the IRF-PAI records for our data analyses, we 
interviewed two researchers who had experience using the IRF-PAI data 
set, and performed electronic testing of the required data elements, 
including impairment codes, comorbid conditions, and admission dates. 
We examined the IRF-PAI data set and found few missing or invalid 
entries for the variables we used. We did not compare the information 
entered on the IRF-PAI to medical records. All of these analyses 
encompassed services provided in facilities located in the 50 states 
and the District of Columbia.

To determine how IRFs assess patients for admission and how CMS reviews 
admission decisions for medical necessity, we interviewed the medical 
directors at 12 IRFs and the medical director or designee at 10 FIs. We 
used data from the RAND Corporation's "Case Mix Certification Rule for 
Inpatient Rehabilitation Facilities" (2003), prepared under contract to 
CMS, to select our respondents out of a total of more than 1,200 IRFs. 
RAND had analyzed the level of compliance of each IRF with the rule 
using the 10 conditions on the list at that time. We used RAND data to 
create a sampling frame to select IRFs to interview, but we did not 
rely on RAND's data for any findings or conclusions. We matched 
facilities with data from the IRF-PAI to identify them and sorted them 
by zip code according to the Northeast, Midwest, South, and West 
regions as defined by the U.S. Census Bureau. Within each region, we 
selected IRFs with a high, median, and low level of compliance with the 
75 percent rule. We identified the median complier in each region, and 
if necessary adjusted the selection of IRFs to (1) avoid interviewing 
more than one IRF in the same state and (2) provide a selection of for-
profit, freestanding, and rural facilities. If a selected provider was 
unwilling or unable to participate in the interview, we substituted the 
IRF next on the list that was most similar in characteristics to the 
facility originally chosen. We conducted a structured interview with 
the medical director of each facility, and provided unstructured time 
at the end of the interview for the respondent to raise other issues. 
For nonclinical questions that the medical directors were unable to 
answer, we spoke to a member of the administrative team. We identified 
the areas covered in the interviews through background interviews with 
professional associations, advocacy groups, CMS, and experts in 
inpatient rehabilitation and health policy research, and pretested the 
interview protocol with two IRFs not included in our sample.

The FIs we selected to interview were those that serviced the states in 
which the IRFs we selected were located. Because some FIs serviced more 
than one state, our selection yielded 10 FIs (out of a total of 30). To 
facilitate our interviews, we spoke with the appropriate CMS regional 
office, which notified an official at each FI about this engagement. We 
conducted a structured interview with the medical director or designee 
regarding (1) appropriate patients for inpatient rehabilitation, (2) 
the list of conditions in the rule, (3) assessment for compliance, and 
(4) reviews for medical necessity. We pretested the interview protocol 
with three FIs that were not included in our sample. We also spoke with 
FI officials who had been identified as being interested in inpatient 
rehabilitation. All FI officials had the opportunity to discuss issues 
other than those we highlighted. To compare Medicare's approach to the 
approaches of other payers, we selected a convenience sample of three 
insurers and one regional managed care organization to learn about 
their activities regarding inpatient rehabilitation. We interviewed 
officials from these payers, asking how they identified facilities for 
intensive inpatient rehabilitation, and how they identified appropriate 
patients for such services.

Our interviews do not represent all concerns or experiences of 
inpatient rehabilitation facilities, FIs, or private payers, and the 
answers to the structured interviews were not restricted to Medicare 
patients. Because we were directed to examine the 75 percent rule and 
not directly to evaluate the relative value of inpatient 
rehabilitation, we did not ask questions about the full spectrum of 
postacute care.

To evaluate the approach of using a list of conditions in the 75 
percent rule to classify IRFs, we contracted with the Institute of 
Medicine (IOM) of The National Academies to convene a 1-day meeting of 
clinical experts broadly representative of the field of physical 
medicine and rehabilitation. We identified for IOM the categories of 
participants preferred at the meeting. To identify specific 
participants, IOM obtained input from us, IOM members, advocacy groups, 
and individual experts in the field. It identified a pool of 
participants according to the preferred categories. In total, 14 
experts participated: 4 practicing physicians, 2 physical therapists, 2 
occupational therapists, 1 speech therapist, 2 nurses, 1 physician/
researcher in postacute care, 1 physician/researcher from a research 
institute, and 1 health services researcher. The meeting was 
facilitated by a physician/researcher with expertise in Medicare 
payment policy. Invitations to participate were issued by IOM. 
Participants were invited as individual experts, not as organizational 
representatives. The group was not asked to reach consensus on any 
issues, and IOM was not asked to produce or publish a report of the 
meeting. We observed the meeting and subsequently reviewed the 
transcript and audiotape of the meeting, listed the individual comments 
made during the meeting, and grouped the comments around a limited 
number of themes. The comments from the meeting of the experts IOM 
convened represent their individual statements and not a consensus of 
the group as a whole. In convening the meeting, IOM was not able to get 
participation of clinical experts who were not employed in IRFs (such 
as referring physicians or therapists in acute care settings) and a 
private payer. The comments of participants should not be interpreted 
to represent the views of IOM or all clinical experts in the field of 
rehabilitation.

To examine the proportion of Medicare patients discharged from 
hospitals with different diagnosis-related groups (DRG) who went to 
IRFs for postacute care, we obtained CMS's Medicare Provider Analysis 
and Review (MEDPAR) file that contained all Medicare inpatient 
discharges from both acute care hospitals and IRFs for fiscal year 
2003. This file provided information on patient admission and discharge 
dates from acute care hospitals and rehabilitation facilities along 
with the DRG assigned for each acute care stay. We identified all the 
patients who entered IRFs within 30 days of their hospital discharge 
during fiscal year 2003 and calculated the frequencies for each DRG 
among them. We then selected the 19 DRGs that represented at least 1 
percent of IRF admissions from acute care hospitals. Next we determined 
the total number of hospital discharges with those DRGs and computed 
the proportion of patients in each of these DRGs that were admitted to 
an IRF within 30 days. The analysis of acute hospital discharges 
required that we use the separate MEDPAR file that had information on 
inpatient DRGs and on patients who did not enter IRFs as well as those 
who did. The MEDPAR analysis may therefore reflect a slightly different 
IRF patient population from that reflected in the analyses conducted 
with the IRF-PAI data set. Apparent variations in the admission dates 
recorded for IRF patients in the two sets of data prevented us from 
combining data from each into one consolidated data set.

[End of section]

Appendix III: Rates of IRF Medicare Admissions from Hospitals by Top 19 
DRGs of Patients Admitted to IRFs, Fiscal Year 2003:

Table 4: Rates of IRF Medicare Admissions from Hospitals by Top 19 DRGs 
of Patients Admitted to IRFs, Fiscal Year 2003:

DRG: 209;
Medical condition or procedure described by DRG[A]: Unilateral joint 
replacement of lower extremity;
Number of total hospital discharges: 428,518;
Number of IRF admissions from hospitals: 124,754;
Percentage of total hospital discharges admitted to IRFs: 29.1.

DRG: 14,15;
Medical condition or procedure described by DRG[A]: Stroke[B];
Number of total hospital discharges: 325,361;
Number of IRF admissions from hospitals: 54,433;
Percentage of total hospital discharges admitted to IRFs: 16.7.

DRG: 210, 211;
Medical condition or procedure described by DRG[A]: Hip or femur 
procedures[B] except joint replacement;
Number of total hospital discharges: 155,366;
Number of IRF admissions from hospitals: 30,381;
Percentage of total hospital discharges admitted to IRFs: 19.6.

DRG: 127;
Medical condition or procedure described by DRG[A]: Heart failure/shock;
Number of total hospital discharges: 695,349;
Number of IRF admissions from hospitals: 14,863;
Percentage of total hospital discharges admitted to IRFs: 2.1.

DRG: 243;
Medical condition or procedure described by DRG[A]: Medical back 
problems;
Number of total hospital discharges: 100,994;
Number of IRF admissions from hospitals: 8,970;
Percentage of total hospital discharges admitted to IRFs: 8.9.

DRG: 89;
Medical condition or procedure described by DRG[A]: Pneumonia and 
pleurisy;
Number of total hospital discharges: 521,432;
Number of IRF admissions from hospitals: 8,591;
Percentage of total hospital discharges admitted to IRFs: 1.6.

DRG: 88;
Medical condition or procedure described by DRG[A]: Chronic obstructive 
pulmonary disease;
Number of total hospital discharges: 398,066;
Number of IRF admissions from hospitals: 7,427;
Percentage of total hospital discharges admitted to IRFs: 1.9.

DRG: 113;
Medical condition or procedure described by DRG[A]: Amputation for 
circulatory disorders except upper limb and toe;
Number of total hospital discharges: 38,656;
Number of IRF admissions from hospitals: 7,200;
Percentage of total hospital discharges admitted to IRFs: 18.6.

DRG: 1;
Medical condition or procedure described by DRG[A]: Craniotomy;
Number of total hospital discharges: 32,916;
Number of IRF admissions from hospitals: 6,969;
Percentage of total hospital discharges admitted to IRFs: 21.2.

DRG: 471;
Medical condition or procedure described by DRG[A]: Bilateral joint 
replacement of lower extremity;
Number of total hospital discharges: 14,420;
Number of IRF admissions from hospitals: 6,941;
Percentage of total hospital discharges admitted to IRFs: 48.1.

DRG: 497;
Medical condition or procedure described by DRG[A]: Spinal fusion 
except cervical with complication and comorbidity;
Number of total hospital discharges: 25,714;
Number of IRF admissions from hospitals: 6,613;
Percentage of total hospital discharges admitted to IRFs: 25.7.

DRG: 107;
Medical condition or procedure described by DRG[A]: Coronary artery 
bypass surgery;
Number of total hospital discharges: 78,557;
Number of IRF admissions from hospitals: 6,584;
Percentage of total hospital discharges admitted to IRFs: 8.4.

DRG: 478;
Medical condition or procedure described by DRG[A]: Vascular operations 
except heart;
Number of total hospital discharges: 110,609;
Number of IRF admissions from hospitals: 5,881;
Percentage of total hospital discharges admitted to IRFs: 5.3.

DRG: 236;
Medical condition or procedure described by DRG[A]: Hip or pelvis 
fracture;
Number of total hospital discharges: 42,231;
Number of IRF admissions from hospitals: 5,863;
Percentage of total hospital discharges admitted to IRFs: 13.9.

DRG: 296;
Medical condition or procedure described by DRG[A]: Nutritional and 
metabolic disorders;
Number of total hospital discharges: 262,387;
Number of IRF admissions from hospitals: 5,588;
Percentage of total hospital discharges admitted to IRFs: 2.1.

DRG: 121;
Medical condition or procedure described by DRG[A]: Heart attack;
Number of total hospital discharges: 164,548;
Number of IRF admissions from hospitals: 5,440;
Percentage of total hospital discharges admitted to IRFs: 3.3.

DRG: 499;
Medical condition or procedure described by DRG[A]: Back and neck 
procedures except spinal fusion;
Number of total hospital discharges: 37,590;
Number of IRF admissions from hospitals: 5,366;
Percentage of total hospital discharges admitted to IRFs: 14.3.

Source: GAO analysis of CMS MEDPAR data.

[A] For some DRG descriptions, we reworded the DRG definition for 
simplicity. We selected all DRGs that represented at least 1 percent of 
IRF admissions from hospitals in fiscal year 2003. These 19 DRGs 
accounted for 59 percent of all such admissions. Over 94 percent of 
patients admitted to IRFs in fiscal year 2003 came from acute care 
hospitals, while about 3 percent came from the community and 1 percent 
from SNFs. DRGs only partially coincide with the impairment group codes 
used to categorize patients admitted to IRFs. For example, patients 
with hip fractures are included in DRG 209 or 471 if they received one 
or more joint replacements. Hip fractures treated with other surgical 
procedures are coded under DRG 210 or 211, and those treated medically 
are in DRG 236.

[B] Contains two DRGs.

[End of table]

[End of section]

Appendix IV: Comments from the Centers for Medicare & Medicaid Services:

Department Of Health & Human Services: 
Centers for Medicare s Medicaid Services:

April 5, 2005:

Administrator:
Washington, DC 20201:

TO: Marjorie Kanof:
Managing Director, Health Care:

FROM: Mark B. McClellan, M.D., Ph.D.:
Administrator:

Centers for Medicare & Medicaid Services:

SUBJECT: Government Accountability Office's Draft Report: MEDICARE. 
More Specific Criteria Needed to Classify Inpatient Rehabilitation 
Facilities: (GAO-05-366):

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO) draft report entitled, MEDICARE: More 
Specific Criteria Needed to Classify Inpatient Rehabilitation 
Facilities (GAO-05-366).

The Centers for Medicare & Medicaid Services (CMS) wants to express its 
appreciation to the GAO for its work in producing this report. The 
effort will be of assistance to CMS as the agency and its contractors 
continue to examine issues related to patient coverage and the 
classification of inpatient rehabilitation facilities (IRFs).

The draft report recommends that CMS describe subgroups within a 
medical condition before expanding the list of the qualifying medical 
conditions. While we expect to follow this recommendation, using 
subgroups to further describe the existing 13 medical conditions will 
need to be considered carefully, as we expect this would result in a 
more restrictive policy than the present regulations. Therefore, CMS 
will review the GAO's final report and final recommendations carefully. 
Future research can inform CMS where changes, such as describing 
subgroups of the current medical conditions or adding new medical 
conditions, may be appropriate.

In addition, the draft report recommends conducting additional 
activities to encourage research and to perform a more targeted medical 
review for patients admitted to IRFs. Currently, CMS has expanded its 
activities to guide future research efforts and to provide guidance 
regarding appropriate admissions to an IRF as opposed to another care 
setting. For example, CMS has expanded its efforts to provide greater 
oversight of IRF admissions through a number of Local Coverage 
Decisions (LCDs) that are now in effect or in advance stages of 
development. In addition, on February 14, CMS in collaboration with the 
National Institutes of Health, National Center for Medical 
Rehabilitation Research sponsored a panel meeting to review available 
research on the types of patients appropriate for inpatient 
rehabilitation care and provide insight into where additional research 
may be needed.

Medicare covers rehabilitation care in a variety of settings, including 
the home, skilled nursing facilities, outpatient facilities, hospitals 
and IRFs. CMS is committed to ensuring that beneficiaries have access 
to high quality rehabilitation services in the most appropriate 
setting. Medicare's payments to IRFs are made at a level commensurate 
with the type of intensive inpatient rehabilitation services these 
facilities are intended to provide. Consequently, Medicare maintains 
the "75 percent rule" and other policies to ensure its higher payments 
to IRFs are appropriately directed to this more intense level of 
service.

Attached are the detailed comments to each of the GAO's recommendations 
in the report. We have also provided (in Attachment B) a number of 
technical comments that the GAO may want to consider to aid in 
clarifying several aspects of the report.

Attachments:

Attachment A:

Comments to the GAO Draft Report: Medicare: More Specific Criteria 
Needed to Classify Inpatient Rehabilitation Facilities (GAO-05-366):

GAO Recommendation:

Before considering the addition of conditions to the list in the 75 
percent rule, CMS should describe more thoroughly the subgroups within 
a condition that are appropriate for IRFs rather than other settings, 
and may consider using other factors in the condition descriptions, 
such as functional status.

CMS Response:

We expect to adopt GAO's recommendation that prior to adding medical 
conditions to the list specified at 42 CFR 412.23(b)(2)(iii), it would 
be beneficial to examine whether each of the medical conditions on the 
list can be divided into subgroups in order to better delineate which 
patients can most appropriately be treated in an IRF and which can be 
more appropriately cared for in other settings. However, in 
implementing this recommendation, it should be noted that subdividing 
the existing medical conditions would make the medical conditions more 
restrictive as a method to classify a facility as an IRF. Future 
research in this area has the potential to determine whether 
establishing subgroups, including those based on function, is 
achievable before consideration is given to adding any new medical 
conditions.

GAO Recommendation:

CMS should conduct additional activities to encourage research on the 
effectiveness of intensive inpatient rehabilitation and the, factors 
that predict patient need for intensive inpatient rehabilitation.

CMS Response:

We agree with this recommendation. We welcome the results of well-
designed studies and continue to review available research. 
Specifically, the CMS has actively encouraged government clinical 
research organizations, academic institutions, and industry 
rehabilitation groups to conduct both general and targeted research 
that would inform all interested parties regarding the types of 
patients that would most benefit from intensive inpatient 
rehabilitation CMS also requested the NIH to convene a research panel 
to determine future areas of research. In the next few months, the NIH 
is expected to report the results of the panel to CMS. The results will 
be used to guide research that will help determine which facility and 
patient factors may be considered to classify a facility as an IRF. The 
CMS will collaborate with NIH to determine how best to promote this 
research.

GAO Recommendation:

CMS should ensure that fiscal intermediaries (FIs) routinely conduct 
targeted reviews, for medical necessity for IRF admissions.

CMS Response:

CMS concurs that targeted reviews by Fls for medical necessity for IRF 
admissions are necessary. We expect our contractors will target their 
scarce resources on the areas and admission patterns that present the 
highest vulnerability to the Medicare program. Contractors are required 
to use data analysis tools and techniques to identify areas that 
present risk and are expected to address those risks appropriately to 
protect the Medicare Trust Fund.

CMS has already taken a number of positive steps in this area. For 
example, several Fls have implemented LCDs while a number of others 
have LCDs in advance stages of development.

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

Linda T. Kohn, (202) 512-4371:

Acknowledgments:

Manuel Buentello, Behn Kelly, Ba Lin, Eric Peterson, Kristi Peterson, 
and Roseanne Price made key contributions to this report.

FOOTNOTES

[1] Under authority provided in the Social Security Act, the Secretary 
defines a rehabilitation hospital and unit. See 42 U.S.C. 
§1395ww(d)(1)(B) (2000). 

[2] Not all patients with a given condition may require the level of 
rehabilitation provided in an IRF. For example, although a subset of 
patients who have had a stroke may require the intensive level of care 
provided by an IRF, others may be less severely disabled and require 
less intensive services.

[3] In addition to IRFs, acute care hospitals, and SNFs, other settings 
that provide rehabilitation services include long-term care hospitals, 
outpatient rehabilitation facilities, and home health care.

[4] See 42 C.F.R. §412.23(b)(2) (2004).

[5] The 13 conditions listed in the 2004 rule are stroke; spinal cord 
injury; congenital deformity; amputation; major multiple trauma; hip 
fracture; brain injury; neurological disorders; burns; certain active 
polyarticular rheumatoid arthritis, psoriatic arthritis, and 
seronegative arthropathies; certain systemic vasculidities with joint 
inflammation; severe or advanced osteoarthritis involving two or more 
major weight-bearing joints meeting certain criteria; and knee or hip 
joint replacement meeting certain specific criteria. The specific 
criteria for knee or hip joint replacement are that the patient must 
have undergone a knee or hip joint replacement, or both, during an 
acute care hospitalization immediately preceding the inpatient 
rehabilitation stay and also have had a bilateral procedure, or be at 
least 85 years of age or older, or be extremely obese with a body mass 
index of at least 50. For an annotated list of these conditions, see 
appendix I.

[6] The time period is defined by CMS or the CMS contractor.

[7] To be classified as an IRF, a facility would also have to meet six 
other regulatory criteria showing that it had (1) a Medicare provider 
agreement; (2) a preadmission screening procedure; (3) medical, 
nursing, and therapy services; (4) a plan of treatment for each 
patient; (5) a coordinated multidisciplinary team approach; and (6) a 
medical director of rehabilitation with specified training or 
experience. IRFs must also meet other criteria identified in 42 C.F.R. 
§412.22 (2004) and 42 C.F.R. §412.25 (2004).

[8] See 69 Fed. Reg. 25752 (May 7, 2004).

[9] See MedPAC, Report to the Congress: New Approaches in Medicare, Ch. 
5, "Defining Long-Term Care Hospitals" (Washington, D.C.: June 
2004),123. CMS officials also reported that preliminary data showed 
that IRF payments exceeded costs by approximately 17 percent in 2002, 
the first year of IRF prospective payment.

[10] See H.R. Rep. 108-391, at 649 (2003).

[11] The Consolidated Appropriations Act, 2005, effectively prohibits 
the Secretary of Health and Human Services from enforcing the 75 
percent rule and reclassifying IRFs as hospitals subject to the 
inpatient prospective payment system until he either (1) determines 
that the current rule is not inconsistent with the recommendations 
contained in our report or (2) issues an interim rule revising the 75 
percent rule. The appropriations act provides for the Secretary to take 
such action no later than 60 days after our report is issued. See Pub. 
L. No. 108-447, Div. F., Tit. II, §219, 118 Stat. 2809, 3141-42.

[12] We analyzed the 2003 data--the most recent data available at the 
time--using the 13 conditions in the current regulation even though in 
fiscal year 2003 there were 10 conditions on the list.

[13] Other data sources contained data on only a subset of IRFs. In 
addition, analyses by RAND using the 10 conditions on the list at that 
time found that the percentage of Medicare patients with the conditions 
on the list in the rule was a good predictor of the percentage of total 
patients with the conditions on the list in the rule. See Grace M. 
Carter, O. Hayden, et al., "Case Mix Certification Rule for Inpatient 
Rehabilitation Facilities," DRU-2981-CMS (Santa Monica, Ca.: May 2003.)

[14] The impairment group code identifies the medical condition that 
caused the patient to be admitted to an IRF, and its sole function is 
to determine payment rates. As a result, the impairment group codes 
describe every patient in an IRF and include medical conditions that 
are on the list in the rule as well as those that are not on the list 
since IRFs may treat patients with conditions not on the list. In 
contrast, the list of conditions in the rule describes the patient 
population that is to be treated in an IRF to ensure that a facility is 
appropriately classified to justify payment for the level of services 
furnished.

[15] As used in this report, a primary condition is the first or 
foremost medical condition for which the patient was admitted to an 
IRF, and other medical conditions may coexist in the patient as 
comorbid conditions, or comorbidities.

[16] Throughout this report, the "list in the rule" refers to the list 
of 13 conditions as specified in the 2004 75 percent rule, and when we 
say that a condition is on (or off) the list, we mean that we have (or 
have not) been able to link the condition as identified in the IRF-PAI 
record to a condition on the list in the rule. 

[17] We followed the instructions CMS provided to FIs for them to use 
as a first step to "presumptively verify compliance" using the list of 
codes in the manual to estimate how many patients have one of the 
conditions on the list in the rule as recorded on the IRF-PAI 
instrument. (See CMS, "Medicare Claims Processing,"CMS Manual System, 
pub. 100-04, Transmittal 347 (Baltimore, Md.: Oct. 29, 2004.))

[18] See Pub. L. No. 98-21, §601(e), 97 Stat. 65, 152-162 (1983) 
(codified at 42 U.S.C. §1935ww(d) (2000)).

[19] At that time, JCAHO was known as the Joint Commission on 
Accreditation of Hospitals.

[20] See 48 Fed. Reg. 39752 (Sept. 1, 1983).

[21] This information included Health Care Financing Administration 
Technical Assistance Document No. 24, "Sample Screening Criteria for 
Review of Admissions to Comprehensive Medical Rehabilitation Hospitals/
Units," prepared by the Committee on Rehabilitation Criteria for the 
Professional Standards Review Organization of the American Academy of 
Physical Medicine and Rehabilitation and the American Congress of 
Rehabilitation Medicine.

[22] The threshold level applies to an IRF's cost reporting period 
beginning on or after July 1 of each year.

[23] See 69 Fed. Reg. 25752 (May 7, 2004).

[24] CMS contracted with the Agency for Healthcare Research and Quality 
to prepare a literature review for the NIH meeting.

[25] There are a total of 385 groups because five special CMGs do not 
have tiers.

[26] Prior to this time, Quality Improvement Organizations had this 
authority. CMS Transmittal 21 made clear that FIs have the authority to 
review admissions to IRFs.

[27] Rehabilitative care in a hospital, rather than in a SNF or on an 
outpatient basis, is considered to be reasonable and necessary when a 
patient requires a more coordinated, intensive program of multiple 
services than is generally found outside of a hospital (Medicare 
Benefit Policy Manual, chapter 1, Section 110.1).

[28] Patients with orthopedic conditions include all patients with an 
impairment group code related to unilateral or bilateral hip fracture, 
femur fracture, pelvic fracture, unilateral or bilateral hip and/or 
knee replacement, or other orthopedic patients.

[29] To determine whether admissions changed after enforcement of the 
rule, we compared admissions for the largest group of patients, joint 
replacement patients, between July through December 2003 and July 
through December 2004. There was no material difference overall. Across 
all IRFs, the percentage of Medicare patients admitted to an IRF whose 
primary condition was joint replacement declined by 0.1 percentage 
point. Among the top 10 percent of IRFs admitting the highest 
proportion of Medicare joint replacement patients, the percentage of 
all Medicare patients admitted for a joint replacement declined by 
about 6 percentage points. 

[30] The forms of arthritis include osteoarthritis, rheumatoid 
arthritis, and systemic vasculidities. The extent to which these codes 
refer to arthritis in the joint that was replaced as opposed to active 
arthritis following the procedure cannot be determined from these data. 
The IRF-PAI training manual generally encouraged coders to be 
comprehensive, instructing them to list "ALL comorbid conditions, not 
just those conditions that may affect Medicare payment." (CMS, IRF-PAI 
Training Manual, rev. Jan. 16, 2002 (Baltimore, Md.: 2002), II-17.))

[31] See footnote 5.

[32] One of the experts at the meeting convened by IOM stated that the 
field has suggested that joint replacement patients in the lowest 
comorbidity tiers potentially could be treated in another setting.

[33] The IRF PPS identifies three sets of comorbidities that past 
experience has shown to be associated with either a low, medium, or 
high increment in patient costs. IRF patients who have none of these 
comorbidities are placed in a fourth payment category, or tier. These 
comorbidities affect the payment rate to an IRF for a specific patient 
and are different from the consideration of whether a patient has a 
comorbidity that is 1 of the 13 conditions on the list in the rule. 
Joint replacement patients without these comorbidities still vary 
substantially in the degree of impairment they present, as reflected in 
their placement among the different CMGs. Across the six joint 
replacement-related CMGs, the proportion of patients in the tier with 
no such comorbidities ranged from 74 percent to 91 percent.

[34] The American Hospital Association and the American Medical 
Rehabilitation Providers Association, which represent IRFs, have also 
reported concern with the impact of the rule on the field. They 
estimated that in the first year almost 25 percent of IRFs would not 
meet the requirements of the rule and that when the rule is fully 
implemented following the transition period 80 percent of IRFs would 
not meet the rule, which could force them to discontinue services or 
close.

[35] One CMS regional office official reported that five or six IRFs 
had been declassified in the mid-1990s or earlier, but none since then.

[36] The most common response, by 7 of the 12 IRFs, was between 30 
percent and 40 percent.

[37] For hospital-based IRFs (10 of the 12 interviewed), the percentage 
of referrals from the parent hospital ranged from 25 percent to 99 
percent, with 3 reporting that less than half their patients came from 
the parent hospital.

[38] Most IRFs reported that the assessment was done by a physician 
and/or a nurse, although one IRF reported that it was done by a 
recreational therapist.

[39] Other experts also reported about the potential for the opposite 
to happen. For example, a patient may have a condition on the list and 
not need the intensity of services of an IRF, but still be admitted if 
the facility wants to increase its compliance level.

[40] We did not conduct an independent review of these reported results.

[41] A physiatrist is a physician who specializes in physical medicine 
and rehabilitation.

[42] We interviewed a leading orthopedic physician who said that 
unilateral joint replacement patients rarely require admission to an 
IRF following surgery, the exceptions including patients with a 
surgical complication, previous stroke, polio, or heart transplant 
because such patients need close medical supervision. In addition, 
three of the four officials we interviewed at major insurers and a 
managed care plan generally agreed that unilateral joint replacement 
patients rarely require admission to an IRF, unless there is an active 
comorbidity or accompanying complex medical problem. One reported that 
an IRF referral for a unilateral joint replacement patient was a "red 
flag" that called for closer review.

[43] CMS Fact Sheet #1, "Inpatient Rehabilitation Facility 
Classification Requirements," includes two specific questions with 
respect to IRFs: (1) how better to identify those patients who are most 
appropriate for intensive medical rehabilitation resources provided in 
the IRF setting as opposed to alternative care settings, and (2) what 
conditions, in addition to those on the list in the rule, typically 
require intensive rehabilitation treatment available in IRFs but not in 
alternative care settings.

[44] Our analysis of Medicare patients that had been discharged from 
hospitals provides further indication that not all patients with a 
condition on the list go to IRFs. The percentage of these patients who 
went on to IRFs within 30 days for their postacute care varied across 
selected diagnosis-related groups (DRG) and was in no case greater than 
50 percent. The largest percentages of patients going to IRFs after 
hospital discharge were bilateral joint replacement and unilateral 
joint replacement patients. (See app. III.)

[45] The FI official reported that the FIM™ instrument that is 
currently used does not adequately measure progress in small 
increments, such as a quadriplegic patient might experience. Another 
respondent also reported that the FIM™ only measures functional status 
at a point in time, but does not predict functional improvement.

[46] For example, generally, in cancer hospitals, 50 percent of 
patients must have neoplastic diagnoses, and psychiatric hospitals must 
primarily provide psychiatric services for the diagnosis and treatment 
of mentally ill persons. See 42 C.F.R. §412.23(f)(1)(iv) (cancer 
hospitals); 42 C.F.R. §412.23(a)(1) (psychiatric hospitals).

[47] Long-term care hospitals use admission criteria to determine 
whether patients require that level of care; have active daily 
involvement with physicians; have licensed nurse staffing of 6 to 10 
hours per day per patient; employ specialist registered nurses; employ 
physical, occupational, speech, and respiratory therapists; and have 
multidisciplinary teams that prepare and carry out treatment plans. 
MedPAC recommended that a combination of facility and patient criteria 
be used to distinguish postacute settings of care. (MedPAC, Report to 
the Congress: New Approaches in Medicare, Ch. 5, "Defining Long-Term 
Care Hospitals" (Washington, D.C.: June 2004), 128-130.)

[48] The time period is defined by CMS or the CMS contractor.

[49] See 42 C.F.R. §412.23(b)(2)(iii) (2004).

[50] CMS, "Medicare Claims Processing," CMS Manual System, pub. 100-04, 
Transmittal 347 (Baltimore, Md.: Oct. 29, 2004).

[51] The procedure described by CMS counts comorbidities listed either 
as an etiologic diagnosis or as a comorbid condition entered on the IRF-
PAI form. We followed the procedures CMS provided to FIs for them to 
presumptively verify compliance.

[52] See Grace M. Carter, O. Hayden, et al., "Case Mix Certification 
Rule for Inpatient Rehabilitation Facilities," DRU-2981-CMS (Santa 
Monica, Ca.: May 2003).

[53] Patients may have a different impairment group code assigned at 
discharge (both are recorded in the IRF-PAI data set), but the IRF 
prospective payment from Medicare is based on the admission impairment 
group code.

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