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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

July 2013: 

Medicare Outpatient Therapy: 

Implementation of the 2012 Manual Medical Review Process: 

GAO-13-613: 

GAO Highlights: 

Highlights of GAO-13-613, a report to congressional committees. 

Why GAO Did This Study: 

In 2011, Medicare paid about $5.7 billion to provide outpatient 
therapy services for 48 million beneficiaries. Rising Medicare 
spending for outpatient therapy services—physical therapy, 
occupational therapy, and speech-language pathology—has long been of 
concern. Congress established per person spending limits, or “therapy 
caps,” for nonhospital outpatient therapy, which took effect in 1999. 
In response to concerns that some beneficiaries needing extensive 
services might be affected adversely, Congress imposed temporary 
moratoria on the caps several times until 2006, when it required CMS 
to implement an exceptions process. The Middle Class Tax Relief and 
Job Creation Act of 2012, in addition to extending the exceptions 
process, required CMS to conduct MMRs of requests for exceptions for 
outpatient services provided on or after October 1, 2012, over an 
annual threshold of $3,700. The act also mandated that GAO report on 
the implementation of the MMR process. 

This report describes (1) CMS’s implementation of the 2012 MMR 
process, and (2) the number of individuals and claims subject to MMRs 
and the outcomes of these reviews. GAO reviewed relevant statutes, CMS 
policies and guidance, and CMS data on these reviews. GAO also 
interviewed CMS staff and officials from three MACs that accounted for 
almost 50 percent of the MMR workload and that processed claims for 
states previously determined to be at a higher risk for outpatient 
therapy improper payments. 

What GAO Found: 

The Centers for Medicare & Medicaid Services (CMS) implemented two 
types of manual medical reviews (MMR)—reviews of preapproval requests 
and reviews of claims submitted without preapproval—for all outpatient 
therapy services that were above a $3,700 per-beneficiary threshold 
provided during the last 3 months of 2012. However, CMS did not issue 
complete guidance on how to process preapproval requests before the 
implementation of the MMR process in October 2012, and the Medicare 
Administrative Contractors (MAC) that conducted the MMRs were unable 
to fully automate systems for tracking preapproval requests in the 
time allotted. CMS required the MACs to manually review preapproval 
requests within 10 business days of receipt of all supporting 
documentation to determine whether the services were medically 
necessary, and to automatically approve any requests they were unable 
to review within that time frame. CMS officials told GAO that the 
purpose of the preapproval process was to protect beneficiaries from 
being liable for payment for nonaffirmed services by giving the 
provider and beneficiary guidance as to whether Medicare would pay for 
the requested services. If a provider delivered services without 
submitting a preapproval request, the MACs were required to manually 
review submitted claims above the $3,700 threshold prior to payment 
within 60 days of receiving the needed documentation. The MACs faced 
particular challenges with implementing reviews of preapproval 
requests because CMS continued to issue new guidance on how to manage 
preapproval requests after the MMR process started. For example, CMS 
did not inform the MACs how to process incomplete requests or count 
the 10-day preapproval request review time frame until November 7, 
2012, and the MACs initially handled requests differently. In 
addition, all three MACs GAO interviewed told GAO that MMRs of 
preapproval requests were especially challenging because they did not 
have time to fully automate systems for tracking and processing the 
requests before the start of the MMR process, although they adapted 
their systems to manage the requests in different ways. 

CMS officials estimated that the MACs reviewed an estimated total of 
167,000 preapproval requests and claims for outpatient therapy service 
above the $3,700 threshold provided from October 1, 2012, through 
December 31, 2012. Of these reviews, CMS estimated that 110,000 were 
for preapproval requests and 57,000 were for claims submitted without 
prior approval. However, due in part to the lack of automation, CMS 
officials reported that the total number of reviews should be 
considered estimates of the results of the MMR process at the time of 
this report. CMS estimated that the MACs affirmed about two-thirds of 
the preapproval requests and about one-third of the claims submitted 
without preapproval. Because providers can appeal denials of payment, 
the final outcome of the MMRs remains uncertain. CMS also estimated 
that by December 31, 2012, over 115,000 beneficiaries were affected by 
the reviews in 2012, a number that will rise as more claims subject to 
review are submitted throughout 2013. 

In its comments on a draft of this report, HHS emphasized that CMS 
managed the 2012 MMR process without additional funding and within a 
short time frame. HHS noted that the MMR process was extended for 2013 
and CMS transitioned the responsibility for these reviews to other 
contractors as of April 1, 2013. 

View [hyperlink, http://www.gao.gov/products/GAO-13-613]. For more 
information, contact Kathleen M. King at (202) 512-7114 or 
kingk@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CMS Implemented Two Types of MMRs, but the Process Lacked Timely 
Guidance and Fully Automated Systems: 

CMS Estimates That Preapproval Requests and Claims for over 115,000 
Beneficiaries Were Subject to MMRs, but the Final Outcomes of These 
Reviews Remain Uncertain: 

Agency Comments: 

Appendix I: Comments from the Department of Health and Human Services: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Medicare Part B Outpatient Therapy Spending 1999-2011: 

Figure 2: Outpatient Therapy Manual Medical Reviews (MMR), October-
December 2012: 

Figure 3: Estimated Total Manual Medical Reviews (MMR) Conducted for 
Outpatient Therapy Services Provided October 1, 2012-December 31, 2012: 

Figure 4: Estimated Outpatient Therapy Requests Received and Completed 
by Month, October-December, 2012: 

Abbreviations: 

ABN: Advance Beneficiary Notice of Noncoverage: 

ADR: additional documentation request: 

BBA: Balanced Budget Act of 1997: 

CMS: Centers for Medicare & Medicaid Services: 

DRA: Deficit Reduction Act of 2005: 

HHS: Department of Health and Human Services: 

MAC: Medicare Administrative Contractor: 

MedPAC: Medicare Payment Advisory Commission: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

MMR: manual medical review: 

OIG: Office of Inspector General: 

OT: occupational therapy: 

PT: physical therapy: 

RAC: recovery audit contractor: 

SLP: speech-language pathology: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

July 10, 2013: 

Congressional Committees: 

In 2011, Medicare, the federal health program insuring 48 million 
people who are age 65 and older or disabled, paid about $5.7 billion 
to provide three outpatient therapy services--physical therapy (PT), 
occupational therapy (OT), and speech-language pathology (SLP)--for 
4.9 million beneficiaries.[Footnote 1] Medicare's total spending was 
approximately $565 billion that year. Therapy services help treat a 
range of conditions from stroke recovery to the effects of Parkinson's 
disease, and are provided in a variety of settings including hospital 
outpatient departments, skilled nursing facilities, and outpatient 
rehabilitation facilities.[Footnote 2] The Centers for Medicare & 
Medicaid Services (CMS)--the agency within the Department of Health 
and Human Services (HHS) that administers the Medicare program--
applies financial limits, known as therapy caps, to help control 
growth in expenditures for and discourage medically unnecessary use of 
outpatient therapy services. According to CMS, between 1998 and 2008, 
Medicare expenditures for outpatient therapy increased at a rate of 
10.1 percent per year while the number of Medicare beneficiaries 
receiving therapy services increased by 2.9 percent per year. In 
addition, we and the HHS Office of Inspector General (OIG) have 
previously reported that outpatient therapy is susceptible to improper 
payments and fraud.[Footnote 3]

Although Medicare therapy caps, which originally took effect beginning 
in 1999 under the Balanced Budget Act of 1997 (BBA),[Footnote 4] are 
set annually at a level exceeding that used by most beneficiaries 
receiving therapy services, concerns had been raised that patients 
with extensive need for outpatient therapy services might be affected 
adversely.[Footnote 5] As a result, Congress imposed temporary 
moratoria on the caps several times from 1999 through 2006,[Footnote 
6] when it required the agency to implement an exceptions process to 
provide coverage for beneficiaries in need of services above the caps. 
[Footnote 7] The Middle Class Tax Relief and Job Creation Act of 2012, 
enacted in February 2012, in addition to extending the exceptions 
process through December 31, 2012, made several changes affecting the 
processing of claims for outpatient therapy services. In particular, 
the act required CMS to conduct manual medical reviews (MMR) of 
requests for exceptions for therapy claims over an annual threshold of 
$3,700 for OT and $3,700 for a combination of PT/SLP for services 
provided on or after October 1, 2012.[Footnote 8] The act also 
mandated that GAO report on the implementation of the 2012 MMR 
process. In this report, we discuss (1) CMS's implementation of the 
MMR process for outpatient therapy services conducted from October 1, 
2012, through December 31, 2012, and (2) the number of individuals and 
claims subject to MMRs during the 3-month process and the outcomes of 
these reviews.

To describe CMS's implementation of the MMR process, we reviewed 
relevant statutes, including the Middle Class Tax Relief and Job 
Creation Act of 2012, the Deficit Reduction Act of 2005 (DRA), and the 
BBA; CMS policies and guidance for the MMR of Medicare outpatient 
therapy claims; and CMS data on MMRs for services provided during this 
3-month period. We also interviewed CMS staff responsible for 
implementation and oversight of the mandated MMR process as well as 
staff from the Medicare Payment Advisory Commission (MedPAC) and 
representatives from three professional associations for providers of 
outpatient therapy. Further, we interviewed officials from three 
Medicare Administrative Contractors (MAC) selected from among the 15 
MACs responsible for Medicare therapy claims processing in order to 
learn how they implemented and collected data on the MMR process. The 
three MACs interviewed accounted for nearly 50 percent of the MMR 
workload and processed claims for states previously determined by the 
HHS OIG to be at a higher risk for outpatient therapy improper 
payments and fraud. The information collected from these interviews is 
not generalizable to all MACs.

To report on the number of individuals and claims subject to MMRs 
during the last 3 months of 2012 and the outcomes of these reviews, we 
analyzed CMS's Therapy Cap Weekly Workload reports. These weekly 
reports were compiled by CMS with aggregate data from all 15 MACs 
implementing the mandated MMR process. We interviewed both CMS and MAC 
officials responsible for the collection of these data to learn about 
the data collection process and to assess the reliability of the data. 
Those officials acknowledged that data from the weekly reports provide 
an estimate of the number of individuals and claims subject to MMR, 
but are not an accurate and exact count. We believe that the data are 
sufficiently reliable to provide a reasonable estimate of the scope of 
the MMR process.

We conducted this performance audit from December 2012 to June 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

Background: 

Health care providers submit claims to the Medicare program in order 
to receive payment for services provided to beneficiaries. Financial 
limits known as therapy caps are one tool used to better manage 
spending on outpatient therapy services. Congress directed CMS, 
beginning in 2006, to establish an exceptions process for 
beneficiaries in need of services above the therapy caps.

Medicare Claims Payment Overview: 

Since the program was created in 1965, CMS has administered Medicare 
through private contractors, currently known as MACs.[Footnote 9] The 
MACs are responsible for reviewing and paying claims in accordance 
with Medicare policy, and conducting provider outreach and education 
on correct billing practices. The MACs process more than 1.2 billion 
claims per year (the equivalent of 4.5 million claims per work day). 
The MACs use electronic payment systems, and they transfer any claims 
submitted on paper into electronic format for processing.

The computer systems that the MACs use for processing and paying 
claims execute automated prepayment "edits," which are instructions 
programmed into the system software to identify errors on individual 
claims and to prevent payment of incomplete or incorrect claims. 
[Footnote 10] The system edits also help ensure that payments are made 
only for claims submitted by appropriate providers for medically 
necessary goods or services covered by Medicare for eligible 
individuals.[Footnote 11] Edits may result in automatic rejection of 
claims due to missing information or data errors, or in payment denial 
for ineligible services. In addition to this automated process, the 
MACs may conduct MMRs when they are unable to determine whether the 
services provided were medically necessary on the basis of the 
information on the claim.[Footnote 12] The MACs solicit documentation 
of medical necessity from the provider by issuing an additional 
documentation request (ADR) for the medical records associated with a 
service; providers are required to submit the records to the MACs 
within 45 days. Upon receipt, the MMRs are performed within 60 days by 
licensed health care professionals. Providers and beneficiaries may 
appeal denials of services that are based on these reviews.[Footnote 13]

Manual reviews can be conducted either before or after a claim is paid 
and are referred to as prepayment or postpayment reviews, 
respectively. CMS reports that although the MACs have the authority to 
review any claim at any time, the volume of claims prohibits manual 
review of most claims.[Footnote 14] In general, CMS directs the MACs 
to focus their MMRs on program integrity efforts targeting payment 
errors for services and items that pose the greatest financial risk to 
the Medicare program.[Footnote 15] We have previously reported that, 
overall, less than 1 percent of Medicare's claims are subject to 
medical record review by trained personnel.[Footnote 16]

Medicare Outpatient Therapy Spending: 

Medicare spending for outpatient therapy has increased from $1.3 
billion in 1999 to $5.7 billion in 2011. (See figure 1.) During this 
12-year period, mean per user spending on outpatient therapy grew 
threefold from about $400 to almost $1,200. In 2011, about 80 percent 
of the 4.9 million Medicare beneficiaries who used OT and PT/SLP did 
not exceed the annual cap of $1,870. Twenty percent of the Medicare 
beneficiaries using outpatient therapy (about 980,000 individuals) 
exceeded the cap that year and spent, on average, $3,000 on outpatient 
therapy. Therapy provided in nursing homes and private practice 
offices accounted for over 70 percent of outpatient therapy services 
in 2011, with the remaining services being provided in hospital 
outpatient departments and outpatient rehabilitation centers, and by 
home health agencies.

Figure 1: Medicare Part B Outpatient Therapy Spending 1999-2011: 

[Refer to PDF for image: vertical bar graph] 

Year: 1999; 
Outpatient Therapy Costs: $1.3 billion. 

Year: 2000; 
Outpatient Therapy Costs: $1.8 billion. 

Year: 2001; 
Outpatient Therapy Costs: $2.6 billion. 

Year: 2002; 
Outpatient Therapy Costs: $3.4 billion. 

Year: 2003; 
Outpatient Therapy Costs: $3.7 billion. 

Year: 2004; 
Outpatient Therapy Costs: $4.3 billion. 

Year: 2005; 
Outpatient Therapy Costs: 0. 

Year: 2006; 
Outpatient Therapy Costs: $4.1 billion. 

Year: 2007; 
Outpatient Therapy Costs: $4.4 billion. 

Year: 2008; 
Outpatient Therapy Costs: $4.8 billion. 

Year: 2009; 
Outpatient Therapy Costs: $5.3 billion. 

Year: 2010; 
Outpatient Therapy Costs: $5.6 billion. 

Year: 2011; 
Outpatient Therapy Costs: $5.7 billion. 

Source: Centers for Medicare & Medicaid Services and Medicare Payment 
Advisory Commission. 

Note: Total outpatient therapy spending data are missing for 2005. 

[End of figure] 

In addition, studies have found that utilization of outpatient therapy 
services is not evenly distributed across the country. For example, in 
2010, the HHS OIG reported on 20 counties with spending per 
beneficiary 72 percent higher than the national average.[Footnote 17] 
MedPAC's analysis of outpatient therapy claims data from 2011 showed 
that average per-beneficiary spending varied widely by county, ranging 
from $406 to $3,582.[Footnote 18]

The Therapy Caps Exceptions Process: 

The therapy caps that were first imposed in 1999 to control spending 
growth raised concern that patients with extensive need of outpatient 
therapy services would be affected adversely, and the caps were only 
in effect in 1999 and for part of 2003 due to a series of temporary 
congressional moratoria. As implemented in 2006, when the moratoria 
expired, Congress required CMS to implement a process to allow 
exceptions to the caps for certain medically necessary services. 
[Footnote 19] This exceptions process allowed for two types of 
exceptions. The first was an automatic exception for certain 
conditions or complexities, such as hip and knee replacements. The 
second--called a manual exceptions process by CMS--was a preapproval 
process whereby a provider could submit a letter and supporting 
documentation requesting an exception--called a preapproval request--
for up to 15 days of treatment above the annual cap, which would be 
manually reviewed by the MAC.[Footnote 20] If the services qualified 
for either an automatic or a manual exception, CMS guidance instructed 
the provider to include a "KX" modifier on each line of the resulting 
claim that contained a service above the cap. This modifier 
represented the provider's attestation that the services rendered were 
medically necessary, and it triggered an exception in the Medicare 
claims processing system, which ensured payment for those outpatient 
therapy services above the cap.

An automatic exceptions process for claims with a KX modifier was 
extended through 2012 for claims over the annual cap of $1,880, with 
manual reviews required for claims above the threshold of $3,700. 
[Footnote 21] The American Taxpayer Relief Act of 2012 extended the 
Medicare therapy caps exceptions process, including the requirement 
for the manual review of claims over $3,700, through December 31, 
2013.[Footnote 22]

According to CMS, in 2012, claims for services above the $1,880 cap 
without a KX modifier or above the $3,700 threshold were considered a 
benefit category denial, making the beneficiary liable for payment. To 
protect beneficiaries from unexpected liability for payment of denied 
claims above the threshold, CMS gave providers the option to send 
beneficiaries an Advance Beneficiary Notice of Noncoverage (ABN) 
informing them that Medicare might not pay for an item or service and 
that they might be liable for payment. An ABN enables the beneficiary 
to make an informed decision about whether to get services and accept 
financial responsibility for those services if Medicare does not pay.

CMS Implemented Two Types of MMRs, but the Process Lacked Timely 
Guidance and Fully Automated Systems: 

CMS implemented two types of MMRs during the last 3 months of 2012--
reviews of preapproval requests and reviews of claims submitted 
without preapproval. CMS did not issue complete guidance at the start 
of the MMR process, causing implementation challenges for the MACs, 
and the MACs were unable to fully automate systems for tracking the 
reviews of preapproval requests in the time allotted.

CMS Implemented MMRs of Preapproval Requests and of Claims Submitted 
without Preapproval: 

CMS implemented two types of MMRs during the last 3 months of 2012--
reviews of preapproval requests and reviews of claims submitted 
without preapproval. First, CMS directed the MACs to manually review 
preapproval requests for outpatient therapy services above the $3,700 
threshold--one for OT and one for PT/SLP combined--before the services 
were provided. Providers were permitted to request up to 20 days of 
treatment up to 15 days before providing medically necessary 
outpatient therapy services above $3,700. In contrast to the MMR 
process as implemented in 2006, CMS guidance did not allow any 
automatic exceptions for certain conditions; the MACs had to manually 
review preapproval requests for any services above $3,700. CMS 
officials told us that they included the preapproval request process 
in 2012 in order to help protect beneficiaries from being held liable 
for payment of claims not affirmed by the MMR, as the process would 
give the provider and beneficiary guidance as to whether the MACs 
would affirm or not affirm payment for the requested outpatient 
therapy services.[Footnote 23]

In order to manage the expected volume of preapproval requests 
submitted to MACs at the start of the MMR process, CMS divided all 
outpatient therapy providers among three phases, based primarily on 
their past billing practices.[Footnote 24] Providers were instructed 
to submit preapproval requests during their assigned phase.[Footnote 
25] CMS assigned providers with the highest average billing per 
patient for outpatient therapy services in 2011 to the first phase, 
which began on October 1, 2012. According to CMS, these high billers 
accounted for approximately 25 percent of all outpatient therapy 
providers and were subject to MMR for the full 3 months of the MMR 
process during 2012. The second phase began on November 1 and included 
providers with the next highest billing (also about 25 percent of the 
total number of providers). The third phase, which included the 
remaining 50 percent of outpatient therapy providers, generally the 
lowest billers, began on December 1.[Footnote 26] CMS officials 
explained that providers with historically low billing were less 
likely to have patients who would reach the threshold. CMS also 
included providers identified by law enforcement or the HHS OIG as 
being involved in active fraud investigations in the third phase. CMS 
officials stated that they did not include these providers until the 
third phase to avoid conflicts with ongoing investigations. As of 
December 1, all outpatient therapy providers were included in the MMR 
process.

CMS notified providers about the preapproval request process and 
assignment of phases by letter and provided further information 
through three conference calls and additional agency communications. 
CMS instructed providers to submit preapproval requests by mail or 
fax, including key information such as provider and beneficiary 
identification numbers as well as supporting documentation including 
treatment notes and progress reports.[Footnote 27] CMS also instructed 
the MACs to post guidelines on their websites to educate providers 
about these requirements. In addition, CMS sent letters in mid-
September 2012 to all Medicare beneficiaries who had received therapy 
services totaling over $1,700 by that date informing them that they 
might have to pay for services over the cap should the MACs determine 
that the services were not medically necessary.

To expedite the preapproval process, CMS instructed the MACs to review 
preapproval requests within 10 business days of receipt of all 
requested documentation to determine whether the services were 
medically necessary.[Footnote 28] After reviewing the requests, the 
MACs were required to notify providers and beneficiaries of the number 
of treatment days affirmed or provide detailed reasons for not 
affirming a request.[Footnote 29] In addition, CMS instructed the MACs 
to automatically approve any requests they were unable to review 
within 10 business days.[Footnote 30] The MACs had to inform providers 
of their decisions by telephone, fax, or letter, and postmark all 
letters by the 10th day after receipt of all requested documentation. 
Providers were allowed to resubmit nonaffirmed requests with 
additional documentation for consideration by the MAC, at which point 
the MAC would have another 10 days within which to review the new 
request. (See figure 2.) 

Figure 2: Outpatient Therapy Manual Medical Reviews (MMR), October-
December 2012: 

[Refer to PDF for image: process illustration] 

2012 manual medical review process with preapproval request: 

* Beneficiary approaching $3,700 threshold for outpatient therapy 
requests services; 

* Manual process: Provider submits preapproval request for up to 20 days 
of outpatient therapy services to MAC by fax or mail[A]; 

* Manual process: MAC manually reviews request and affirms treatment 
days that meet Medicare criteria[B]; 

* Manual process: MAC notifies provider and beneficiary of decision by 
mail, telephone, or fax; 

* Provider performs outpatient therapy for approved number of days; 

* Provider submits claim for payment to MAC; 

* Medicare claim over $3,700 threshold is automatically suspended for 
manual review; 

* Manual process: MAC searches manually for reviewed preapproval request; 

* Manual process: MAC matches preapproval request to submitted claim and 
pays claim according to preapproval request decision[C]. 

2012 manual medical review process without preapproval request: 

* Beneficiary sees provider for outpatient therapy services; 

* Provider performs services without submitting preapproval request; 

* Provider submits claim for payment to MAC; 

* Medicare claim over $3,700 threshold is automatically suspended for 
manual review. 

* Manual process: MAC requests supporting documentation for outpatient 
therapy services provided[D]; 

* Manual process: MAC manually reviews documentation and pays claim if 
it meets Medicare criteria[E]. 

Sources: GAO analysis of CMS data; Art Explosion (images). 

[A] Providers could submit preapproval requests up to 15 days before 
the intended dates of service.

[B] Centers for Medicare & Medicaid Services (CMS) required the 
Medicare Administrative Contractors (MAC) to review preapproval 
requests within 10 business days of receipt of all requested 
documentation and automatically affirm requests they were unable to 
review within that time frame.

[C] If the submitted claim did not match the related preapproval 
request, the MAC would request additional supporting documentation and 
conduct further review before determining how to pay the claim, as it 
would for claims submitted without a preapproval request.

[D] Providers had to submit requested documentation within 45 days.

[E] The MACs had to review all supporting documentation within 60 
days. If the MAC requested additional documentation, the review time 
frames would reset. Providers and beneficiaries could appeal denied 
claims. 

[End of figure] 

Second, CMS instructed the MACs to develop a mechanism for tracking 
preapproval requests in order to match the requests with submitted 
claims. Because preapproval requests were received by fax or mail, not 
through the automated claims payment systems, the MACs had to manually 
match the claim with the corresponding preapproval request. If the 
services included on the claim matched those affirmed during the 
preapproval process, the MAC would pay the claim; if not, the MAC 
would issue an ADR for the medical records associated with the 
services and conduct further manual review, which could extend the 
review process more than 3 months.

The MACs were also required to manually review submitted claims before 
providing payment for therapy services provided above $3,700 without a 
preapproval request.[Footnote 31] Effective for dates of service on or 
after October 1, 2012, CMS required the MACs to implement an edit in 
part of the claims processing system to stop claims that reached the 
$3,700 threshold and to trigger MMRs by the MACs.[Footnote 32] To 
manually review claims without preapprovals, the MACs requested and 
reviewed supporting documentation from providers to determine whether 
the services were medically necessary. As with typical prepayment 
manual reviews, providers had 45 days to provide documentation of 
medical necessity, and the MACs had 60 days to review the supporting 
materials and notify providers and beneficiaries of their decisions. 
(See figure 2.) If a MAC requested additional documentation, the 
review time frames would begin again. In contrast to preapproval 
request decisions, the MACs' claims payment systems automatically send 
letters notifying providers and beneficiaries of payment determinations.

MACs Did Not Receive Timely Guidance from CMS and Could Not Fully 
Automate Systems for Processing Preapproval Requests: 

The MACs did not receive complete CMS guidance before the start of the 
3-month MMR process regarding how the MACs should manage incomplete 
preapproval requests, how they should count the 10-day review time 
frame, and how they should handle preapproval requests received in the 
wrong phase. In addition, the MACs did not have enough time to fully 
automate systems for tracking and processing preapproval requests 
before the start of the MMR process.

Lack of Timely CMS Guidance: 

CMS did not issue complete guidance at the start of the MMR effort and 
changed the process throughout the 3-month period, which created 
implementation challenges. CMS provided instruction to the MACs 
through various forms of written guidance, as well as twice-weekly 
conference calls beginning in August 2012.[Footnote 33] However, CMS 
did not issue instructions on how the MACs should conduct MMRs of 
preapproval requests until August 31, 2012.[Footnote 34] The MACs we 
interviewed stated that receiving this guidance 1 month before the 
October 1st start of the MMR process made it difficult for them to 
adequately prepare and establish systems for reviews of preapproval 
requests. For example, one MAC said that because of the short 
turnaround time for implementation, it was not prepared for the high 
volume of preapproval requests received in the early weeks of the 
process, which caused it to approve requests without reviewing them. 
Another stated that it could have better managed the volume of 
preapproval requests received if it had more time to develop needed 
support systems. This late guidance also made it difficult for the 
MACs to train temporary staff assigned to the MMR process in a timely 
way; two MACs noted that they were still training temporary staff in 
October, after the start of the process, and one added that this made 
it difficult to manage the volume of preapproval requests received in 
October.

Further, CMS did not provide guidance on how the MACs should process 
incomplete preapproval requests, which accounted for approximately 23 
percent of the total requests submitted, until November 7, 2012. CMS 
officials told us they did not initially issue such guidance because 
they did not anticipate receiving a high volume of incomplete 
submissions. As a result, the MACs handled incomplete requests in 
different ways. For example, one MAC held incomplete requests--as many 
as several thousand--as pending without making a determination or 
providing a response to providers and beneficiaries within 10 business 
days. Another initially determined that incomplete requests would be 
rejected and returned to the provider for additional information.

In addition, CMS did not initially issue clear instruction about how 
the MACs were to count the 10-day time frame for provider and 
beneficiary notification, which may have caused notification delays. 
CMS initially instructed the MACs to make decisions on preapproval 
requests and inform providers and beneficiaries of their decisions 
within 10 business days of receipt of all requested documentation, and 
to automatically approve requests they were unable to review within 10 
days. The MACs stated that they were unclear, however, about how to 
count the 10-day time frame. On November 7, 2012, CMS clarified that 
the count was to begin on the day the MAC received the preapproval 
request in its mailroom, not in its MMR department. The MACs we 
interviewed stated that they received a large volume of requests per 
day--at times several hundred. In addition, two noted that providers 
often sent in additional supporting documentation for prior requests, 
which added to the volume of paper files the MACs had to manage and 
may have created a further lag between when the complete requests were 
received and when the paperwork was given to MMR staff for review. 
Before CMS issued this clarifying guidance, providers and 
beneficiaries may have experienced a longer wait time than expected if 
a MAC counted the 10 days beginning when the MMR department, rather 
than the mailroom, received the completed requests.

Finally, CMS did not initially provide the MACs with instructions 
about how to handle preapproval requests and claims submitted in the 
wrong phase. In its written guidance issued on August 31, 2012, CMS 
instructed the MACs that they should not review preapproval requests 
any sooner than 15 days before the start of each phase for providers 
within that phase, but did not clarify whether requests received out 
of phase should be rejected and returned to providers, not affirmed, 
or held as pending until the start of the phase. As a result, one of 
the MACs we spoke with stated that it initially held requests received 
out of phase to be processed in the correct phase, but later in the 
process began rejecting such requests.

Lack of Fully Automated Systems for Processing Preapproval Requests: 

CMS and the three MACs we interviewed reported challenges with 
processing preapproval requests because they were not able to fully 
automate systems to receive and track them in the time allotted. MACs 
typically conduct either prepayment or postpayment reviews after 
claims have been submitted; they do not typically receive or conduct 
MMRs of preapproval requests before the provision of services. All 
three MACs interviewed told us that MMRs of preapproval requests were 
more time-consuming and cumbersome because they had to process them 
outside of their claims processing systems. In addition, all three 
MACs told us they suspended some of their other medical review efforts 
in order to implement the mandated outpatient therapy MMRs. For 
example, the MACs we interviewed explained that they typically use 
automated edits in their claims processing systems to flag claims for 
prepayment review in areas identified to be at higher risk for 
improper payments, such as certain billing codes or service areas, but 
told us they turned off some other outpatient therapy edits while 
conducting the mandated MMRs.

All three MACs interviewed said that it was difficult to develop fully 
automated systems for processing preapproval requests at the start of 
the 3-month process. Two noted that they would have required several 
months to develop the type of automated systems that, integrated with 
their regular claims processing systems, would have enhanced the 
efficiency and accuracy of their MMR efforts. However, CMS did not 
issue written guidance until August 31, 2012, instructing the MACs to 
develop processes for receiving and tracking preapproval requests.

The MACs we interviewed adapted their systems to manage the 
preapproval process in different ways with varying degrees of 
automation. Two of the MACs received requests by fax, scanned the 
requests and supporting documents, and saved them electronically by 
date or other identification numbers for tracking. One of these MACs 
also developed a database in which it manually entered and tracked its 
MMR decisions, which MAC staff then manually searched to match with 
submitted claims. The other, however, stated that it did not have time 
to establish such a database, and conducted reviews without any 
automation. A third MAC received all requests by mail and developed a 
database in which it entered its preapproval decisions. This MAC also 
developed an electronic edit in its claims processing system that 
tracked incoming therapy claims so they could be processed according 
to the preapproval decision. Though this MAC was able to automate this 
step in the preapproval process, staff explained that they were still 
in the process of testing the edit after the start of the MMR process, 
and continued to address system errors until December.

CMS Estimates That Preapproval Requests and Claims for over 115,000 
Beneficiaries Were Subject to MMRs, but the Final Outcomes of These 
Reviews Remain Uncertain: 

CMS officials estimate that preapproval requests and claims for over 
115,000 Medicare beneficiaries were subject to approximately 167,000 
MMRs conducted by the MACs as of March 1, 2013. Delays in claim 
submissions and pending appeals create uncertainty about the final 
outcomes of the 2012 MMR process.

MACs Reviewed an Estimated 167,000 Preapproval Requests and Claims and 
Affirmed 60 Percent: 

CMS staff estimated that the MACs manually reviewed more than 167,000 
preapproval requests and claims without preapprovals for outpatient 
therapy from October 1, 2012, through December 31, 2012, affecting 
more than 115,000 Medicare beneficiaries. Of these MMRs, an estimated 
110,000 were for preapproval requests[Footnote 35] and 57,000 were for 
claims for services that were not preapproved. Of the estimated 
110,000 preapproval requests reviewed, the MACs affirmed 80,500 (73 
percent) and did not affirm 29,500 (27 percent). As of March 1, 2013, 
providers who did not request preapprovals submitted an estimated 
57,000 claims for outpatient therapy services provided during the last 
quarter of 2012. The results of the MMRs of claims without 
preapprovals resulted in 19,500 (34 percent) claims affirmed for 
payment and 37,000 claims (66 percent) not affirmed for payment. These 
estimates indicate that MMRs of both preapproval requests and claims 
resulted in a number of nonaffirmed outpatient therapy services during 
the last quarter of 2012 (see figure 3).

Figure 3: Estimated Total Manual Medical Reviews (MMR) Conducted for 
Outpatient Therapy Services Provided October 1, 2012-December 31, 2012: 

[Refer to PDF for image: 3 pie-charts] 

Preapprovals and claims without preapprovals (n = 167,000): 
Preapprovals: 66%; 
Claims without preapprovals: 34%. 

Preapprovals (n = 110,000): 
Preapprovals affirmed: 73%; 
Preapprovals nonaffirmed: 27%. 

Claims without preapprovals (n = 57,000): 
Claims affirmed: 34%; 
Claims nonaffirmed: 66%. 

Source: GAO analysis of CMS data. 

Note: In total, of the 167,000 preapprovals requests and claims 
without preapprovals reviewed by the Medicare Administrative 
Contractors (MAC) as of March 1, 2013, 60 percent were affirmed and 40 
percent were not affirmed. The Centers for Medicare & Medicaid 
Services (CMS) and the MACs acknowledge that the estimates are not 
exact counts. 

[End of figure] 

Both CMS officials and MAC staff acknowledged that the MACs were not 
able to process all the preapprovals submitted in a timely manner. The 
MACs do not usually conduct preapprovals of services, and the MACs 
stated that the high volume of preapproval requests outpaced the 
capacity of the MACs to review them. For example, the MACs we 
interviewed reported receiving thousands of preapproval requests by 
mail or fax prior to the start of the MMRs. By mid-October 2012, the 
MACs estimated they had received 46,000 preapproval requests for 
outpatient therapy services above the $3,700 threshold. In addition, 
the MACs rejected about 23 percent of all preapproval requests because 
they were incomplete. Incomplete requests could be resubmitted. In 
November 2012, on average more than 24,000 preapproval requests were 
categorized as having not been reviewed at the end of each of the 4 
weeks.[Footnote 36] Overall, the MACs estimated they completed MMRs 
for about 52 percent of the total preapproval requests received within 
the 10 days required by CMS.[Footnote 37] (See figure 4.) 

Figure 4: Estimated Outpatient Therapy Requests Received and Completed 
by Month, October-December, 2012: 

[Refer to PDF for image: vertical bar graph] 

Month: October; 
Preapprovals received (n=157,000): 68,303; 
Preapprovals completed (n=101,000): 10,174. 

Month: November; 
Preapprovals received (n=157,000): 45,755; 
Preapprovals completed (n=101,000): 40,922. 

Month: December; 
Preapprovals received (n=157,000): 43,132; 
Preapprovals completed (n=101,000): 50,351. 

Source: GAO analysis of CMS data. 

Note: CMS guidance did not include information on how the MACs should 
count "completed reviews" so the total number of requests completed 
does not equal the number of preapproval requests the MACs affirmed 
plus those not affirmed. The total number of preapprovals received 
included some rejected, duplicate, or resubmitted claims. 

[End of figure] 

By the end of December 2012, the MACs had conducted MMRs on about 
15,000 claims submitted without preapproval requests. However, the 
MACs were not under the same time constraints when reviewing claims 
because, unlike the preapproval requests, CMS guidance permits the 
MACs 2 months to conduct MMRs after they receive the supporting 
documentation. In addition, claims for therapy provided during the 
last quarter of 2012 were submitted incrementally, increasing from 
about 15,000 at the end of December to almost 57,000 by March 1, 2013. 
As a result, the MMRs of these claims are staggered over time. CMS 
officials indicated that the number of claims submitted and 
beneficiaries affected by these prepayment MMRs would continue to 
increase in 2013.

Final Outcomes of MMRs Remain Uncertain Due to Data Limitations and 
Timing: 

Although CMS was able to estimate the results of the MMRs conducted, 
the final outcomes of the 2012 MMRs remain uncertain due to 
inconsistencies among the MACs in how the data were collected, and 
errors in the calculation of the number of preapproval requests 
received and the MMR decisions made. In addition, the time lag for 
submitting claims and finalizing the appeals process means that the 
final outcome of the MMR process will not be known for months. CMS 
officials told us that MACs did the "best they could" and that the 
final numbers provided in the MMR weekly workload report were obtained 
outside the MACs' computerized systems and should be considered 
approximate or an estimate of the results of the reviews at the time 
of this report.

The manual processes CMS and the MACs used to complete the weekly MMR 
workload reports resulted in inconsistencies in the data. Both the CMS 
and MAC officials interviewed acknowledged that human error may have 
contributed to discrepancies in the reported numbers because the 
reports were assembled manually. In addition, due to the timing of CMS 
guidance throughout the MMR, the MACs reported collecting key data 
elements differently. For example, one MAC included the number of 
requests rejected in the total number of requests completed while two 
others did not. CMS officials also reported that they identified gaps 
or errors in MACs' weekly workload reports, but the agency did not 
require the MACs to go back to revise prior weeks' data. As a result, 
the running totals included errors from prior weeks and the final 
numbers do not total correctly. For example, the total number of 
treatment days that CMS estimates were requested (2.4 million) is 
significantly greater than the estimated total number of treatment 
days affirmed plus days nonaffirmed (1.9 million).

The combination of potential delays in billing, the prepayment review 
of claims, and the appeals process also creates uncertainty about the 
final outcomes of the mandated MMRs associated with outpatient therapy 
services provided in 2012. Because claims for services provided from 
October 1, 2012, through December 31, 2012, may be submitted to the 
MACs as late as December 31, 2013, the total number of claims reviewed 
will not be known until 2014. In addition, CMS officials, some MAC 
staff, and outpatient therapy provider association representatives 
reported the filing of appeals for denials of payment for therapy 
provided during this period. The appeals process--which may involve 
five levels of review--could take more than 2 years to reach a 
conclusion, and any reversals of prior therapy coverage denials will 
affect the final outcomes of the 2012 MMR process.

Agency Comments: 

HHS provided written comments on a draft of this report. HHS 
highlighted CMS's 2012 efforts to review the medical records 
associated with requests for exceptions for outpatient therapy 
services in excess of the annual $3,700 threshold. The department 
noted that CMS managed the new workload without additional funding and 
within a short time frame, and that the MACs shifted staff from other 
responsibilities to the MMR process. Outpatient therapy manual reviews 
were extended for 2013 and, according to HHS, CMS streamlined the MMRs 
of therapy services by transitioning the responsibility for these 
reviews from the MACs to the agency's RACs as of April 1, 2013. The 
RACs are conducting prepayment review of claims at the $3,700 
threshold in California, Florida, Illinois, Louisiana, Michigan, 
Missouri, New York, North Carolina, Ohio, Pennsylvania, and Texas, and 
are conducting immediate postpayment reviews in all other states. 
HHS's comments are printed in appendix I.

We are sending copies of this report to the Secretary of Health and 
Human Services, interested congressional committees, and others. In 
addition, the report is available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix II. 

Signed by: 

Kathleen M. King: 
Director, Health Care: 

List of Committees: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Fred Upton: 
Chairman: 
The Honorable Henry A. Waxman: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander M. Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Comments from the Department of Health and Human Services: 

Department of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

June 26, 2013: 

Kathleen King: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. King: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled, "Medicare Outpatient Therapy: Implementation of 
the 2012 Manual Medical Review Process" (GA0-13-613). 

The Department appreciates the opportunity to review this report prior 
to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled. 
"Medicare Outpatient Therapy: Implementation Of The 2012 Manual 
Medical Review Process (GAO-13-613): 

The Department appreciates the opportunity to review and comment on 
this draft report. 

The Manual Medical Review (MMR) process requires that Centers for 
Medicare & Medicaid Services (CMS) review the medical record 
associated with a request and exception for therapy services exceeding 
an annual threshold of $3,700 for a beneficiary to determine whether 
the exception should be granted or whether the claim should be paid. 
However, we note that there were significant budgetary issues 
associated with this substantial new workload. The law provided a 
short timeframe for implementation of the MMR process without 
additional funding for the MMR process. Therefore, CMS had to find 
resources to implement this new requirement. Our Medicare 
Administrative Contractors (MACs) had to shift staff from their other 
responsibilities to do this task. 

The MMR process for therapy services has been extended for 2013. The 
responsibility for this process is being handled by the Recovery 
Auditors as of April 1, 2013. We believe this will expedite and 
streamline these MMRs of therapy services. The Recovery Auditors will 
conduct two types of MMR of therapy services: prepayment and post-
payment review. In the following states: Florida, California, 
Michigan, Texas, New York, Louisiana, Illinois, Pennsylvania, Ohio, 
North Carolina and Missouri, the Recovery Auditors will conduct 
prepayment review for claims over the $3,700 threshold . In the 
remaining States, the Recovery Auditors will conduct immediate post-
payment review. 

CMS is managing this work as efficiently and effectively as possible, 
given the budget constraints, and is working to better educate 
providers regarding outpatient therapy services. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathleen M. King, (202) 512-7114 or kingk@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Martin T. Gahart, Assistant 
Director; George Bogart; Anne Hopewell; and Sara Rudow made key 
contributions to this report.

[End of section] 

Footnotes: 

[1] Medicare also covers individuals with end stage renal disease. 
Outpatient therapy services are covered under Medicare Part B, which 
also covers physician, outpatient hospital, laboratory, and other 
services, and medical equipment and supplies. Unless otherwise 
specified, throughout this report the terms outpatient therapy and 
outpatient therapy services refer to all three therapy categories 
collectively: PT, OT, and SLP. PT includes services that restore and 
maintain physical function and treat or prevent impairments that 
result from disease or injury. OT services improve and compensate for 
a patient's ability to conduct activities of daily living, such as 
getting dressed after the loss of a limb. SLP services help patients 
with difficulties communicating as a result of disease, injury, or 
surgery.

[2] To receive outpatient therapy services, a beneficiary must be 
treated or referred by a physician or nonphysician practitioner. In 
addition, Medicare regulations and coverage rules require that the 
medical record of the beneficiary receiving outpatient therapy include 
a written treatment plan with information on the diagnosis and therapy 
goals.

[3] An improper payment is any payment that should not have been made 
or that was made in an incorrect amount (including overpayments and 
underpayments) under statutory, contractual, administrative, or other 
legally applicable requirements. Fraud represents intentional acts of 
deception with knowledge that the action or representation could 
result in inappropriate gain. See GAO, Medicare: Little Progress Made 
in Targeting Outpatient Therapy Payments to Beneficiaries' Needs, 
[hyperlink, http://www.gao.gov/products/GAO-06-59] (Washington, D.C.: 
Nov. 10, 2005), and Department of Health and Human Services, Office of 
Inspector General, Questionable Billing for Medicare Outpatient 
Therapy Services, OEI-04-09-00540 (Washington, D.C.: December 2010).

[4] See BBA, Pub. L. No. 105-33, § 4541, 111 Stat. 251, 454.

[5] BBA established one $1,500 therapy cap for OT and a combined cap 
of $1,500 for PT and SLP for calendar year 1999. The amount of the 
therapy caps is calculated annually to account for increases in the 
Medicare economic index, and has increased to $1,900 in 2013.

[6] See Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
of 1999, Pub. L. No. 106-113, App. F, § 221(a), 113 Stat. 1501, 1501A-
351; Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, Pub. L. No. 106-554, App. F., § 421(a), 114, Stat. 2763, 
2763A-516; Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA), Pub. L. No. 108-173, 117 Stat. 2066, § 624(a), 117 
Stat. 2066, 2317. 

[7] The exceptions process was first required by the Deficit Reduction 
Act of 2005 (DRA) and has been extended by law numerous times through 
2013. See DRA, Pub. L. No. 109-171, § 5107, 120 Stat. 4, 42 (2006); 
Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, § 201, 
120 Stat. 2922, 2986; Medicare, Medicaid, and SCHIP Extension Act of 
2007, Pub. L. No. 110-173, § 105, 121 Stat. 2492, 2496; Medicare 
Improvements for Patients and Providers Act of 2008, Pub. L. No. 110-
275, § 141, 122 Stat. 2494, 2542; Temporary Extension Act of 2010, 
Pub. L. No. 111-144, § 6, 124 Stat. 42, 46; Patient Protection and 
Affordable Care Act, Pub. L. No. 111-148, § 3103, 124 Stat. 119, 417 
(2010); Medicare and Medicaid Extenders Act of 2010, Pub. L. No. 111-
309, § 104, 124 Stat. 3285, 3287; Temporary Payroll Tax Cut 
Continuation Act of 2011, Pub. L. No. 112-78, § 304, 125 Stat. 1280, 
1284; Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. 
No. 112-96, § 3005, 126 Stat. 156, 187; American Taxpayer Relief Act 
of 2012, Pub. L. No. 112-240, § 603(a), 126 Stat. 2313, 2347 (2013).

[8] The $3,700 threshold applied to all outpatient therapy claims with 
dates of service provided during calendar year 2012. This threshold 
was chosen because it represented the spending level of the top 5 
percent of outpatient therapy beneficiaries in 2011.

[9] The MMA consolidated Medicare contracting functions--such as 
claims payment and other administrative activities--in MACs. Pub. L. 
No. 108-173, § 911, 117, 2378. Entities that previously carried out 
these functions were known as fiscal intermediaries and carriers.

[10] Medicare claims include data such as beneficiary and provider 
identification numbers and demographic information, as well as codes 
assigned for every task and service a medical practitioner may provide 
to a beneficiary. These codes may require the use of modifiers to 
improve accuracy. Modifiers may include units of service, functional 
limitations, or discharge status.

[11] CMS uses the terms providers and suppliers to differentiate 
between entities that provide health care services and entities that 
provide medical equipment to Medicare beneficiaries. In this report we 
use the term providers to refer collectively to providers and suppliers.

[12] The MACs and other Medicare contractors conduct manual reviews to 
determine whether the services provided meet medical necessity 
standards and are (1) reasonable and necessary; (2) for the diagnosis 
or treatment of an illness or injury or to improve the functioning of 
a malformed body member; and (3) not excluded under another 
requirement of the Medicare program.

[13] If a provider or beneficiary appeals a decision, the Medicare 
appeals process may take up to 2 years.

[14] MACs typically select a small sample of claims for manual reviews 
from providers or suppliers who demonstrate aberrant billing or 
practice patterns. The MACs are responsible for developing, 
implementing, and monitoring annual error reduction plans.

[15] See also GAO, Medicare: Improvements Needed to Address Improper 
Payments in Home Health, [hyperlink, 
http://www.gao.gov/products/GAO-09-185] (Washington, D.C.: Feb. 27, 
2009); and Medicare: Little Progress Made in Targeting Outpatient 
Therapy Payments to Beneficiaries' Needs, [hyperlink, 
http://www.gao.gov/products/GAO-06-59] (Washington, D.C.: Nov. 10, 
2005).

[16] See GAO, Improper Payments: Reported Medicare Estimates and Key 
Remediation Strategies, [hyperlink, 
http://www.gao.gov/products/GAO-11-842T] (Washington, D.C.: July 28, 
2011).

[17] Department of Health and Human Services, Office of Inspector 
General, Questionable Billing for Medicare Outpatient Therapy Services.

[18] Medicare Payment Advisory Commission, Mandated Report: Improving 
Medicare's Payment System for Outpatient Therapy Services (Washington 
D.C.: Oct. 5, 2012).

[19] DRA, Pub. L. No. 109-171, § 5107, 120 Stat. 42 (2005). As 
previously noted, an exceptions process has remained in effect since 
then.

[20] CMS required the MACs to conduct MMRs of these preapproval 
requests within 10 business days and determine whether treatment above 
the cap was medically necessary.

[21] See Pub. L. No. 112-96, § 3005(a), 126 Stat. 187.

[22] Pub. L. No. 112-240, § 603, 126 Stat. 2347. As of April 1, 2013, 
the responsibility for conducting prepayment MMRs in 11 states for 
claims above the $3,700 threshold was transitioned from the MACs to 
CMS's Recovery Audit Contractors (RAC) as part of the agency's 
Prepayment Review Demonstration. The RACs will conduct postpayment 
MMRs in the states that are not part of the demonstration.

[23] CMS used the terms affirmed and nonaffirmed to indicate whether 
outpatient therapy services were approved or denied as part of the MMR 
process.

[24] Approximately 91,000 outpatient therapy providers were divided 
into these phases. CMS officials noted that they implemented the MMR 
process in phases because they did not want to overwhelm the MACs with 
a large volume of preapproval requests at the beginning of the 
process, as occurred during the preapproval process in 2006.

[25] CMS instructed the MACs to review requests no sooner than 15 days 
in advance of the phase to which providers were assigned.

[26] CMS officials stated that they also included new outpatient 
therapy providers and those who had not billed Medicare for outpatient 
therapy in 2011 in the third phase. CMS made additional adjustments to 
the assignment of providers to each phase in order to accommodate MACs 
whose contracts were in transition due to the consolidation of 
contractors resulting from Medicare contracting reform.

[27] Providers did not have an option to submit requests electronically.

[28] CMS instructed the MACs to review preapproval requests in 
accordance with Medicare coverage and payment policies, including 
applicable local coverage policies. The relevant coverage and payment 
policies are contained in Centers for Medicare & Medicaid Services, 
Medicare Benefit Policy Manual, CMS Pub. 100-02, section 220 (June 8, 
2012).

[29] Beneficiaries could elect to receive services even if a 
preapproval request was not affirmed. If they did so, the 
beneficiaries would be liable for payment for those services. In 
addition, providers could submit a claim for nonpreapproved services 
after providing the services. According to CMS instructions, the claim 
would then be denied in accordance with the preapproval decision. At 
that point, the provider or beneficiary could file an appeal seeking 
Medicare payment for the services.

[30] In a CMS Open Door Forum on October 22, 2012, providers noted 
that they sometimes waited more than 10 business days to receive a 
response, and were concerned that they had to delay needed services as 
a result.

[31] Providers were advised, but not required, to submit preapproval 
requests.

[32] A MAC could choose to conduct MMRs of outpatient therapy claims 
for services above the 2012 annual cap of $1,880 and below the 
mandatory review threshold of $3,700 if it was concerned about 
potential fraud or aberrant billing patterns by a provider.

[33] CMS issues guidance in the form of change requests and technical 
direction letters, among other things. CMS issues a change request 
when the agency wants an addition or alteration to the agreed-upon 
deliverables for a project carried out by a contractor. Technical 
direction letters provide supplementary guidance to contractors 
regarding tasks contained in their statements of work or change 
requests.

[34] CMS began conducting conference calls with the MACs in early 
August to help them prepare for the process. According to CMS, the 
MACs are not allowed to devote resources to a new project, including 
hiring new or temporary staff, until a change request is issued.

[35] The total of 110,000 preapproval requests included the requests 
either affirmed or nonaffirmed.

[36] CMS categorized requests that were not completed in a given week 
as pending review.

[37] CMS advised but did not require the MACs to expedite the 
outpatient therapy prepayment reviews. 

[End of section] 

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