In drafting proposed new caps on payments for some rehabilitation services, HCFA officials say they are trying to reduce how much Medicare money is used to pay for therapy companies' "medical services infrastructure."
Late last month, HCFA published a proposed rule outlining "salary equivalency" guidelines for physical, occupational, respiratory and speech therapy provided by outside contractors in skilled-nursing facilities and other long-term-care settings. The rule will reduce payments for some therapy services but increase them for others.
HCFA Admininstrator Bruce Vladeck said the proposed guidelines, which applied to skilled-nursing facilities and home health and rehabilitation agencies, would save Medicare $1.7 billion between now and 2001.
For therapy services, Medicare pays the long-term-care providers, which then compensate their therapy contractors. Under Medicare law, HCFA pays long-term-care providers for contract therapy services at rates no greater than the provider would have paid staff therapists.
To date, only physical and respiratory therapy have been subject to salary equivalency, which Medicare intermediaries and carriers would use to determine the maximum allowable cost for the services. HCFA has never applied strict limits on speech pathology and occupational therapy.
But ever-escalating costs for those services have propelled government probes into Medicare billings for therapy services, which have concluded that therapy agencies have overcharged the government.
The General Accounting Office, Congress' investigative arm, has found that charges for Medicare-covered occupational therapy services were nearly 20 times greater in 1995 than they were in 1989, while charges for speech therapy were nearly 13 times greater in 1995 than 1989 (Oct. 28, 1996, p. 36).
Charges for physical therapy, meanwhile, grew less than sevenfold over the same time.
The difference in regulatory status is reflected in how the new salary equivalency guidelines would affect therapy pay. The new rates will constitute increases for physical therapy and respiratory therapy, but probable decreases for occupational and speech therapy.
Thomas Hoyer, director of the office of chronic care and insurance policy in HCFA's bureau of policy development, said one of the goals of the new salary equivalency guidelines will be to limit excess payments that contract therapy providers can use to build their own administrative framework.
"The real issue here is whether the federal government wants to pay a bunch of therapy companies to establish basically a medical services infrastructure it would rather pay a (nursing facility) to establish on-site," Hoyer said last month in a preview of the guidelines during a Washington meeting of the American Association of Homes and Services for the Aging.
"Certainly we will be paying enough under these salary equivalency guidelines to hire the best therapists money can buy," he said. "The question is whether we're paying enough to hire the best management company with the best return on equity that money can buy. I hope the answer to that one is no."
Another HCFA official added, "We still haven't said to the provider, `We don't want you to provide the service on contract.'*"
Hoyer's comments get an angry response from the industry. Therapy companies said long-term-care providers should be
allowed to decide whether there is enough demand for them to add therapists to their staffs or whether they should hire contractors.
"I think we've made our case that a contracted service . . . makes an awful lot of economic sense," said Peter Clendenin, executive vice president of the National Association for the Support of Long Term Care, or NASL."Let people make a good business decision as to whether a staffed or contracted approach makes sense."
Furthermore, therapy providers add, HCFA's published rates are too low because they rely heavily on wage data for hospital-based therapists, which are paid less than their counterparts in nursing homes because it's more difficult for nursing homes to recruit and retain therapists.
"Factoring in lower hospital therapy salaries in guidelines that don't apply to hospitals doesn't make sense," said Paul Willging, executive vice president of the American Health Care Association, a nursing home trade group.
"The rates are inadequate and the method is really flawed," said Susan Campbell, vice president of communications and investor relations at Nova-Care, a rehabilitation services company in King of Prussia, Pa.
HCFA argues, however, that there are no good data on therapy payment, including a survey supplied by Clendenin's group. But it did say the NASL survey was one of several it used in developing the guidelines.
Hoyer said the agency collected "all the data we could possibly find, and cobbled together a data set which we think gives us some rates that are accurate."
Despite the outcry from the industry, analysts and company officials said most rehabilitation therapy companies will see their income tighten only slightly, if at all, under HCFA's proposal, although that probably won't stop the providers from protesting the rates.
Because they knew a change in payment policies loomed, some companies prepared by cutting costs. For instance, Campbell said NovaCare shut down administrative offices, centralized some of its support activities and introduced new cost-saving technology to eliminate $25 million a year in costs.
"(Companies) think it's going to be earnings neutral to a little negative," said Dalton Lambert, with the New Orleans investment research firm Johnson Rice. "They'll be able to adapt around these rates."
For the five therapy companies Lambert watches, about half the business is physical therapy, which will experience an update to its rates. That mix should cushion the blow of decreases in occupational and speech therapy.
"If you're doing a lot of speech and occupational therapy, you're going to be hurt a lot more," Lambert said.
Therapy providers will have 60 days to submit comments to persuade HCFA to raise the rates. Any rates will not be effective until 60 days after publication of a final rule. HCFA officials have not set a target date for publishing the final rule.
Setting the new payment rates could bring to a close a controversy that has dogged the therapy industry for at least two years.
Responding to initial GAO reports of overcharges in occupational and speech therapy in April 1995, HCFA published state-by-state "prudent buyer" rates that intermediaries and carriers could use in determining reasonable reimbursement for occupational and speech therapy in long-term-care settings.
Therapy providers said HCFA regional officials tried to force the intermediaries to inappropriately use those rates as strict limits on payments, prompting top national HCFA officials to remind regional administrators at least three times that the rates were not absolute limits.