It has been stated that, “No governmental requirement related to the furnishing of inpatient rehabilitation services has generated more controversy than the criteria for being classified as an inpatient rehabilitation facility—the so-called ‘75 Percent Rule’” (16). In the Final Rule implementing the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) in January 1984, the Secretary determined that, to qualify as an inpatient rehabilitation hospital or rehabilitation unit and therefore be distinguished from an acute care hospital, a facility must have “served an inpatient population of whom at least 75 percent required intensive rehabilitation services for one or more of 10 conditions specified in the regulations” within the most recent 12 month cost reporting period (17). The August 7, 2001 Final Rule that implemented the IRF PPS did not change the procedures for classification as an IRF (18). SNFs, by contrast, have no special requirements for offering rehabilitation services. There are also no specific program regulations or requirements for rehabilitation services that may be provided in an LTCH.

On June 7, 2002, the CMS declared a moratorium on enforcement of the 75 Percent Rule because it found the rule was being unevenly enforced by the various state Departments of Health and the Medicare Fiscal Intermediaries (FIs) (19). The moratorium ended in FY 2004 when a new Final Rule for IRF classification was published, which expanded the original 10 conditions to 13 and provided that the 75% compliance threshold was to be phased-in over several years, becoming fully effective for cost reporting periods beginning on or after July 1, 2007. The Final Rule also phased out the use of specific
patient comorbidities as counting toward the required 75% compliance threshold (20).

Implementation of the revised 75 Percent Rule created a serious barrier to access to PM&R services for patients in inpatient rehabilitation hospitals and units as seen in Table 19-1.

This table makes it clear that there was a dramatic drop in the number of cases admitted to rehabilitation hospitals and units, and an increase in length of stay and payment per case which represents the more severely medically and functionally impaired patients who were admitted.

It spawned intensive legislative advocacy. In the DRA of 2006, Congress responded and delayed implementation of the 75 Percent Rule by 1 year (21). After that moratorium expired, Congress subsequently passed the MMSEA of 2007, which indefinitely set the compliance threshold at 60% (22). MMSEA also provided that patient comorbidities be permanently included in the calculations used to determine whether an IRF meets the compliance percentage. With this legislative provision in place, the focus then turned to implementation of the new 60 Percent Rule (23). As a trade-off for achieving permanent relief on the 75 Percent Rule by establishing a statutory 60% compliance threshold, the field of medical rehabilitation experienced an adverse economic consequence when the MMSEA rolled back the IRF update factor to 0% in FY 2008 and held it a 0% for FY 2009. Freezing or reducing updates has become an increasingly prominent means of seeking Medicare cost savings (24).

Under the various PPS, and under the Physician Fee Schedule (PFS) for professional services provided under Part B of the Medicare program, reimbursement rates are to be updated annually. The update calculation is made during the rulemaking process based on the index or process provided for in the underlying statute. Commonly, however, legislation is proposed and enacted as a means to override the update formula or amount. Section 131 of the MIPPA of 2008, for example, substituted a positive update of 1.1% to payment rates under the Medicare PFS for the negative update that would have resulted from the application of the statutory formula.

As a cost control measure, Section 4541 of the BBA of 1997 required the CMS to impose a cap on Medicare outpatient rehabilitation therapy services for outpatient physical, speech-language and occupational therapy services by all providers other than hospital outpatient departments. Because of their complexity and direct harm to Medicare beneficiaries, the therapy caps have been subject to a “series of moratoria” enacted by Congress to avoid the strict limit placed on access to outpatient rehabilitative care (25). Most recently, Section 141 of MIPPA extended the exceptions process for therapy caps at least through December 31, 2009.

The Medicare Modernization Act of 2003 (MMA) established the Recovery Audit Contractors (RAC) program as a demonstration program to identify improper Medicare payments. The TRHCA of 2006 made the RAC program permanent and directed the CMS to expand the program to all 50 states by 2010. The RAC demonstration program as implemented in California by the contractor, PRG Shultz, resulted in numerous coverage denials based upon medical necessity reasons. Subsequently, the affected California providers appealed these denials and a large percentage (90%) of these denied coverage decisions were reversed when they were appealed, based on anecdotal reports from California IRF providers. Specifically, 6% of the overpayments collected under the demonstration program through March 27, 2008 were from IRFs (26). Of those cases, 94% were deemed medically unnecessary services or settings (27). The number of claims
in California with overpayments less cases overturned on appeal as of March 27, 2008 was over 4,480 (28). However, upon a subsequent review by a different CMS contractor, nearly 40% of the cases denied by the California RAC demonstration contractor were found to be incorrect (29). In implementing the program nationwide, CMS regulations relating to medical necessity denials and appeals remain a key issue (30). Legislation was introduced in the 110th Congress to impose a moratorium on the nationwide rollout of the RAC program but did not advance (31). Legislation requiring enhanced oversight and accountability of RACs is anticipated in the 111th Congress.

As part of ongoing initiatives to refocus payment incentives toward quality, CMS has already implemented a “pay for reporting” system for physicians where payment rates are tied to the reporting of quality measures. MIPPA made the Physician Quality Reporting Initiative permanent and authorized incentive payments through 2010. A potential next step is “pay for quality” where “providers would not only be rewarded for reporting quality activities but their payment would also be increased or decreased depending on how well they perform on these quality measures” (32). Given the pervasive influence of the Medicare program, any such reimbursement mechanism can be expected to influence practice for all patients, regardless of payer. Payment system reform will likely include enhanced performance outcome measurements applicable to rehabilitation and LTCH.

Prior to the passage of the Medicare program, physicians practiced primarily in their offices and some in the hospitals and units providing medical rehabilitation services. Payment came from some insurance companies, private pay, and some state programs (33).

The original Medicare and Medicaid programs were enacted in 1965 through Titles XVIII and XIX, respectively, of the Social Security Act. The Medicare system was originally administered by the Social Security Administration, but in 1977 management was transferred to the Health Care Financing Administration, which was renamed the CMS in 2001. CMS is part of the U.S. Department of Health and Human Services and maintains a Web site at www.cms.hhs.gov.

Beneficiaries become eligible for Medicare by virtue of age (65 or older), disability, or if they have end-stage renal disease (ESRD) (34). Medicare has four parts which describe and cover various aspects of the program. Medicare Part A and Part B are referred to as the original Medicare program, or the FFSs program. Medicare Part C is known as Medicare Advantage (MA) and gives beneficiaries the option to receive their Medicare benefits through managed care and private health insurance plans. Medicare Part D provides a prescription drug benefit (35).

The programs have grown exponentially since inception. Short-term Medicare growth is reflected below (Table 19-2).

Medicare payments for federal FY 2009 were estimated in the President’s FY 2009 budget at $485.9 billion. The chart below displays the Medicare payments, known as outlays, estimated for FY 2009 (Fig. 19-1).