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A physician clinic providing physical therapy services to Medicare or Medicaid patients must be extremely cautious. If the physical therapy services aren't billed and supervised correctly by the clinic's physicians, the clinic could find itself unwittingly in violation of the false claims statute and the Stark law.

Physician clinics get into this business in various ways. Most often, a physician group purchases the assets of a physical therapy company, employs physical therapists and bills the physical therapy services under the physician group's billing number. In billing physical therapy services to Medicare, there are two main sets of laws with which physician clinics should be familiar. The first is the federal physician self-referral law – the Stark law. The other is the Medicare billing rules.

Stark Law

The Stark law prohibits physicians from referring Medicare and Medicaid patients for "designated health services," including physical therapy, with which the physicians have a financial relationship. A clinic's ownership of physical therapy assets and employment of physical therapists constitutes such a financial relationship. Therefore, the clinic physicians would be prohibited from making referrals to those physical therapists unless the referrals fit within an exception to Stark.

One of the main Stark exceptions physician groups rely on is the in-office ancillary services exception. Under this exception, a physician can refer Medicare patients to a physical therapy center owned and operated by the physician's clinic as long as those services are either performed in the same office suite in which at least one member of the physician group has a physician practice or are performed in a location that is used for the centralized provision of the physical therapy services.

In either case, the physical therapists must be directly supervised by a physician in the group practice. This direct supervision requirement disqualifies many physician clinics. To provide the necessary direct supervision to comply with the Stark law, there must be a supervising physician present in the same building. This physician must be readily available to provide supervision at all times when physical therapists are providing services to Medicare and Medicaid patients.

Medicare

In addition to following the Stark law, a physician clinic providing physical therapy services to its patients must also comply with the Medicare billing rules. Under Medicare Part B, there are only a few ways in which physician clinics can bill physical therapy services. These include:

Incident to billing – The easiest and most common way for a physician group to bill physical therapy services to Medicare is to bill those services as incident to physician services. To bill under this method, however, the physical therapist must be employed by the physician group or at least be a leased "common law" employee of the physician group.

Moreover, the physical therapy services must be "incident to" that physician's services. That means the physician must have seen the patient at some time to initiate the plan of care. This can be accomplished by having the initial visit be between the physician and the patient. The physical therapist then performs follow-up physical therapy pursuant to the physician's designated plan of care.

The physician must also supervise the physical therapists' services adequately. This means the supervisory physician must be available in the same office building during the time Medicare patients are receiving services from the physical therapist. This is very important. U.S. Health Care Financing Administration (HCFA) officials have stated publicly on several occasions that HCFA believes the incident-to rules are being abused. HCFA has indicated it will look closely at any incident-to billing arrangements to ensure that a physician is involved in the plan of care and that physician supervision requirements are being met.

If a physician group does not have a physician on site and involved in the plan of care and it attempts to bill the physical therapist's services to Medicare as incident to the supervising physician's services, the consequences may be severe. If successfully challenged by the government, the clinic may end up not being paid for the services, and having to repay amounts the carrier may have paid inadvertently to the clinic during times a physician was not present. Even worse, the clinic could find itself facing criminal or civil charges for filing false claims.

Billing "under arrangements" – An alternative plan may be to try to qualify the physical therapy facility as a rehabilitation agency under HCFA and state law. This probably will involve forming a separate wholly owned subsidiary of the clinic and operating the physical therapy facility out of that subsidiary. If the clinic is successful in qualifying the facility as a rehabilitation agency, it is possible for the clinic to bill Medicare for physical therapy services pursuant to the "under arrangements" Medicare billing rule.

However, this is not common. The local Medicare carrier and the regional HCFA office may not be familiar with the process. Even if they are, the certification is by no means assured. The clinic may be rejected for any number of reasons. For example, the physical therapy facility will have to be surveyed and may not meet the state's site specifications.

In addition, to qualify as a rehabilitation agency the clinic also must provide more than just physical therapy services. It also must provide speech or occupational therapy or some other type of rehabilitative service. Most physician clinics aren't willing or able to satisfy these requirements.

CORF Services – Physical therapy services can also be billed to Medicare under Medicare Part B as comprehensive outpatient rehabilitation facility services (CORF). A CORF must be certified by Medicare and must meet the Medicare conditions of participation. The rules governing CORFs are extensive and most physicians would be unwilling or unable to meet them. Conditions include at a minimum:

• Physicians' services rendered by physicians who are available at the facility on a full-time or part-time basis.
• Physical therapy.
• Social or psychological services.

The laws and rules governing a physician clinic's provision of physical therapy services to Medicare patients are complex. Before beginning to provide physical therapy services, a physician group must be careful to insure it both fits within an applicable Stark exception and is billing Medicare properly for the physical therapist services under the Medicare billing rules.