Home > RNJ > 2005 > November/December > Current Issues: Summary of the GAO Report: Medicare—More Specific Criteria Needed to Classify Inpatient Rehabilitation Facilities

Current Issues: Summary of the GAO Report: Medicare—More Specific Criteria Needed to Classify Inpatient Rehabilitation Facilities
Anne Deutsch, PhD CRRN • Susan Dean-Baar, PhD CRRN FAAN


Dr. Deutsch and Dr. Dean-Baar participated in the Institute of Medicine expert panel convened in July 2004.

Several factors are affecting the current discussion about which individuals should be admitted to inpatient rehabilitation facilities (IRF). The Centers for Medicare & Medicaid Services (CMS) policies on payment for services in IRFs are heavily influencing the discussion. As the U.S. population has aged, an increasing number of individuals have become eligible for rehabilitation services covered by Medicare benefits. In 2003, there were 1,256 IRFs, a 38% increase from 1992. During this same period, Medicare payments made to IRFs more than doubled, from $2.8 billion to $5.7 billion. It is projected that by 2015, payments will reach almost $9 billion.

In addition to the increase in the number of individuals who benefit from rehabilitation services, significant changes have occurred in the field of rehabilitation; these changes have called into question the validity of using diagnoses as the basis for admission to IRFs. Examples can be seen in the recent research on outcomes of individuals with hip fracture and stroke treated at different levels of rehabilitation care. Four studies have examined the outcomes of care for patients with hip fracture treated in IRFs and skilled nursing facilities (SNFs). Kane, Chen, and Blewett (1996) found that among patients who were healthy before the fracture, those treated in IRFs achieved the most functional improvement compared with patients receiving care in SNF-based rehabilitation programs or in standard SNFs. For patients who had prefracture motor or cognitive deficits, functional improvement was not significantly different for patients discharged from IRFs, SNF-based rehabilitation programs, and standard SNFs. Kramer et al. (1997) reported that the percentages of patients with hip fracture living in the community following treatment in an IRF or SNF-based rehabilitation program were not different and found no difference in ADL independence for patients treated in IRFs and SNFs. Deutsch et al. (2005) also found that function improvement and community discharge percentages were not different for most patients treated in IRFs and rehabilitation SNFs. Some patients benefitted from the longer SNF stay. Using more recent data, Munin and colleagues (2005) reported that patients with hip fracture treated in IRFs had better 12-week functional outcomes than patients treated in SNFs.

Studies examining the IRF and SNF outcomes for patients with stroke have reported more consistent findings. Keith, Wilson, and Gutierrez (1995) and Kramer et al. (1997) both found that IRF-based care was more effective if functional improvement was the outcome, but that care in IRFs and SNFs was equally effective if discharge to the community was the outcome of interest. Kane et al. (1996) found that IRF patients, experiencing various degrees of health, achieved more functional improvement than rehabilitation SNF patients and patients in traditional SNFs.

The challenge is to develop policies that ensure that Medicare dollars are allocated wisely and that patients have access to appropriate rehabilitation services. One area being reviewed is the CMS policy of using medical diagnoses or condition as one of the primary determinants in admission decisions to IRFs.


The 75% rule, which has been in existence for more than 20 years, requires that during a 12-month period at least 75% of patients treated in an IRF require intensive rehabilitation services for a listed medical condition. The rule is one of seven criteria that the CMS uses to distinguish IRFs from other types of institutional providers (e.g., acute care hospitals, skilled nursing facilities).

An IRF that does not comply with all seven criteria, including the 75% rule, may lose its classification as an IRF. The facility would then be recognized as an acute care hospital and Medicare payments would be based on the acute care inpatient prospective payment system, which has lower rates than the IRF prospective payment system.

The original list of medical diagnoses included in the 75% rule was developed in 1983, based on information provided by 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.

During the past few years, questions have arisen about the compliance with and interpretation of the 75% rule. Enforcement of the 75% rule was suspended in 2002, after CMS found that inconsistent methods were being used to assess compliance.

In 2004, CMS revised and clarified the list of diagnoses (Figure 1), standardized the process for monitoring compliance, and established a 3-year transition period for facilities to become compliant with the 75% rule. Beginning with cost reports starting on or after July 1, 2004, a 50% threshold that includes either the primary diagnosis or a comorbidity was in effect. The percentage increases each year, and beginning with cost reports starting on or after July 1, 2007, a minimum of 75% of patients need to have one of the listed diagnoses as a primary diagnosis.

IRF industry representatives advocated expanding the 2004 list of diagnoses because of medical and technological advances and population aging. The Medicare Prescription Drug Improvement and Modernization Act of 2003 included a conference report that directed the Government Accountability Office (GAO) to assess whether the list of conditions represented a clinically appropriate standard for defining IRF services and, if not, to identify which additional diagnoses should be added to the list.

GAO’s Work

GAO staff analyzed fiscal year 2003 Medicare data using the 2004 list of diagnoses and found that 56% of IRF patients were admitted for a primary medical condition that was on the 75% rule list. If comorbidities were considered in addition to primary diagnosis, then 62% were on the list. Among the Medicare patients who did not have a condition on the list, 30.6% were admitted for a joint replacement, and 15% were admitted for other orthopedic conditions.

The 2003 Medicare data showed that 85% of IRFs met the 50% threshold based on primary condition or comorbidity, but if the rule was fully implemented (75% threshold and only primary condition is considered), then only 6% of IRFs met the requirement.

GAO staff worked with the Institute of Medicine and convened a panel of experts to discuss the 75% rule; other experts were consulted individually by GAO staff. Experts had various opinions on whether additional medical conditions should be on the list. Information that describes the appropriateness of IRF care for patients with cardiac, transplant, pulmonary, or oncology conditions is limited, and evidence related to IRF care for patients with joint replacements and hip fracture is weak. There was concensus that medical condition alone does not identify the types of patients who are appropriate for IRF care and that functional status should also be considered. In other words, there are subgroups of patients within conditions that are most appropriate for the intensive inpatient care provided by IRFs.

GAO staff also conducted structured interviews with IRF staff to learn more about current admission practices. They found that the criteria used for screening patients for admission varies by facility, but that all IRFs considered patient characteristics such as functional status and primary medical condition. Other criteria used included potential to return home and to the community, need for and ability to tolerate 3 hours of daily therapy, medical issues and level of medical stability. The proportion of patients assessed but not admitted to the IRF ranged from 5% to 58%.

IRF administrators expressed concerns that admission decisions for patients may be affected by the IRF’s compliance level at that time. For example, a patient with a condition not on the list may be admitted if the facility is at the required level of compliance but may not be admitted if the facility is below the level of compliance.

GAO Conclusions

IRFs are intended to serve patients recovering from a major illness or injury who require intensive rehabilitation services in an inpatient setting. Although experts agree that some patients with a diagnosis consistent with the 75% rule do not need the intensive rehabilitation services provided in IRFs, the need for these services for other patients is unknown. There is a need for more research comparing the effectiveness of inpatient rehabilitation care with other levels of rehabilitation care.

Medical condition alone may not be sufficient to identify patients most likely to benefit from IRF care, and additional criteria, such as functional status, may be needed. Better criteria are needed to identify the most appropriate patients for intensive care in an IRF.

The GAO’s recommendations were as follows:

  • CMS should continue to oversee that fiscal intermediaries conduct targeted reviews for medical necessity for IRF patients.
  • CMS should encourage research focused on the effectiveness of inpatient rehabilitation services and factors that identify the characteristics of patients who need intensive inpatient rehabilitation services.
  • CMS should consider reviews for medical necessity, research and other sources to refine the rule for identifying the subgroups of patients within conditions that are appropriate for IRF care.

CMS staff generally agreed with the GAO’s recommendations. CMS expects to follow the recommendations to describe subgroups of patients within a condition but plans to proceed carefully because this could result in a more restrictive policy than the current rule.

Implications for Persons with Disabilities and Rehabilitation Nurses

Admission decisions to IRFs will be affected by the 75% rule. The 75% rule applies to all patients—those covered by Medicare, as well as patients with other health insurance coverage. A patient with private health insurance who has been approved for IRF treatment but has a diagnosis not included on the list, may have difficulty getting admitted if the IRF is near or below the percentage threshold.

IRF administrators have indicated that they may need to limit admissions to comply with the rule and that some IRFs may need to close or reduce beds. Some IRFs may convert some IRF beds into a SNF unit and offer subacute rehabilitation services or develop other models for providing rehabilitation services that match the need for rehabilitation services with the level of rehabilitation services provided. Rehabilitation nurses need to participate in these discussions with administrators to identify and plan for the rehabilitation nursing services required for patients at each level of rehabilitation care.

Rehabilitation nurses are encouraged to support or get involved in research that examines the effectiveness of IRF care relative to care in alternative settings to ensure Medicare policies are based on sound research. Rehabilitation nurses can help identify the characteristics of patients (e.g., age group, presence of certain comorbidities) who need the intensive hospital-based care of an IRF or who can meet rehabilitation goals effectively at other levels of care.

The field of rehabilitation provides an exemplar of one of the challenges in current effectiveness research. Some of the patient characteristics that may have the most significant influence on determining the most appropriate level of rehabilitation services are related to patient needs most directly provided by nursing. However, the current emphasis on patient-focused multidisciplinary documentation makes it very difficult sometimes to identify the specific contributions of nursing to patient outcomes. The rehabilitation nursing needs of patients need to be more completely described and documented to support effectiveness research that will contribute to the understanding of patient characteristics that warrant inpatient rehabilitation.

Nurses are also encouraged to participate in conversations with policymakers, individually or as part of their professional associations, such as the Association of Rehabilitation Nurses or the American Congress of Rehabilitation Medicine.


This paper was written while Dr. Deutsch was a postdoctoral fellow at the Institute for Health Services Research and Policy Studies under an institutional advanced rehabilitation research award from the National Institute on Disability and Rehabilitation Research (Award Number H133P980014-02).

About the Authors

Anne Deutsch, PhD CRRN, is a clinical research scientist at the Rehabilitation Institute of Chicago and a research assistant professor of the department of physical medicine and rehabilitation at Northwestern University, Chicago.

Susan Dean-Baar, PhD CRRN FAAN, is an associate professor and associate dean for academic affairs for the college of nursing at the University of Wisconsin, Milwaukee, WI.


Department of Health and Human Services. (May 7, 2004). Medicare program: Changes to the criteria for being classified as an inpatient rehabilitation facility—Final rule. Federal Register, 69(89), 25752–25776. Retrieved August 22, 2005, from www.cms.hhs.gov/providers/irfpps/cms1262f.pdf

Deutsch, A., Granger, C. V., Fiedler, R.C., DeJong, G., Kane, R.L., Ottenbacher, K.J., et al. (2005). Outcomes and reimbursement of inpatient rehabilitation facilities and subacute rehabilitation programs for Medicare beneficiaries with hip fracture. Medical Care, 43(9), 892–901.

Government Accountability Office. (2005). Medicare: More specific criteria needed to classify inpatient rehabilitation facilities: Report to the Senate Committee on Finance and the House Committee on Ways and Means (GAO-05-366), April 2005. Retrieved August 22, 2005, from www.gao.gov/docsearch/abstract.php?rptno=GAO-05-366

Kane, R. L., Chen, Q., Blewett, L. A., & Sangl, J. (1996). Do rehabilitative nursing homes improve the outcomes of care? Journal of the American Geriatrics Society, 44(5), 545–554.

Keith, R. A., Wilson, D.B., & Gutierrez, P. (1995) Acute and subacute rehabilitation for stroke: A comparison. Archives of Physical Medicine and Rehabilitation, 76(6), 495–500.

Kramer, A. M., Steiner, J. F., Schlenker, R. E., Eilertsen, T. B., Hrincevich, C. A., Tropea, D. A., et al. (1997). Outcomes and costs after hip fracture and stroke. A comparison of rehabilitation settings. The Journal of the American Medical Association, 277(5), 396–404.

Munin, M.C., Seligman, K., Oew, A., Quear, T., Skidmore, E. R., Gruen, G., et al. (2005). Effect of rehabilitation site on functional recovery after hip fracture. Archives of Physical Medicine and Rehabilitation, 86, 367–372.