3 Compliance Considerations for Mental Health Treatment in Nursing Homes

Depression and psychiatric conditions are relatively common in the elderly and nursing home residents. Effective treatments for these conditions can include medications, as well as psychotherapy. However, compliance professionals need to be aware of proper medical necessity, coding, and documentation when it comes to providing psychotherapy services for nursing home residents.

For example, a Georgia psychotherapy provider agreed to pay $2 million to settle allegations that they violated the False Claims Act by billing Medicare and Medicaid for psychotherapy sessions at nursing homes and skilled nursing facilities that were medically unnecessary, improperly documented, or billed at higher intensity levels than justified (a practice known as upcoding).


Many psychotherapy services are billed based on time. If a provider does not document the time, overestimates the time, or is otherwise inaccurate with their time reporting, risks of upcoding might exist. Throughout the pandemic, mental health providers have been feeling the pressure of seeing more patients with less time available in their day. It is important to make sure that the total psychotherapy time does not exceed the time a provider saw or treated patients. This is often referred to as an “impossible day.” In other words, if total billings of psychotherapy time for a provider add up to 25 hours for a given date of service, that would be impossible because there are only 24 hours in a day. Also, if a clinic schedule shows the provider was only seeing patients for 10 hours that day but the psychotherapy times add up to more than that, the time billed is likely inaccurate.

In another case, an addiction recovery physician paid $530,000 to resolve False Claims Act allegations that included upcoding office visits. One strategy to avoid upcoding is to have a trained medical auditor review medical documentation for each claim before it is submitted. However, this can be time-consuming, and practices might not have the resources or personnel to review every single claim. Another alternative is to establish a schedule to periodically audit a select sample of claims.


Medical documentation is the foundation for demonstrating services were appropriately provided. Many third-party payers will have policies that define their documentation requirements for services to be considered eligible for reimbursement.   Medicare contractors may publish local coverage determinations (LCDs) that outline some of these documentation requirements. For example, one LCD requires documentation of:

  • Individualized Treatment Plan: The plan must state the type, amount, frequency, and duration of the services to be furnished and indicate the diagnoses and anticipated goals.
  • Reasonable Expectation of Improvement: Services must be for the purpose of diagnostic study or reasonably be expected to improve the patient's condition. The treatment must, at a minimum, be designed to reduce or control the patient's psychiatric symptoms so as to prevent relapse or hospitalization and improve or maintain the patient's level of functioning.
  • Frequency and Duration of Services: There are no specific limits on the length of time that services may be covered.
    • There are many factors that affect the outcome of treatment; among them are the nature of the illness, prior history, the goals of treatment, and the patient's response.
    • As long as the evidence shows that the patient continues to improve in accordance with his/her individualized treatment plan, and the frequency of services is within accepted norms of medical practice, coverage may be continued.

Medical Necessity

Regardless of how well a service is documented, if it is not medically necessary, it will typically be considered non-covered. Medical necessity definitions of a physician or psychiatrist might differ from a third-party payer’s definition. This doesn’t mean a physician or psychiatrist can’t offer a service they feel is medically necessary, but it might mean a payer will not pay for it.

For example, referring to the LCD in the prior section of this article, the Medicare contractor described scenarios where it would no longer consider the psychiatric services to be medically necessary. Specifically, they conclude that:

  • “When stability can be maintained without further treatment or with less intensive treatment, the psychological services are no longer medically necessary.”


  • “When a patient reaches a point in his/her treatment where further improvement does not appear to be indicated and there is no reasonable expectation of improvement, the outpatient psychiatric services are no longer considered reasonable or medically necessary.”

For the Georgia psychotherapy provider who agreed to pay $2 million to settle allegations that included medically unnecessary psychotherapy services to nursing home residents, it may have been determined that the patient reached a point where the treatment was not going to result in a reasonable expectation of improvement. Hypothetically, this might include a scenario where an elderly patient’s dementia has progressed to a point where psychotherapy is unlikely to result in any improvement.

Determination of medical necessity often requires review of records from someone with clinical experience or knowledge. Many medical coders are excellent at reviewing documentation for coding requirements, but they might not be trained in determining medical necessity.


Psychotherapy can be an important and effective treatment for many mental health conditions. However, if one is not careful, the potential for running afoul of compliance regulations is possible. Some of these risks include upcoding, poor documentation, and a lack of medical necessity.


To download this blog post as a pdf, click the button below.

Download the PDF

Questions or Comments?