Cash-based physical therapy practices are all the rage these days, and with good reason. They give PTs the opportunity to focus on providing quality care—without the pressure of altering treatments or billing practices to keep insurance payers happy.

At the same time, PTs can get into hot water if they blindly accept cash from anyone willing to pay. And things get especially hairy when it comes to Medicare patients.

So, can a Medicare patient pay out of pocket? The answer, as is the case for so many Medicare quandaries, is that it depends. According to Dr. Jarod Carter, PT, DPT, there are two key factors to consider if you’re looking to accept cash payment from a Medicare beneficiary:

  1. Your relationship with Medicare. (You can be a participating provider, a non-participating provider, or have no relationship with Medicare.)
  2. Whether the services you provide to Medicare beneficiaries are “covered.” (This essentially boils down to whether someone “unskilled” could safely perform the services and achieve the same results.)

To take an extremely confusing topic and boil it down into a super-quick explanation, PTs can only accept cash payment from Medicare beneficiaries if the services rendered are “not covered” by Medicare—either due to statutory exclusion (think wellness and fitness services) or lack of medical necessity.

With that in mind, here are a few Medicare compliance issues you can run into if you’re not careful about how you run your cash-based practice.

1. Accepting cash for medically necessary covered services delivered to Medicare patients.

As mentioned above, covered services are essentially those that require skilled delivery. If physical therapy is preventing or slowing a patient’s decline (i.e., the treatment is medically necessary)—and a non-skilled person (such as a trainer, caregiver, or partner) cannot safely provide treatment—then that treatment is covered by Medicare. So, if you decide to deliver medically necessary manual therapy or neuromuscular re-education to a Medicare patient, you cannot charge cash for those services.

Solution 1:

If you really want to treat these Medicare patients, then you need to enroll with Medicare as a participating provider and bill accordingly. This is why you will occasionally see cash-based clinics that make billing exceptions for Medicare only (i.e., not for any other third-party payers). You can also sign up as a non-participating provider and charge cash for said services, but you must bill Medicare on behalf of the patient so he or she can receive reimbursement.

Solution 2:

You can also clearly state that only statutorily uncovered fitness and wellness services are available to Medicare patients, and that you will refer those patients Medicare-enrolled PT providers when needed.

For example, let’s say a Medicare patient had a total shoulder replacement (TSR), and the patient’s PT recently discharged her from post-op physical therapy. But, the patient really wants to improve her golfing performance. You could provide fitness services to help that patient return to the green, but if the shoulder were to stiffen—and the patient thus needed manual therapy—you’d have to refer her to a Medicare-contracted provider.

2. Accepting cash as a non-participating provider—but not submitting claims to Medicare.

If you’re a non-participating Medicare provider, you may assume it’s fine to accept cash payment from Medicare patients for covered services. And technically, you can do exactly that––provided you then bill Medicare so the patient can get reimbursed. Many clinicians miss the second point, making them non-compliant.

Solution 1:

Become a participating provider and start submitting claims for covered physical therapy services delivered to Medicare beneficiaries.

Solution 2:

Continue operating as a non-participating provider and collecting cash from patients—but start submitting claims to Medicare.

3. Assuming you’ve “opted out” of Medicare, meaning none of these rules apply to you.

Unlike many other types of practitioners, physical therapists cannot “opt out” of Medicare. In fact, the closest thing PTs have to “opting out” is simply not having any type of relationship with Medicare.

When you have no relationship with Medicare, you can accept cash payment from a Medicare beneficiary only if Medicare has designated the service in question as non-covered in all instances (i.e., statutorily non-covered).

Solution 1:

Limit your services offered to Medicare patients to wellness or fitness-based ones, and refer patients to Medicare providers when appropriate.  

4. Collecting cash payments from Medicare patients after they’ve met the therapy soft cap.

There’s technically no “cap” on therapy services anymore, but the remaining “threshold” (a.k.a. soft cap) still perplexes cash-based therapists. It’s tempting to collect cash once a patient has exceeded the threshold, but this blanket approach to cash pay could land you in hot water. That’s because Medicare still covers medically necessary services beyond the soft cap.

Solution 1:

Apply the KX modifier to claims above the threshold to continue billing Medicare for medically necessary covered treatments.

Solution 2:

Carefully consider whether continuing skilled PT is medically necessary. If the services you plan to deliver moving forward do not meet Medicare’s standard of medical necessity, then you’ll need to make the patient aware of this. And if he or she wants to continue receiving treatment that is usually covered by Medicare—even if that means paying out of pocket—then you’ll need to document that.

And that brings us to our final cash-pay issue.

5. Skipping mandatory ABNs.

If you decide to accept cash for non-medically necessary covered services delivered to a Medicare patient, you must have the patient sign an Advance Beneficiary Notice of Noncoverage (ABN) before you collect payment. When a patient signs this form, he or she is acknowledging and accepting financial responsibility for the cost of the services you plan to provide. (Side note: There’s no need to issue an ABN before providing services Medicare never covers—like wellness and fitness services—but you can issue a voluntary ABN as a courtesy to the patient.) For more information on ABNs, check out this blog post.

Download your ABN decision chart.

Enter your email address below, and we’ll send you a super-simple flow chart to help you decide whether or not it’s appropriate to issue an ABN.

Many of us look at cash-based PT as the answer to our insurance woes, but it’s important to remember that Medicare has strict rules about collecting cash payments from its beneficiaries. Have  you run into issues with Medicare in your cash practice? Tell us about it in the comment section below.


Meredith Castin, PT, DPT, is the founder of The Non-Clinical PT, a career development resource designed to help physical, occupational, and speech therapy professionals leverage their degrees in non-clinical ways.