For many physical therapists, the phrase “medically necessary” sounds worse than nails on a chalkboard. On the one hand, it’s vague, subjective, and open to infinite interpretation. And on the other, it’s often the determining factor in whether payers—perhaps most notably, Medicare—will provide reimbursement for rehab therapy services.

A Bit of History

The history of the “medically necessary” reimbursement requirement stretches all the way back to the 1960s. As E. Haavi Morreim explains in this article, it was around that time that soaring healthcare costs prompted insurers to create some kind of standard for payment. Up until that point, claim approval was based almost entirely on “physicians' judgments about what care a patient needed.” When insurers realized they needed to define limits for coverage in order to control costs, they introduced the term “medically necessary” to combat the reimbursement of services that were “excessive, experimental, or merely convenient.”

While early guidelines as to what, exactly, made a service “medically necessary” were based on the collective clinical judgment of medical providers, the tables have since turned so that the health plans “tell physicians, rather than ask them, what is necessary and what is not,” Morreim writes. The pickle therapists run into is that the core meaning of the word “necessary”—whose synonyms include “essential” and “indispensable”—implicates a life-or-death situation in which the absence of care could directly result in loss of life. Of course, that’s not the standard most insurers adhere to when deciding whether to deny a claim; otherwise, the vast majority of medical care—including rehab therapy—would not warrant coverage.

The Necessity Umbrella

Without a clear definition as to what falls under the umbrella of “medical necessity,” payers have resorted to creating their own definitions based on their own cost-benefit analyses. Essentially, they ask:

  1. whether the cost of treatment justifies the chances that the patient will reach a desired level of relief or functional improvement.
  2. whether the treatment will mitigate the patient’s risk of suffering an even worse outcome if the current condition is left untreated.

The problem, Morreim writes, is that “a huge array of treatments fits that description: more or less worthwhile, but the patient will not die without it and other alternatives (that might have some drawbacks) exist.” Furthermore, definitions of medical necessity can vary from one health plan to the next, though most share a decidedly vague set of conditions. This is particularly frustrating for rehab therapy professionals because, as Morreim points out, “the vague concept of 'necessary' does not fit quality of life-oriented interventions very well,” which makes it “easy for health plans to dub those interventions discretionary and unnecessary.”

Defining Necessity for Physical Therapy

To help both physical therapists and payers better understand and apply the concept of medical necessity as it relates to therapy services, the APTA adopted the Defining Medically Necessary Physical Therapy Services position in 2011. According to this statement, “physical therapy is considered medically necessary as determined by the licensed physical therapist based on the results of a physical therapy evaluation and when provided for the purpose of preventing, minimizing, or eliminating impairments, activity limitations, or participation restrictions.” Furthermore, therapy treatment is considered medically necessary “if the type, amount, and duration of services outlined in the plan of care increase the likelihood of meeting one or more of these stated goals: to improve function, minimize loss of function, or decrease risk of injury and disease.”

This description might not fall in line with every single “medically necessary” definition out there, but it does provide a better level of therapy-specific detail than most. It also seems to be on par with Medicare’s reimbursement requirements, especially considering the recent court decision that definitively eliminated patient improvement as a condition of payment.

The Therapy Cap and ABNs

Speaking of Medicare, as you’re probably well aware, Medicare caps the total amount of reimbursement it will provide annually for each patient’s rehabilitation services. For 2014, that amount is $1,920 for occupational therapy and $1,920 for physical therapy and speech-language pathology combined. Therapists can treat above the cap—at least, they can until March 31, 2014. However, Medicare’s reimbursement above the cap hinges on the medical necessity of continued therapy treatment. Per the APTA, “an automatic exception to the therapy cap may be made when the patient's condition is justified by documentation indicating that the beneficiary requires continued skilled therapy, i.e., therapy beyond the amount payable under the therapy cap, to achieve their prior functional status or maximum expected functional status within a reasonable amount of time.” (For an in-depth discussion of the therapy cap, check out this blog post.)

If you, as the therapist, determine that treatment in excess of the therapy cap is medically necessary, you should attach the KX modifier to claims above the cap and clearly document your reasons for continuing treatment. However, if you instead determine that treatment above the cap is not medically necessary, but the patient wishes to continue receiving therapy anyway, you can continue to treat the patient on a cash-based payment basis by issuing an Advanced Beneficiary Notice (ABN). By using an ABN, you attest that your services are no longer medically necessary. And by signing the ABN, your patient agrees to pay for said services out-of-pocket.

Not sure whether you should continue treatment above the cap? In this blog post, WebPT Co-Founder Heidi Jannenga, PT, offers the following advice:

If you’re nervous about exceeding the cap, you should question why. Any reluctance to proceed with treatment is likely a sign that therapy may not be totally necessary. Are the services you’re providing crucial to the patient’s ability to function adequately in his or her daily life? Has the patient reached his or her prior level of function? If the answer is yes, then it’s time to discharge the patient or possibly provide post-care services on a cash payment basis through the proper use of an ABN. If the answer is no, then you should have nothing to worry about: continue treatment; provide documentation that is clear, correct, consistent, and detailed; and play by Medicare’s therapy cap rules.


How has the concept of medical necessity affected you as a therapy provider? Add your two cents to the great medically necessary discussion in the comment section below.


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