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Physical Therapists’ Guide to the Therapy Cap

Here's what rehab therapists need to know about the therapy threshold for 2023, including modifiers, ABNs, and more.

Heidi Jannenga
5 min read
February 13, 2023
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Introduced as part of the Balanced Budget Act (BBA) of 1997, the Medicare physical therapy cap was intended as a temporary solution to control Medicare costs. However, despite a longstanding push to repeal the cap, Congress continued to renew it each year after it was first established. But as part of the Bipartisan Budget Act of 2018, the hard cap was finally repealed and replaced with a soft cap (a.k.a. an annual threshold amount). That means therapists must continue to track their patients’ progress toward the threshold each year—and affix the KX modifier to all claims for medically necessary services that exceed this threshold (in 2024, the threshold is $2,230 for PT and speech language pathology (SLP) services combined and $2,230 for OT services for the calendar year). Just like the cap, the threshold does not reset for each diagnosis; so, even if a patient seeks therapy related to multiple diagnoses over the course of the benefit period, all of those services count toward that patient's threshold. Still, the threshold is not intended to prevent Medicare patients from obtaining medically necessary care.

Which services count toward the Medicare physical therapy threshold?

According to CMS, the therapy threshold applies to all Part B outpatient therapy services furnished in the following locations:

  • Private practices
  • Physician offices
  • Skilled nursing facilities (part B)
  • Rehabilitation agencies (a.k.a. outpatient rehabilitation facilities or ORFs)
  • Comprehensive outpatient rehabilitation facilities (CORFs)
  • Home health agencies (type of bill [TOB] 34X)
  • Critical access hospitals
  • Hospital outpatient departments (HOPDs)
  • Outpatient hospitals, as determined by:
    • TOB 12X, 13X, or 085X
    • Revenue code 042X, 043X, or 044X
    • Modifier GN, GO, or GP
    • Dates of service on or after January 1, 2014

As of 2014, the Medicare physical therapy cap—along with the rules governing exceptions and manual medical review processes—applies to critical access hospitals (CAHs) in the same manner as all other settings. So, if a patient continues treatment in a CAH and exceeds the threshold, the CAH will need to follow the rules of the soft cap exceptions process (as explained later in this guide).

How do I calculate a patient's progress toward the therapy threshold?

Each time a new Medicare patient comes to you for treatment, it’s crucial that you determine whether the patient has received any other therapy services during the current benefit period, as those services would apply to the Medicare physical therapy cap. You can reference the allowable fee schedule to calculate the patient's "running total" toward the therapy threshold. In the event that the patient can't provide you with a history of the therapy services he or she has received, you can request this information from CMS by contacting your Medicare contractor. (Keep in mind that the amount that goes toward the limit reflects the date of claim receipt, not the date of service).

What is the therapy threshold exceptions process?

Automatic Exceptions (KX Modifier)

The Medicare physical therapy cap—or therapy threshold, as it’s more accurately called—is not the end-all, be-all of reimbursement for a particular patient. If you believe that continuing therapy with a patient is medically necessary—thus qualifying the patient for an exception to the threshold—then all you have to do is include the KX modifier on claims that exceed the threshold and clearly document your reasons for continuing treatment. This is known as the automatic exceptions process. There’s no need to submit additional documentation or supplemental forms to use the KX modifier, but by attaching the KX modifier to a claim, you attest that the services billed:

  • qualify for the threshold exception,
  • are reasonable and necessary,
  • require the skills of a therapist, and
  • are justified by supporting documentation in the patient's medical record.

You can use the automatic exceptions process to treat beyond the threshold. However, once the patient has received a total of $3,000 worth of treatment for the current benefit period, these claims are subject to a targeted medical review. (Providers should continue to affix the KX modifier to these claims.)

Targeted Medical Review

The targeted medical review process was implemented with the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). If a patient’s treatment expenses surpass $3,000, these claims may be subject to targeted review. But as we explained in our Common Questions from Our Medicare Open Forum Webinar FAQ, “Despite the fact that the review threshold was reduced from $3,700 to $3,000 [in 2019], we do not expect to see an increase in reviews. After all, Congress did not increase funding for claim reviews.” The current targeted medical review threshold of $3,000 will remain in place until at least 2028.

Not all claims that exceed the threshold will be targeted for review. Instead, auditors will select claims above the threshold to review based on these criteria:

  • The provider has a high claims denial percentage.
  • The provider has a pattern for aberrant billing or questionable billing practices (for example, billing medically unlikely units of services in a day).
  • The provider is newly enrolled as a therapist—or has no previously submitted claims for therapy services.
  • The services are furnished to treat a type of medical condition.
  • The provider is part of a group that includes another provider whose claims were flagged for review.

In the event of a targeted medical review, providers may be required to submit documentation justifying the services in question via an additional documentation request (ADR). Providers can submit a summary justifying the exception and the relevant files if additional documentation is requested.

Losing your mind over Medicare regulations? Master Part B compliance with this webinar about Medicare muck-ups (and how to fix them).

What is an Advance Beneficiary Notice (ABN) of Noncoverage?

If you would like to continue therapy for a patient who has exceeded the threshold but does not qualify for an exception, you can do so through the use of an Advance Beneficiary Notice of Noncoverage (ABN)—along with the GA modifier, which we’ll cover in the next section. This allows the patient to keep receiving therapy that is no longer medically necessary. Essentially, an ABN notifies a Medicare patient that Medicare might not cover the therapy services they are about to receive—and serves as proof that the patient understands their financial obligation. By signing an ABN, the patient agrees to pay for treatment out-of-pocket or through secondary insurance.

You must issue an ABN:

  1. Before providing items or services that you believe or know Medicare may not cover.
  2. Before providing items or services that Medicare usually covers but may not consider medically reasonable and necessary for a specific patient in a specific case.

In neither case can you issue an ABN after Medicare has already denied a claim—nor can you issue a blanket ABN to cover your bases with Medicare patients who may or may not end up needing one. Additionally, you must always have patients sign the ABN form before you provide the services in question. 

Medical Necessity and the GA Modifier

National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs) employ different definitions of "reasonable and necessary." As a provider, you are responsible for knowing the current NCDs and LCDs governing your practice. In general, though, the medical necessity of services is determined based on:

  • Whether the cost of treatment is reasonable considering the patient’s chances of reaching a desired level of relief or functional improvement.
  • Whether the treatment will mitigate the patient’s risk of suffering an even worse outcome if the current condition is left untreated.

To shed light on the meaning of medical necessity and how it applies to physical therapists, CMS released this statement circa 2014: “To be covered as skilled therapy, the services must require the skills of a qualified therapist and must be reasonable and necessary for the treatment of the patient’s illness or injury as discussed below. Coverage does not turn on the presence or absence of an individual’s potential for improvement, but rather on the beneficiary’s need for skilled care.” 

This description might not match up with every single “medically necessary” definition out there, but it does speak directly to rehab therapists better than most communication on the subject. 

If you conclude that certain services are not medically reasonable and medically necessary based on the definition that applies to you—and thus, you issue an ABN—then you should add the GA modifier to the claim to signify that you have an ABN on file. (Please note that if you are using the GA modifier, you should not use the KX modifier.) You will still continue to submit claims to Medicare, but the GA modifier will prompt Medicare to reject them. Then, once you receive Medicare's denial, you can go ahead and collect out-of-pocket payment.

Remember, you should not issue an ABN for every beneficiary who exceeds the therapy threshold—only ones for whom the services in question do not fall under Medicare's definition of "reasonable or necessary." If you believe the services are medically necessary, you should instead follow the therapy threshold exceptions process as directed above. You might be tempted to issue blanket ABNs to ensure payment no matter what, but again, you absolutely should not engage in this practice. Medicare strictly prohibits providers from issuing ABNs on a regular, routine basis.

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