Introduced as part of the Balanced Budget Act (BBA) of 1997, the therapy cap was intended as a temporary solution to controlling Medicare costs. However, despite a longstanding push to repeal the cap, Congress has continued to renew it each year since it was first established. For 2016, the cap amount is $1,960 for physical and speech therapy combined and $1,960 for occupational therapy. The cap 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 would count toward that patient's $1,960 limit. Still, to ensure the cap does not prevent Medicare patients from obtaining medically necessary care, Congress also has passed legislation every year that allows exceptions for exceeding the cap. In 2016, there is a two-tiered exceptions process.

What is Included in the Therapy Cap?

According to CMS, the therapy cap applies to all Part B outpatient therapy services furnished in:

  • 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

Please note that the current rules for application of the therapy cap to services furnished in critical access hospitals differ significantly from pre-2014 policy. Beginning in 2014, the therapy cap—along with the rules governing the therapy cap exceptions and manual medical review processes—applies to critical access hospitals in the same manner as all other settings. So, if a patient continues treatment in a critical access hospital, after he or she exceeds the $1,960 cap for therapy services, the CAH would need to follow the rules of the exceptions process for that patient, as explained later in this guide.

How Do I Calculate a Patient's Progress Toward the Therapy Cap?

Each time a new Medicare patient comes to you for treatment, it is 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 cap. To calculate the patient's "running total" toward the therapy cap, you can reference the allowable fee schedule. 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 Cap Exceptions Process?

Automatic Exceptions

The therapy cap isn't necessarily 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 cap—all you have to do is attach the KX modifier 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 cap 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 cap until the patient reaches a total of $3,700 worth of treatment for the current benefit period.

Manual Medical Review

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) replaced the manual medical review process for claims that exceed the $3,700 threshold with a targeted review process. With this change, MACRA now prohibits the use of recovery auditors to conduct these reviews; instead, CMS has selected Strategic Health Solutions as the supplemental medical review contractor (SMRC) and tasked it with performing the reviews for all payers on a post-payment basis. The SMRC will select claims for review when:

  • Providers with a high percentage of patients receive therapy beyond the thresholds as compared to other industry professionals during the first year MACRA is in effect; and
  • Therapy is provided in skilled nursing facilities (SNFs), private practices, or outpatient physical therapy, speech-language pathology, or occupational therapy clinics.

Losing your mind over modifiers? Watch our Modifier Open Forum webinar to learn how and when to use them.


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

If you would like to continue therapy for a patient who has exceeded the cap but does not qualify for an exception, you can do so through the use of an Advance Beneficiary Notice (ABN) of Noncoverage. This allows a 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 he or she is about to receive and serves as proof that the patient understands his or her financial obligation. By signing an ABN, the patient agrees to pay for treatment out-of-pocket or through a 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. You must always have patients sign the 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." It's your responsibility as a provider to know 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, the APTA released the Defining Medically Necessary Physical Therapy Services position in 2011. As described in that 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, physical 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 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. It also seems to align with Medicare’s payment requirements, especially with respect to the 2013 court decision that clearly discarded patient improvement as a condition of payment.

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 cap—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 cap exceptions process as directed above. You might be tempted to issue "blanket" ABNs to ensure payment no matter what, but you absolutely should not engage in this practice. Medicare strictly prohibits providers from issuing ABNs on a regular, routine basis.


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Heidi Jannenga

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