Medicare Cap Changes for 2013

A primer on exceptions, the manual review process and proper use of ABNs.

This article addresses the 2013 Medicare caps for outpatient physical, occupational and speech therapy, including the cap exceptions, manual medical review process and proper use of ABNs in connection with the caps.

For 2013, the therapy cap for occupational therapy (OT) is $1,900 and the combined cap for physical therapy (PT) and speech-language pathology services (SLP) is also $1,900. For example, 2013 payments for a patient's combined PT and SLP services cannot exceed $1,900 unless an exception to the cap applies.1 As discussed in detail below, exceptions to these caps are allowed for reasonable and necessary therapy services.

In addition to the $1,900 caps, therapy services costing above $3,700 for OT and $3,700 for PT and SLP combined are subject to manual medical review.2

The therapy caps and manual medical review apply to Part B outpatient therapy settings and providers including:

• Therapists in private practice
• Offices of physicians and certain nonphysician practitioners
• Part B skilled nursing facilities
• Home health agencies (but not if billing under Part A)
• Rehabilitation agencies
• Hospital outpatient departments (other than Critical Access Hospitals)3

For purposes of determining whether the caps are reached, Medicare includes all amounts paid for therapy services by Medicare and by the patient for any deductible and coinsurance. If Medicare is the secondary payer, the secondary payment is applied to the therapy caps.4

The therapy caps and manual medical review do not automatically apply to patients covered by Medicare Advantage plans. These individuals should check their MA plan for coverage rules on therapy services.5

Providers should regularly check their Medicare carrier's website for up to date announcements regarding the therapy caps and manual medical review process.

Therapy Cap Exceptions

Medicare will continue to pay for therapy services above the $1,900 caps if the services are medically necessary. If a patient qualifies for an exception to the cap, the provider only needs to add the KX modifier to the claim indicating that services above the cap are medically necessary and justification is documented in the medical record.6

To qualify for a cap exception, documentation must indicate that the patient requires continued skilled therapy, i.e., therapy beyond the amount payable under the therapy cap, to achieve his or her prior functional status or maximum expected functional status within a reasonable period of time. Clinicians are not required to submit special documentation to support an exception to the cap.7

Clinicians are responsible for consulting guidance in Medicare manuals and professional literature to determine if treatment above the cap is medically necessary. The condition or complexity that caused treatment to exceed the cap must be related to the therapy goals and must either be the condition that is being treated or a complexity that directly and significantly impacts the rate of recovery of the condition being treated so that it is appropriate to exceed the cap.8 Documentation should indicate how the complexity (or combination of complexities) directly and significantly affects treatment. However, the clinician's opinion is not binding on the Medicare carrier which makes the final determination concerning whether the claim is payable.9

Providers must submit documentation justifying treatment above the cap in response to any Additional Documentation Request (ADR) for claims that are selected for medical review. Providers must follow the regular documentation requirements for therapy services.10 If medical records are requested for review, clinicians may include, at their discretion, a summary that specifically addresses justification for the cap exception.11

In addition, CMS exempted therapy evaluations from caps when the evaluation is necessary to, for example, determine if the current status of the patient requires therapy services.12

A denial of a claim above the cap can be appealed in accordance with the administrative appeals process that applies to regular therapy claims.13

Use of the KX Modifier

The KX modifier should only be used when the patient's condition justifies services that exceed the cap. CMS has stated that routine use of the KX modifier for all patients will likely show up on data analysis as aberrant and invite inquiry.14

Use of the KX modifier does not eliminate the need for other therapy modifiers, including the GN, GP and GO modifiers and the new modifiers for functional limitations reporting. Providers may report the modifiers in any order. If there is insufficient room on a claim line for multiple modifiers, additional modifiers may be reported in the remarks field.15

By appending the KX modifier, the clinician is attesting that the services billed:

• Are reasonable and necessary services that require the skills of a therapist (see MBPM Section 220.2);
• Are justified by appropriate documentation in the medical record (see MBPM Section 220.3); and
• Qualify for an exception using the automatic process exception.

If this attestation is determined to be inaccurate, the provider is subject to sanctions for providing inaccurate information on a claim.16

If a claim for services above the cap is submitted without a KX modifier, it will be denied. However, the carrier may reopen or adjust the claim in cases where appending the KX modifier would have been appropriate.17

Determining Therapy Payments to Date

When a Medicare patient is referred for therapy, the provider should first determine the amount of year to date payments for the patient's therapy services to gauge progress toward the caps. The Part B carrier's website should have instructions for accessing the amount of a patient's prior therapy payments.

Providers may also access the accrued amount of therapy services from inquiries into the Common Working File or through a 270/271 eligibility inquiry and response transaction.18

Patients can find out how much has been paid towards their therapy by going online at "my.medicare.gov" to track their claims for therapy services. In addition, a patient's Medicare Summary Notice (MSN), which is typically sent out every three months, lists the services that the patient had and the amount billed.19

Manual Medical Review Process

In addition to the $1,900 caps, claims at or above $3,700 are subject to manual medical review. The separate annual caps for manual medical review are $3,700 for OT and $3,700 combined for PT and SLP.

The 2012 manual review process that required pre-approval of any services above $3,700 is no longer in place. During 2013, providers cannot apply for or obtain pre-approval of services; instead, payments for services above $3,700 are subject to either prepayment or post-payment review depending on where the claim is submitted.20

If the claim is submitted in a demonstration state,21 the Recovery Auditor will conduct a prepayment review.22 All claims will continue to be submitted to the carrier, but the carrier will send an ADR to the provider requesting that additional documentation be sent to the Recovery Auditor. The Recovery Auditor will conduct a prepayment review within 10 business days of receiving the additional documentation and will notify the carrier of the payment decision.23

If the claim is submitted in a non-demonstration state, the Recovery Auditor will conduct an immediate post-payment review. All claims will continue to be submitted to the carrier and the carrier will pay the claim. The Recovery Auditor will then issue an ADR, will complete the manual medical review within 10 business days of receiving the additional documentation and will notify the carrier of the payment decision.24

The following rules apply for both prepayment and post-payment Recovery Auditor reviews. All claims at or exceeding the $3,700 thresholds must be reviewed. Currently, Recovery Auditors are not approved to conduct therapy reviews between $1,900 and $3,700; however, these reviews could occur in the future and it is possible that another review contractor could review claims for less than the $3,700 cap.25

The Recovery Auditor reviews are conducted on a per claim basis. Each claim is reviewed individually and any ADR will be on a per claim basis.26 Current additional documentation limits in the Recovery Audit Program do not apply to therapy pre and post-payment reviews and providers will not be reimbursed for the cost of submitting records.27

The Recovery Auditors use the esMD system which allows providers to electronically submit requested documentation. They also accept documentation by fax, mail and CD. In addition, Recovery Auditors have claim status portals where providers can determine whether their additional documentation has been received and if the review results letter has been issued.28

The review process will apply the same coverage, coding and billing policies, documentation requirements, established medical necessity criteria, timeliness standards and other payment conditions that are in place for regular therapy claims.29 The Recovery Auditors are required to use registered nurses or therapists when conducting coverage/medical necessity determinations and certified coders when making coding determinations.30

If the Recovery Auditor determines an improper claim has been submitted, it is required to send a review results letter to the provider that clearly documents the rationale for the determination, including a detailed description of the Medicare policy or rule that was violated.31 The Recovery Auditor discussion period will be allowed for post-payment reviews, but not for prepayment reviews.32 The appeals process is unchanged and will continue through the carriers.33

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The Recovery Auditors are paid a contingency fee based on the amount recovered or avoided.34

Use of Advanced Beneficiary Notice of Noncoverage (ABN)

Prior to 2013, a Medicare beneficiary was financially liable for therapy services above the cap regardless of whether he or she received an ABN. CMS encouraged providers to alert Medicare patients to potential financial liability; however, an ABN was not required. Under these pre-2013 rules, if a provider submitted a claim that he or she believed qualified for a cap exception and that claim was denied because the carrier ultimately determined that the services were not medically necessary, the provider could collect from the patient regardless of whether an ABN was issued.35

This is no longer the case. For therapy services on and after January 1, 2013, the provider must issue a valid ABN to the patient before providing services above the cap to hold the patient personally responsible for charges above the cap.36 However, providers are caught in a "Catch-22" situation in that if the provider believes that services above the cap are medically necessary, the provider cannot issue an ABN to the patient because an ABN can only be used in connection with services that the provider determines are not medically necessary.37 Therefore, the provider cannot issue an ABN to a patient on a prophylactic basis to allow collection of charges from the patient if the carrier determines that the services above were not medically necessary and denies payment.

CMS has stated that providers must not issue an ABN to all Medicare patients who receive services that exceed the cap.38

Therapists are required to issue an ABN to Medicare patients prior to providing therapy that is not medically reasonable and necessary. For example, if the patient has been receiving PT and has achieved all of his or her PT goals, but still requests continued PT even though it is no longer medically necessary, the provider must issue an ABN prior to providing the services that will not be covered by Medicare to hold the patient personally liable for payment.39

Prior to 2013, the GY modifier was applied to claims for therapy services above the cap that were not medically reasonable and necessary when the provider was billing the non-covered services to receive a denial. The GY modifier indicated that the service was statutorily excluded or did not meet the definition of any Medicare benefit and resulted in a Medicare payment denial and beneficiary liability.40

On and after January 1, 2013, the GY modifier should not be used for therapy claims. Instead, when an ABN has been issued for therapy services above the cap that are not medically reasonable and necessary, a GA modifier should be added to the claim. If the provider did not issue an ABN for therapy services above the cap that are not medically reasonable and necessary, the GA modifier cannot be used and the provider would be liable for charges above the cap.41

Cary Edgar is co-founder of Ancillary Care Solutions, a Scottsdale, AZ-based firm that provides physical and occupational therapy development, co-management and consulting services to hospitals and health systems, physician groups and private therapy practices. He is a frequent speaker on the financial and legal aspects of developing and managing therapy services, including benchmarking, incentive compensation plans, regulatory changes and strategic planning.


1 Therapy Cap-Manual Medical Reviewof Therapy Claims Above the $3,700 Threshold (http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medical-Review/TherapyCap.html, accessed 6/22/13).

2 Id.

3 Id.

4 Medicare Claims Processing Manual Ch 5 (hereinafter, "MCPM") Section 10.3 (http://www.cms.gov/Medicare/Billing/TherapyServices/Downloads/clm104c05.pdf, accessed 6/22/13).

5 Medicare Limits on Therapy Services (April 2013) (http://www.medicare.gov/Pubs/pdf/10988.pdf, accessed 6/22/13).

6 MCPM Section 10.3A.

7 MCPM Section 10.3B.

8 MCPM Section10.3B (2).

9 MCPM Section 10.3B.

10 See Section 220.3 of Chapter 15 of the Medicare Benefits Policy Manual ("MBPM") for outpatient therapy documentation requirements.

11 MBPM Section 10.3B.

12 MBPM Section 10.3B (1).

13 MBPM Section 10.3(C) (further details concerning appeals can be found in Pub. 100-04, chapter 29.

14 MCPM Section 10.3(B).

15 The Medicare Benefits Policy Manual states that providers should refer to Pub. 100-04, Medicare Claims Processing Manual, Chapter 26, for more detail regarding completing the CMS-Form 1500 claim form, including the placement of modifiers and that the 1500 form currently has space for providing two modifiers in block 24D, but, if the provider has more than two modifiers to report, the provider can do so by placing the -99 modifier (which indicates multiple modifiers) in block 24D and placing the additional modifiers in block 19. MCPM Section 10.3(D).

16 MCPM Section 10.3(D).

17 Id.

18 MCPM Section 10.5(B).

19 Medicare Limits on Therapy Services (April 2013) (http://www.medicare.gov/Pubs/pdf/10988.pdf, accessed 6/22/13).

20 Manual Medical Review of Therapy Claims Above the $3,700 Threshold (http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medical-Review/TherapyCap.html, accessed 6/22/13).

21 The demonstration states are California, Florida, Illinois, Louisiana, Michigan, Missouri, North Carolina, New York, Texas, Ohio and Pennsylvania. Id.

22 Carriers will conduct prepayment reviews on claims reaching the $3,700 threshold that are processed between January 1, 2013 and March 31, 2013. Id.

23 Although CMS has stated that the pre and post-payment reviews will be completed within 10 business days, there are apparently no penalties for failure to meet this requirement.

24 Frequently Asked Questions, Recovery Auditor-Outpatient Therapy Claims as of April 17, 2013 (hereinafter "FAQs") (http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medical-Review/Downloads/FAQ_OutpatientTherapy_04172013.pdf, accessed 6/22/13) (A6).

25 FAQs (A8). 

26 FAQs (A18).

27 FAQs (A19).

28 FAQs (A13).

29 FAQs (A15).

30 FAQs (A16).

31 CMS Office of Financial Management, Overview of the Therapy Threshold of $3,700 for Calendar Year 2013 (http://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medical-Review/Downloads/Therapy_04122013.pdf, accessed 6/22/13)

32 FAQs (A22).

33 FAQs (A21).

34 FAQs (A12).

35 CMS, Therapy Caps and Advanced Beneficiary Notice of Noncoverage (ABN), Form CMS-R-131, FAQs April 2013 (hereinafter, "ABN FAQs") (http://www.cms.gov/Medicare/Billing/TherapyServices/Downloads/ABN-Noncoverage-FAQ.pdf, accessed 6/22/13) (A1).

36 Id.

37 ABN FAQs (A2).

38 Id.

39 Id.

40 ABN FAQs (A4).

41 Id.


Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a CMS Form 1500, I found a blank form here http://pdf.ac/6kHCrW.

Jill Rivas,  Teacher,  NAJune 01, 2015

I would love to learn more about this....what are the statistics for denied payments after an over the cap review (over $3700.) Are most denied? It sure seems likely they would be given that the "recovery auditor" is paid according to how much they "save" or "recover" for Medicare! What happens if they are wrong? Say they don't agree with a speech pathologist's determination of medical necessity for dysphagia therapy & the pt. therefore stops tx but later dies of aspiration, is the RA personally liable....is Medicare liable? Can the family then sue Medicare or the recovery auditor? I think its disgraceful that a therapist provides a treatment, submits all sorts of documentation (without compensation), then just has to cross their fingers that the RA agrees & provides the reimbursement...what a difficult way to run a business. I've never been so happy to work in an educational setting than I was after reading about this! Also, just curious, is there ever a medical necessity (according to RA) for speech (such as aphasia tx) or does Medi necessity only apply to dysphagia tx?

Heather ,  CCC-SLPOctober 18, 2013


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