The continuing saga of Medicare therapy caps

Understanding exceptions, services and reimbursements.
By Rene R. Savarise, Esq.

In 1972 Congress expanded the scope of Medicare outpatient physical therapy coverage to include the services of physical therapists in independent practices who furnished services in the office or patient home. Shortly thereafter, the long history of Medicare therapy caps began. It was at that time Congress enacted payment limits as a mechanism to control therapy costs. From 1979 forward Congress frequently adjusted or applied limitations to the therapy caps – in an effort to balance growing costs with the demand for medically necessary therapy services.

In what appeared to be light at the end of the tunnel for providers, certain aspects of the therapy caps were set to expire in December 2012. This was not to be, however, and with the passage of the American Taxpayer Relief Act of 2012 (ATRA) some limitations and caps that would have otherwise expired were extended through the end of 2013. In addition, ATRA expanded the application of the caps to outpatient therapy services furnished at critical access hospitals (CAH) and further reduced payments for multiple therapy services provided on the same date.

Therapy Caps
Medicare has two therapy caps: a combined cap for outpatient physical therapy and speech-language pathology services and a separate cap for outpatient occupational therapy services. These caps are applied on a per beneficiary, per calendar year basis.

For calendar year 2013 the caps were increased by $20 to $1,900 from $1,880. Services are applied to the caps in the order of the dates that the claims are received and tracked using the Common Working File. The amount applied is the lesser of the Medicare physician fee schedule amount or the actual charges for the services. Importantly, deductible and coinsurance amounts count toward the therapy caps.

Acknowledging that certain patients legitimately require therapy services that exceed the therapy cap, in 2005 Congress adopted automatic and manual review exception processes to allow for medically necessary therapy service claims beyond the therapy caps. These processes were set to expire on December 31, 2012, but to the relief of providers and beneficiaries alike, the processes were extended by ATRA for another year.

During 2013 the automatic exception process will apply to claims that are between the therapy cap limit of $1,900 and $3,700. Therapists can request an automatic exception if continued therapy is justified based on the beneficiary’s condition as demonstrated by appropriate documentation.

Claims exceeding $3,700 will be subject to manual review by the Medicare Administrative Contractors (MAC). The MACs are required to make a decision whether to approve therapy services, which claims may exceed $3,700 within 10 days. Unless otherwise extended, the exception processes now expires on December 31, 2013 which could be problematic if Congress decides to extend the caps through 2014.

In the past, services provided in a hospital outpatient setting did not apply toward the therapy caps. This changed with the passage of the Middle Class Tax Relief and Job Creation Act of 2012 when Congress, attempting to control costs once again, extended the therapy caps to services furnished in the hospital outpatient setting.

Had ATRA not been adopted, the application of therapy caps to hospital settings would have expired at the end of 2012. Now, the application of those caps to hospital settings has been extended until December 31, 2013. Not only were hospitals setting therapy caps extended, but in a somewhat unexpected twist, Congress decided to apply the therapy caps to outpatient therapy services provided in CAHs.

Tabulating Costs
CAHs are typically reimbursed on a reasonable cost basis and because of this CMS (the Centers for Medicare and Medicaid Services) had to devise a method for tabulating costs of service under the cap. The methodology CMS arrived at for CAHs is to use the Physician Fee Schedule. It will apply the amount that would be paid under the Physician Fee Schedule toward the therapy cap.

In addition to the therapy caps, ATRA contains provisions which reduce payments for multiple services occurring on the same date. Beginning on April 1, 2013, CMS will apply a 50 percent reduction to the practice expense payment component for the second and subsequent outpatient therapy services provided on the same date of service.

This is a significant increase over the previous 20 percent reduction applied to professional claims and 25 percent reduction applied to institutional claims. This 50 percent reduction will apply equally to therapy services furnished in institutional and non-institutional settings.

Providers need to be prepared for these changes to avoid denials for claims exceeding the therapy caps. By monitoring legislation and CMS guidance providers can stay ahead of the curve as the saga of the therapy caps continues.

Rene R. Savarise, Esq., is shareholder Hall Render Killian Heath & Lyman.


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