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Medicare Reimbursement for Outpatient Therapy

Today I review Medicare’s approach for paying for outpatient therapy visits. The content draws largely from CMS and MedPAC sources.

What is outpatient therapy

Outpatient therapy includes physical therapy (PT), occupational therapy (OT), and speech-language pathology (SLP) services.

Who can provide outpatient therapy?

Institutional Facilities

  • Hospitals
  • Skilled nursing facilities (SNF)
  • Comprehensive outpatient rehabilitation facilities (CORF)
  • Outpatient rehabilitation facilities (ORF)
  • Home health agencies (HHA)

Office-based Providers

  • Physical therapists in private practice (PTPP)
  • Occupational therapists in private practice (OTPP)
  • Speech-language pathologists in private practice (SLPP)
  • Physicians
  • Non-physician practitioners (NPP) – (e.g., nurse practitioners)

Services furnished by aides, even if supervised, are not covered by the program.

How much does Medicare spend on outpatient therapy?

Medicare spending on outpatient therapy services was about $5.7 billion in 2011. PT services make up almost three quarters of beneficiary therapy use, while occupational therapy and speech–language
pathology services make up 19 and 10 percent, respectively.

Like physician payment, therapy visits are reimbursed using a fee schedule. Therapy payment rates are based on relative weights, called relative value units (RVUs), which account
for the relative costliness of the inputs used to provide services: clinician’s work, practice expenses, and professional liability insurance (PLI) expenses. The RVUs are adjusted using geographic practice cost indices (GPCIs) to reflect the price level for related inputs in the local market where the service is furnished.

Outpatient Therapy Cap

Effective in 1999, there are two outpatient therapy caps: 1) a PT/SLP services combined cap, and 2) a separate OT services cap. The cap limits are adjusted annually per Congressional formula. In 2012, the cap for each service was $1,880. For most of 2000-2006, however, the caps were not enforced as a result of legislation. Since 2006, there has been an exceptions process permitted by Congress that allows beneficiaries to receive services beyond the cap limits in non-hospital settings, if the clinician attests the services are medically necessary, and places a KX modifier on claim lines for services furnished beyond the annual cap limits.

Since 2007, all covered and medically necessary services qualify for exceptions to caps. All services that require exceptions to caps are processed using ‘automatic process exceptions’ (A KX modifier code is added to claim lines to indicate that the clinician attests that services are medically necessary and justification is documented in the medical record.). The use of the automatic exceptions, however, does not mean that they will not be reviewed at a later time.

Plan of Care Data and G-codes

Up to six nonpayment HCPCS G-codes and seven modifiers would report clinical information on the claim at these intervals. The G-codes identify whether certain factors are being addressed in the plan of care, such as: (i) Impairments to body structures and functions, (ii) Activity limitations or participation restrictions (difficulty), and (iii) Environmental barriers. Separate G-codes will differentiate current function from functional outcome goals in the plan of care.


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