Medicare Part B Outpatient Therapy Cap and Exceptions Process for 2012: FAQs

President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) on February 22, 2012. The law extends the Medicare Part B Outpatient Therapy Cap Exceptions Process through December 31, 2012, and, among other things, avoids the scheduled 27.4% cut to the Medicare Physician Fee Schedule and extends current payments through 2012. The legislation also makes some changes concerning the cap, and CMS has begun issuing guidance. See: Transmittal R2457CP, CR #7785, “Revisions of the Financial Limitation for Outpatient Therapy Services – Section 3005 of the Middle Class Tax Relief and Job Creation Act of 2012,” and the accompanying MLN Matters article.

AOTA answers your questions about what this means for occupational therapy.

What is the therapy cap amount for CY 2012?

The statutory Medicare Part B outpatient therapy cap for OT is $1,880, and the combined cap for PT and SLP is also $1,880. This is an annual per beneficiary cap amount tallied beginning January 1 of each year.

What payments count toward the cap amount?

Both payments to providers and patient copayments are counted toward the cap. Medicare counts all “allowable charges” for outpatient occupational therapy count toward the cap amount, including patient deductible and coinsurance payments. In outpatient settings, Medicare will pay for 80% of allowable charges and the patient is responsible for the remaining 20%. For the cap amount of $1,880, this translates to $1,504 in Medicare dollars (80% of the cap) and $376 in patient outlays (20% of the cap).

Does DMEPOS count toward the cap amount?

No; the cap applies only to therapy services.

What settings are impacted by the therapy cap?

The therapy cap applies to all Part B outpatient therapy settings and providers: private practices, skilled nursing facilities, rehabilitation agencies, and comprehensive outpatient rehabilitation facilities. Beginning on October 1, 2012, the therapy cap will also apply to hospital outpatient services.

How long will hospital outpatient departments be subject to the therapy cap?

Under current law, the therapy cap and the exceptions process will temporarily be applied to hospitals by Medicare beginning October 1, 2012, and will expire on December 31, 2012. Hospital outpatient settings have always been exempted from the cap to allow a safety net for beneficiaries. A permanent cap on outpatient therapy services provided in hospitals was initially proposed, but AOTA took the lead in arguing for a temporary hospital outpatient cap, resulting in this important victory protecting patient access.

How will implementation of the cap to hospital outpatient services work on October 1, 2012?

The Medicare program will add outpatient therapy claims submitted by hospital to a beneficiary’s total count in the Common Working File (CWF) the week of October 1, 2012 (for additional information, see the CMS transmittal and MLN article referenced above). Occupational therapy practitioners should access the CWF to determine which patients, if any, are newly totaling near $1,880 or $3,700. Be aware that the CWF is not updated in real time and only reflects processed claims.

Can therapy beyond the cap be provided to beneficiaries?

Yes; the exceptions process to the therapy cap allows providers to receive reimbursement from Medicare in excess of the cap amount. Occupational therapy must always be reasonable and medically necessary, require the specialized skills of a therapist, and be justified by documentation in the patient’s medical record. When these conditions are met for care exceeding $1,880 in a calendar year, a provider may submit claims for a patient with a KX modifier included on the claim form. The modifier should be affixed to the form when the patient’s dollar amount begins to approach the cap and after it has been exceeded. Be sure to use the modifier, but be wary of overusing it.

Many providers have not been compliant with the KX modifier requirement and many Medicare contractors have not uniformly mandate its use. Congress emphasized this requirement in the law, as claims that exceed the cap and do not include the KX modifier may be automatically denied by contractors. The exceptions process was set to expire at the end of February 2012, but the law extends it until December 31, 2012. At that point, Congress will have to pass new legislation to extend it into 2013.

AOTA wants to emphasize to therapy practitioners that use of the KX modifier also indicates that the provider attests to the need for the therapy under Medicare guidelines as above. Therapy practitioners must understand their important ethical obligation to provide only covered and appropriate care.

Do any other conditions apply to above-the-cap billing?

Yes; a new threshold for additional review was set by Congress at the higher level of $3,700. The $3,700 figure applies to outpatient occupational therapy claims for a single patient across all outpatient settings, and a separate $3,700 figure applies to outpatient PT/SLP combined for a single patient across all outpatient settings. For 2012, amounts toward the cap are tallied beginning January 1, 2012, and therapy claims that exceed the threshold amount of $3,700 over the course of the year will be subject to what the new law states is a “manual medical review process.” Congress’ intent was to put in place another point to determine necessity of therapy. AOTA knows that occupational therapists continually determine medical necessity and appropriateness as part of good clinical care. These additional reviews will be phased in, with Phase 1 beginning October 1, 2012, Phase 2 beginning November 1, 2012, and Phase 3 beginning December 1, 2012. Providers can check the CMS website to learn their phase or review individual letters sent by the agency. AOTA is concerned about any review process targeting therapy, though we note that only about 5% of Medicare beneficiaries receiving therapy exceed $3,700 in therapy costs per calendar year. AOTA is working with CMS leadership now to help shape the manual medical review process. We are advocating for revisions to the process that help narrow its scope, lessen its punitive and overly burdensome nature, limits the amount of documentation providers must submit for pre-authorization purposes, and adds to the process peer reviews of claims by occupational therapy practitioners wherever possible.

How will manual medical review work?

Providers with patients who are nearing the $3,700 threshold and who require additional occupational therapy, will have to request prior authorization from their CMS carrier for an additional (and renewable) 20 visits. Each carrier has a separate form for requesting prior authorization, and the documentation being requested is extensive. If CMS does not respond to the provider’s request within 10 days (excluding mail time), pre-authorization is automatically granted.

Is any additional data required to be provided on therapy claims?

All documentation should thoroughly describe the occupational therapy clinical reasoning, the interventions provided, and the outcomes achieved. CMS recently supplied PowerPoint slides on documentation to outpatient therapy providers during an open door forum; the slides are available here.

What other information needs to be on the claim form?

Effective October 1, 2012, all therapy claims, above and below the level of the cap, must include the national provider identifier (NPI) of the physician responsible for certifying and periodically reviewing the plan of care. KX modifiers are only to be used on claims nearing the cap amount and in excess of the cap amount.

Can Medicare pay my therapy claims then deny them later?

Medical review of claims is always a possibility with Medicare, regardless of the therapy cap. If your contractor has reason to believe that you have overbilled for occupational therapy services, overprovided care, or committed fraud, they may decide to carefully review your old claims and request additional documentation from you. If any old claims are found to be inappropriate following medical review, your contractor can deny them and recoup payments already made. For information on documentation requirements for occupational therapy, see Medicare Benefit Policy Manual, Ch. 15, §§ 220, 230. You may file a reconsideration request for any denied claims or recoupments.

Who else is looking into this issue? What’s on the horizon?

The legislation also requires two reports on outpatient therapy to be completed in 2013. These will be in addition to the multiple reports already done and published on therapy, see Utilization and Policy Reports for Outpatient Part B Therapy. Congress directs the Medicare Payment Advisory Commission (MedPAC) to complete a report by June 15, 2013, recommending payment reforms that better reflect acuity, condition, and the therapy needs of the patient. MedPAC is also instructed to include an examination of private sector initiatives related to therapy benefits in their report. The Government Accounting Office (GAO) is also directed to issue a report regarding the manual medical review process instituted by the law. The report must detail the number of beneficiaries subject to the process, the number of reviews conducted, and the outcome of the reviews.


Additional information regarding implementation of the enhanced exception process will be available in the coming weeks and months as Medicare carriers issue guidance documents and the process is implemented. AOTA will continue to advocate for and share information with our members. Our goal is to ensure that occupational therapy practitioners can continue provide appropriate and necessary occupational therapy to their Medicare clients so that they may live life to its fullest. Email the AOTA Regulatory and Reimbursement Policy Department at rrpd@aota.org with your thoughts and questions.