Observational Status

Medicare beneficiaries arriving at a hospital are not always formally admitted, but may be placed on observational status. Any hand therapy services provided in these circumstances are treated as outpatient, Part B services and claims are submitted accordingly. These charges, though incurred in a facility, will count toward the beneficiary’s therapy total (Medicare therapy cap) because they are billed as part B.  

If the observation status converts to a full admission, subsequent therapy services received following the admission will be billed under Part A.

From the medical review perspective, the time the beneficiary spent in observational status before formal admission as an inpatient will not be considered inpatient time. This time will be considered during the medical review process for purposes of determining whether the 2-midnight benchmark was met and, therefore, whether payment for the admission qualifies under Medicare Part A.

What is the Medicare therapy cap?

Medicare limits how much it covers for outpatient physical therapy, speech-language pathology, and occupational therapy when provided at certain facilities (see below).  Congress has annually voted to allow an exception to these limits if the services were medically necessary.  This vote has typically been last minute or after the expiration of the exception and only extended the exceptions for a year at a time.  In 2013 a 2-tiered system was put into place allowing cap exceptions up to $3700 before triggering mandatory medical reviews of services.  Claims determined to be “not medically necessary” were retroactively denied and providers were required to reimburse CMS for those services. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), signed into law on April 16, 2015, extended the therapy cap exceptions through December 31, 2017.

2017 Medicare Outpatient Therapy Cap
The Medicare Therapy Cap was increased from $1,960 to $1,980 for 2017.  Medicare beneficiaries are entitled to $1,980 of occupational therapy and the same for physical therapy and speech language pathology combined. Medicare picks up 80% of the billed charges once the patient’s yearly deductible has been met. Medicare’s 80%, the deductible paid by the patient and the 20% not paid by Medicare, whether paid out of pocket or by a secondary insurer, all count toward the cap.

2016 Medical Manual Review Requirements                                                                                                              
The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) eliminates the requirement for mandatory claims review for therapy services over the $3,700 and replaces it with a targeted review of providers frequently exceeding the cap. CMS modified this requirement and added post payment reviews for specific practice settings (see below). Patient records may be requested and documentation reviewed to determine if the services meet medically necessary benchmarks established by CMS.  Providers will receive repayment requests if the services are not determined to be medically necessary.

CMS also created a new category of auditor, called the Supplemental Medical Review Contractor (SMRC), hiring Strategic Health Solutions to perform these post payment reviews. The SMRC will be selecting claims for review based on:

  • Providers with a high percentage of patients receiving therapy beyond the threshold as compared to their peers during the first year of MACRA.
  • Therapy provided in skilled nursing facilities (SNFs), therapists in private practice, and outpatient physical therapy or speech-language pathology providers or other rehabilitation providers.

The reviewers will also be evaluating of the number of units/hours of therapy provided in a day.

Who does the therapy cap apply to?

 All Part B outpatient therapy settings and providers including:

  • Therapists’ private practices
  • Offices of physicians and certain non-physician practitioners
  • Part B skilled nursing facilities
  • Home health agencies (Type of Bill (TOB) 34X)
  • Rehabilitation agencies (also known as Outpatient Rehabilitation Facilities-ORFs)
  • Comprehensive Outpatient Rehabilitation Facilities (CORFs)
  • Hospital outpatient departments (HOPDs)
  • Critical Access Hospitals (CAHs) (TOB 85X) - (2014)

In addition, the therapy cap will apply to outpatient hospitals as detected by:

  • Type of Bill, 12X, 13X or 085X
  • Revenue code 042X, 043X, or 044X
  • Modifier GN, GO, or GP; and
  • Dates of service on or after January 1, 2014

Please click here for information about legislation to repeal the Medicare Therapy Cap.