The Balanced Budget Act (BBA) of 1997 enacted financial limitations on outpatient physical therapy, occupational therapy, and speech-language pathology services in all settings except outpatient hospital services. The Deficit Reduction Act (DRA) of 2006 enacted exceptions to the limits, and the Medicare, Medicaid, and SCHIP Extension Act of 2007 extended the cap exceptions process through June 30, 2008. The dollar amount of the cap is updated annually in accordance with the Medicare Economic Index.

Effective January 1, 2008, the financial limits on outpatient therapy services will be:

• $1,810 for combined physical therapy and speech-language pathology services; and
• $1,810 for occupational therapy services.

Note: Exceptions are allowed for medically necessary outpatient therapy services.

The following table shows the financial limits on outpatient therapy services for the last three years.

Note: Medicare pays up to 80 percent of the limits after the deductible has been met.

Moratoria and Exceptions for Therapy Claims

The cap exception for therapy services billed by outpatient hospitals was part of the original legislation (BBA of 1997), and applies as long as caps are in effect. Exceptions to caps based on the medical necessity of the service are in effect only when Congress legislates the exceptions, as they did for 2007 —and as they again extended through June 30, 2008, as part of the Medicare, Medicaid, and SCHIP Extension Act of 2007.

Exceptions to Therapy Caps—General

When the exceptions process (as directed by legislation) is in effect the policies in this section apply. Further, with the exception of the use of the modifier KX, the guidance in this section applies to all therapy services addressed by this section.

The beneficiary may qualify for use of the cap exceptions at any time during the episode when documented medically necessary services exceed caps. All covered and medically necessary services qualify for exceptions to caps.

Automatic Process Exceptions

Beginning January 1, 2007, all exceptions are processed automatically. You should be aware that the term “automatic process exceptions” indicates that the claims processing for the exception is automatic, and not that the exception, itself, is automatic.

In making a decision about whether to utilize the automatic process for exception, clinicians should consider, (among other considerations) whether services are appropriate to the patient’s condition including the diagnosis, complexities and severity. You should be aware that the list of the ICD-9 codes (for conditions and complexities that might qualify a beneficiary for exception to caps) that is found in the table in subsection 10.2 C-3 is only a guideline; and neither assures that services on the list will be excepted, nor limits the provision of covered and medically necessary services for conditions that are not on the list.

Not all patients who have a condition or complexity on the ICD-9-CM code list are “automatically” excepted from therapy caps. You should see the Medicare Benefit Policy Manual, Chapter 15 (Covered Medical and Other Health Services), Section 230.3 (Practice of Speech-Language Pathology) for documenting the patient’s condition and complexities. Note that Medicare contractors may scrutinize claims from providers whose services exceed caps more frequently than is typical. Further guidance on billing therapy services are found in the Local Coverage Determinations of some contractors.

ICD-9-CM Codes Likely to Qualify for the Automatic Process Therapy Cap Exception Based Upon Clinical Condition or Complexity

Some Medicare contractors’ Local Coverage Determinations do not allow the use of some of the codes on the list in this Subsection to be in the primary diagnosis position on a claim. If your contractor has determined that these codes do not characterize patients who require medically necessary services, you may not use these codes. Rather, to describe the patient’s condition, you must use a billable diagnosis code that your contractor allows.

Medicare will apply therapy caps to services based on the medical necessity of the service for the patient’s condition, not on the condition itself. If a service would be payable before the cap is reached and is still medically necessary after the cap is reached, that service is excepted.

You may use the automatic process for exception for medically necessary services when the patient has a billable condition that is not on the list in this subsection. The diagnosis on this list may be put in a secondary position on the claim and/or in the medical records, as your contractor directs.

Additional Information

Learn more about the outpatient therapy caps for 2008 and the clarifications regarding exceptions to outpatient therapy services by going reading the Centers for Medicare & Medicaid Services Change Request 5871.