Medicare Part B’s $1740 Therapy Cap
and New Exception Process

By Sheila K. Nicholson, Esq.

This article provides a brief overview of the Medicare Part B therapy cap that went into effect January 1, 2006, and a new exception process to the cap that will be implemented March 13, 2006. In 1997 Congress passed the Balanced Budget Act, which amongst others things, significantly changed Medicare’s payment policies for rehabilitation services (physical, occupational and speech-language therapy). Section 4541 required the U. S. Centers for Medicare and Medicaid Services (CMS) to impose a cap (financial payment limit) on outpatient physical, occupational and speech-language therapy services by all providers except hospital outpatient departments. For various reasons, unrelated to the purpose of this article, the law required a combined cap for physical and speech-language pathology services, and a separate cap for occupational therapy. The cap was initially $1500 per year with provisions for some growth annually so that for 2006 the cap is $1740.

The Balanced Budget Act had distinct impacts on rehabilitative services that were to become effective January 1, 1999. One of the changes, which this article briefly addresses, was an annual therapy cap on outpatient rehabilitation services paid for under Medicare Part B, which was initially $1500 per year for a combination of Physical and Speech Therapy while Occupational Therapy had a separate $1500 cap.

Since its initial enactment, there were a series of moratoria such that the therapy cap was only in effect in 1999 and for a few months in 2003. However, the last moratorium expired December 31, 2005, and Congress did not pass another. Accordingly, effective January 1, 2006, Medicare beneficiaries needing and/or receiving outpatient rehabilitation services are now under an annual cap of $1740 for any combination of outpatient Part B physical and speech-language therapy services as well as a $1740 cap for occupational therapy.

One very important exception to this legislation — outpatient rehabilitation services received in a hospital outpatient therapy department — are exempt from the therapy caps. Thus, if a Medicare beneficiary receives outpatient therapy services in a hospital’s outpatient rehabilitation department, and those services are billed to Medicare under Part B, there will be no applicable cap for those services.

Currently there are two bills, H.R. 916 and S. 438 (“Medicare Access to Rehabilitation Services Act”), before Congress designed to amend Title XVIII of the Social Security Act to repeal the Medicare Outpatient Rehabilitation therapy cap. At present, there appears to be strong bipartisan support in both chambers of Congress. However, until repealed or another moratorium is passed, Medicare beneficiaries receiving outpatient rehabilitation services at a clinic other than a hospital’s outpatient rehabilitation department, will be subject to the $1740 cap described above.

Consequently, any advocate for a Medicare beneficiary in need of rehabilitation services would likely recommend the recipient receive therapy outpatient services in a hospital-based department. However, many patients have developed relationships with therapist and prefer repeat care or need a therapist specially trained in particular treatments.

In an attempt to assist with some of the difficulties created with the arbitrary cap, on February 13, 2006, CMS released the new exception process for Medicare beneficiaries to obtain coverage for certain medically necessary services if their treatment regimen was expected to exceed the $1740 cap for services provided on or after January 1, 2006. Congress authorized this new exception process as part of the Deficit Reduction Act (DRA) (S. 1932) that President Bush signed February 8, 2006.

The exception process to a therapy cap will be implemented through CMS’ claims processing contractors. The new law mandated CMS make a decision within 10 days whether the services sought were deemed medically necessary; otherwise, the services would be deemed medically necessary. While CMS’ claims processing contractors are implementing the exception process, they have been directed to accept requests for adjustment of claims for services in 2006 that were denied for exceeding the caps.

It should be noted that the exceptions process will be effective retroactively to January 1, 2006. Hence, any Medicare Part B beneficiary that has had claims for outpatient therapy services denied based on exceeding the therapy cap should request an adjustment from the claims processing contractors. Any funds the Medicare Part B beneficiary paid for therapy services not covered related to exceeding the cap, should contact the provider of services after requesting an adjustment from the claims processing contractor to verify if any refund is owed.

The therapy cap exception process allows for two (2) types of exception for medically necessary services: (1) an automatic exception; and (2) a manual exception. An automatic exception will be given for certain conditions without a written request. Thus, when therapy services are for conditions or complexities related to a list of diagnosis codes, and are appropriately provided and documented, CMS through the claims contractor anticipates the beneficiary will automatically qualify for an exception to the therapy cap.

Some of the listed diagnosis codes related to conditions that should qualify for an exception provided the services are medically necessary are: joint replacements, Parkinson’s disease, multiple sclerosis, hemiplegia and hemiparesis, neuropathies, intracranial hemorrhages, osteoarthritis, rotator cuff, burns and head injury. Some of the listed diagnosis codes related to complexities that should qualify for an exception if medically necessary are: encephalitis, chronic pulmonary heart disease, congestive heart failure, chronic obstructive pulmonary disease, difficulty walking, and pneumonia. Clearly this is not an exhaustive list and the reader is referred to the CMS web page at http://www.cms.hhs.gov for a comprehensive list.

Additionally, it was recognized there are clinically complex situations that could justify an automatic exception. Some of these include: a beneficiary requires outpatient therapy within 30 days of being discharged from a hospital or skilled nursing facility; the beneficiary has in addition to the condition being treated, other generalized musculoskeletal conditions not listed as qualifying for an automatic exception that will impact the rate of recovery; the beneficiary has in addition to the condition being treated a mental or cognitive disorder that will impact the rate of recovery; or, the beneficiary requires concurrent physical and speech therapy. Again this list is not comprehensive and the reader is referred to CMS’ web page.

A manual exception requires a written request from either the beneficiary or the provider. Once submitted, a claims contractor will conduct a medical review for necessity. Thus, when the beneficiary does not have a condition or complexity related to one or more of the listed diagnosis, but believes they require therapy services that are medically necessary exceeding the cap, a request from either the beneficiary or the provider may be submitted requesting up to a maximum of 15 additional treatment days. The claims contractor will make a determination as to the number of treatment days authorized to exceed the cap, if any, that are medically necessary within 10 business days. The cap exception request should be made prior to the cap being exceeded to avoid the beneficiary from being at risk of incurring costs for therapy that are subsequently denied.

The exception process is a method to help beneficiaries receive the therapy services required. For additional information, the reader is referred to CMS’ web page.

This article is meant for informational purposes only and should not be relied upon as legal advice.

Sheila K. Nicholson, Esq., MBA, PT is an associate at Quintairos, Prieto, Wood & Boyer, P.A. and practices from the firm’s Tampa office. Her areas of practice include medical malpractice and nursing home defense litigation.  Ms. Nicholson is licensed to practice law in Florida and Mississippi.

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