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Medicare-covered outpatient physical, speech and occupational therapy services are subject to an annual dollar-amount payment cap.  As a result, many Medicare beneficiaries have their therapy terminate prematurely when they reach the cap.  While there is an Exceptions process in place that allows beneficiaries to receive therapy in excess of the caps, it is set to expire on March 31, 2014.  Moreover, the existing process is burdensome and many providers of services are slow to assist beneficiaries in obtaining therapy cap Exceptions.

Current Congressional efforts to revise or replace the physician "Sustainable Growth Rate" (SGR) formula (which, left unchanged, would substantially lower physician reimbursements) provide an opportunity to eliminate the therapy payment cap, or raise the financial cap sufficiently so that Medicare beneficiaries are able to receive prescribed therapy services in an amount sufficient to address their medical needs.   Since the inception of SGR, there has been annual legislation called the "doc fix" to avoid the implementation of SGR and its draconian impact on physician reimbursement.  

Therapy Caps and Exceptions Process – Overview

The Balanced Budget Act (BBA) of 1997 imposed a payment cap on the annual amount of Medicare coverage available for beneficiaries receiving outpatient therapy services. Two distinct caps were placed on therapy services: for physical therapy (PT) and speech language pathology service (ST) combined, the cap is $1,920 in 2014.  For occupational therapy (OT) services, the cap is also $1,920. The therapy cap applies to all Part B outpatient therapy settings and providers, including private practices, skilled nursing facilities, home health agencies, outpatient rehabilitation facilities, comprehensive outpatient rehabilitation facilities, and hospital outpatient departments.[1]   

Although absolute Medicare payment caps were set to go into effect in 1999, since that time Congress has acted approximately ten times to prevent the implementation of the therapy caps either through a moratoria or by establishing an "Exceptions" process.   The Exceptions process, created through the Deficit Reduction Act (DRA) of 2005, allows individuals and providers to seek Medicare coverage of therapy services above the cap.  Automatic Exceptions are available when therapists attest that ongoing therapy services are reasonable and necessary and must be justified by supporting documentation in the beneficiary's medical record. However, starting in 2012, claims exceeding a threshold of $3,700 (either for PT and ST combined, or separately for OT) are subject to a mandatory manual medical review by Medicare contractors.[2]

In recent years, extension of the Exceptions process has been included as an "extender" to the annual "doc fix" legislation preventing SGR from going into effect.  Most recently, as part of a broader year-end budget agreement in December 2013, Congress passed a temporary three-month patch to the SGR, preventing immediate cuts to physician payment starting in January 2014, and includes "extenders" such as the therapy cap Exceptions process.[3]  Without further Congressional action, the therapy cap Exceptions process will expire on March 31, 2014 and the therapy caps will remain in place.  According to an estimate by the Medicare Payment Advisory Commission (MedPAC), once the exceptions process expires and a hard cap is implemented, "about 20 percent of beneficiaries receiving outpatient therapy would have their therapy truncated at the cap."[4]

Current Policy is a Barrier to Care

According to many advocates and providers, the therapy caps serve as a significant barrier to accessing necessary therapy services for individuals with long-term, chronic conditions who require ongoing therapy services.[5]  Set at arbitrary dollar amounts, these caps are aimed at federal cost-savings rather than ensuring Medicare coverage of clinically appropriate services. 

The Exceptions process is the only means for an individual to obtain needed therapy services that exceed the annual cap.  Although the existence of the Exceptions process is better than an absolute cap with no means to seek additional coverage, the current manual review process, triggered when someone reaches the $3,700 cap, serves as a de facto absolute cap for many beneficiaries.  Since the process requires significant and burdensome involvement on the part of providers, it is the experience of beneficiary advocates that the manual review deters many providers from processing Exceptions, thus limiting beneficiary access to needed therapy services.  As a result, many beneficiaries who need ongoing therapy go without therapy services altogether.

  • Also see ADDENDUM below regarding the application of the Jimmo settlement to the therapy caps and exceptions process.

Alternate Proposals Vary Greatly

The current debate in Congress about SGR has highlighted the plight of other policy "extenders" such as the therapy caps and the related exceptions process.[6]  Policy recommendations regarding the therapy caps range from repealing them altogether to making them more restrictive. 

  • Senate Finance Committee: Repeal and Replace the Cap

The Senate Finance Committee (SFC) and the House Ways and Means (W&M) Committee have approved legislation to replace SGR.[7]   Unfortunately, only the Senate Finance Committee bill addressed extending the Exception process to Medicare outpatient therapy caps.  

As discussed in a previous Alert, the SFC bill would repeal the caps and replace them with a new medical review program including prior authorization.  The Secretary of Health and Human Services would identify the services for medical review, including factors such as outlier billing patterns and newly enrolled providers.[8]      

Although this proposal currently lacks detail necessary to assess its full potential impact on beneficiaries' access to care, it is clearly an acknowledgement that the current therapy cap policy is broken and needs to be repealed, along with instituting a more targeted approach toward medical review.  Unfortunately, not all policymakers and entities advising them agree.

  • MedPAC Recommendation: Lower the Cap

At a January 9, 2014 hearing held by the House Energy & Commerce Committee exploring the SGR extenders policies[9], the Medicare Payment Advisory Commission (MedPAC) recommended that Congress reduce each therapy cap from $1,920 in 2014 to $1,270.[10]  This lower cap amount, suggested MedPAC, "would accommodate the annual therapy needs of most beneficiaries while restraining excessive utilization."  Further, MedPAC stated that "[u]nder a reduced cap, about two-thirds of therapy users could receive services before reaching the cap."

In addition to other recommendations to reduce Medicare expenditures on outpatient therapy, including increased physician oversight and certain program integrity measures, MedPAC endorsed retaining an Exceptions process with a more "streamlined" manual medical review process for therapy claims that exceed the cap.  In a statement that neither  comports with our experience assisting people with Medicare who need ongoing therapy services nor acknowledges the difference between automatic and manual review in the current exceptions process, MedPAC  noted that a "broad exceptions process  allows providers to deliver services above either spending cap relatively easily, limiting the effectiveness of the caps."  

In short, MedPAC's solution to beneficiaries' current challenges accessing ongoing, medically necessary therapy services is to lower the therapy cap, eliminate the automatic review and apply manual medical review to all claims that exceed the cap.   With an eye toward limiting Medicare expenditures – while ignoring the welfare of Medicare beneficiaries – MedPAC adds:

"In addition, we note that if spending on outpatient therapy services is projected to be above current law, and the Congress wishes to further constrain spending, it could lower the therapy caps further and increase the number of services subject to medical review, reduce payment rates for longer episodes of care, or increase beneficiary cost sharing for longer episodes."


Many Medicare beneficiaries are already denied ongoing, medically necessary outpatient therapy services because of current therapy cap limitations and onerous Exceptions process that effectively serves as an absolute cap on coverage.

As recently highlighted by former Congresswoman Gabrielle Giffords, longer-term, ongoing therapy can be the key to functionality and life-changing improvements:

"…This past year, I have achieved something big that I've not spoken of until now. Countless hours of physical therapy — and the talents of the medical community — have brought me new movement in my right arm. It's fractional progress, and it took a long time, but my arm moves when I tell it to. Three years ago, I did not imagine my arm would move again. For so many days, it did not. I did exercise after exercise, day after day, until it did. I'm committed to my rehab and I'm committed to my country, and my resolution, standing with the vast majority of Americans who know we can and must be safer, is to cede no ground to those who would convince us the path is too steep, or we too weak."[11]

It's time to reduce barriers to care, not exacerbate them.  We urge Congress to repeal the Medicare outpatient therapy caps. 


ADDENDUM: Note on Jimmo Improvement Standard Settlement and Therapy Caps

Absent either a repeal of the therapy caps altogether, or an expiration of the exceptions process (leaving the caps in place), the current rules outlining the exceptions process present challenges to the implementation of the settlement of Jimmo v. Sebelius, the improvement standard case.   As discussed thoroughly elsewhere, the Center and Vermont Legal Aid reached a settlement with the Department of Health and Human Services (HHS) in Jimmo.  The court approved settlement confirms a maintenance standard for skilled nursing facilities, home health care, and outpatient therapy, dispelling the myth that Medicare will pay for care and services only if a beneficiary is likely to "improve."[12]  In practice, this will allow beneficiaries with conditions like Parkinson's, MS and Alzheimer's to receive ongoing therapy services that likely exceed the current therapy caps.

As part of this settlement, CMS revised certain Medicare manual provisions which in turn should make it easier to obtain Medicare coverage for outpatient therapy because maintenance therapy is now specifically permitted if it is to maintain a person's condition or prevent deterioration.[13   While the Jimmo settlement does not undo the therapy caps, the improvement standard should not apply to therapy received either before the caps are met or to coverage of therapy obtained through the exceptions process.[14]   One provision in the Medicare Claims Processing Manual relating to the therapy cap exceptions process, however, remains of concern because of language suggesting the ongoing application of an improvement standard.[15]   Should the exceptions process remain in place, the Center will continue to work with CMS to address this language.  


[1] This description of the therapy caps and exceptions process relies heavily upon the Leadership Council of Aging Organizations (LCAO) Issue Brief “Medicare Therapy Cap Exceptions Process Should be Made Permanent” (August 2013), available at:
[2]  See, e.g., a description of the exceptions process in the Center's February 2012 Medicare Advocates Alliance Issue Brief available at:
[3] Section 1103, H.J. Res 59, signed by President Obama on 12/26/13, available at:; also see CMS MLN Update (12/27/13) at:
[4]“Temporary Payment Policies in Medicare” – Statement of Glenn Hackbarth, Chairman, Medicare Payment Advisory Commission (January 9, 2014), available at:   
[5] See, e.g., Leadership Council of Aging Organizations (LCAO) Issue Brief “Medicare Therapy Cap Exceptions Process Should be Made Permanent” (August 2013), available at:; also see, e.g., American Physical Therapy Association (APTA) website at:
[6] See, e.g., See the Center’s Weekly Alert “Replacing the Broken Medicare Physician Payment Formula: At What Cost for People with Medicare?” (December 19, 2013), and the citations therein, available at:
[7] See the Center’s Weekly Alert “Replacing the Broken Medicare Physician Payment Formula: At What Cost for People with Medicare?” (December 19, 2013), and the citations therein, available at:
[8] See Senate Finance Committee, Description of the Chairman's Mark, starting at p. 38:; also see the Center’s Weekly Alert “Replacing the Broken Medicare Physician Payment Formula: At What Cost for People with Medicare?” (December 19, 2013), including articulated concerns about this proposal and the Jimmo v. Sebelius settlement, available at:
[9] House Energy & Commerce, Hearing: “The Extenders Policies: What Are They and How Should They Continue Under a Permanent SGR Repeal Landscape?” (January 9, 2014):
[10] “Temporary Payment Policies in Medicare” – Statement of Glenn Hackbarth, Chairman, Medicare Payment Advisory Commission (January 9, 2014), available at:
[11] Gabrielle Giffords, “The Lessons of Physical Therapy” New York Times op-ed (January 7, 2014), available at:
[12] For more information about the improvement standard and Jimmo v. Sebelius, see:
[13] See the Center’s website and citations therein (12/9/13) at:   
[14] See, e.g., the Center’s Frequently Asked Questions on the Jimmo settlement at:
[15] Medicare Claims Processing Manual (MCPM) Pub. 100-04, Ch. 5, Sec. 10.3, available at:  Note that Subsection A. includes the following language “Use of the exception process does not exempt services from manual or other medical review processes as described in Pub. 100-08. Rather, atypical use of the automatic exception process may invite contractor scrutiny. Particular care should be taken to document improvement and avoid billing for services that do not meet the requirements for skilled services, or for services which are maintenance rather than rehabilitative treatment […]”



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