March 1, 2015 - Connolly Healthcare Challenges Physical Therapy Cap Exceptions


One of Medicare's RAC auditors - Connolly Healthcare - has initiated Additional Documentation Requests (ADRs) targeting documentation / medical necessity weaknesses related to therapy cap exceptions and use of the KX modifier.


Section 4541(c) of the BBA required application of “therapy caps” to all outpatient rehabilitation services (except those furnished by or under arrangements with a hospital).  For dates of service before October 1, 2012, limits apply to outpatient Part B therapy services furnished in all settings except outpatient hospitals, including hospital emergency departments.  Effective for dates of service on or after October 1, 2012, the limits also apply to outpatient Part B therapy services furnished in outpatient hospitals other than Critical Access Hospitals. As of January 1, 2014, all hospital outpatient departments (including Critical Access Hospitals) fall under the therapy cap.


The Deficit Reduction Act of 2005 directed CMS to develop “exceptions” to therapy caps for calendar year 2006 and the exceptions have been extended periodically.  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.  An exception to the therapy cap may be made when the patient’s condition is justified by documentation indicating that the beneficiary requires continued skilled therapy, i.e., therapy beyond the amount payable under the therapy cap, to achieve their prior functional status or maximum expected functional status within a reasonable amount of time.


The therapist / clinician is responsible to understand regulatory requirements and sub-regulatory guidance in the Medicare manuals regarding the cap exception process.  They are also required to research, identify and maintain professional literature that supports the beneficiary’s qualification for the exception, because documentation is required to justify medically necessary services above the caps.  The clinician’s (or physician’s) opinion is not binding on the Medicare contractor who makes the final determination concerning whether the claim is payable.


Documentation justifying the services shall be submitted in response to any Additional Documentation Request (ADR) for claims that are selected for medical review.  If medical records are requested for review, clinicians may also include, at their discretion, a summary that specifically addresses the justification for therapy cap exception.


When exceptions are in effect and the beneficiary qualifies for a therapy cap exception, the provider shall add a KX modifier to the therapy HCPCS code subject to the cap limits.  The KX modifier shall not be added to any line of service that is not a medically necessary service; this applies to services that, according to a local coverage determination by the contractor, are not medically necessary services.


Medicare Coverage Criteria Resources (note: regional LCDs also apply)


Medicare Benefit Policy Manual - Chapter 15

Medicare Claims Processing Manual - Chapter 5

Medicare General Information, Eligibility & Entitlement Manual - Chapter 4

Jimmo v. Sebelius Settlement Guidance

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