The application of the Medicare therapy caps has been revised many times over the past several years. Most recently, Congress passed the Protecting Access to Medicare Act of 2014 ("Act"), which extends exceptions to the therapy caps and continues to apply services performed in outpatient hospital departments to the therapy caps until March 31, 2015.  In addition, the Physician Fee Schedule Final Rule for calendar year 2014 ("Final Rule") finalized a policy to apply the therapy caps to outpatient therapy services provided at critical access hospitals ("CAHs").  This article summarizes the changes to the therapy caps made by the Act and the Final Rule and summarizes some proposals that are being considered.

Summary of Changes

Summary of Therapy Caps.  Medicare has two separate therapy caps: one for outpatient physical therapy and speech-language pathology services (i.e., a combined therapy cap for these services) and a second for outpatient occupational therapy services. The therapy caps are applied on a per beneficiary, per calendar year basis and increased to $1,920 for 2014 from $1,900 for 2013.

Exception Processes. Therapy services above $1,920 are subject to the automatic exception process. Then, once therapy services exceed $3,700 for a beneficiary during a calendar year, services are subject to the manual review exception process. Both the automatic exception process and the manual review exception process were set to expire on March 31, 2014, but they were extended until March 31, 2015.

Application of Therapy Caps to Hospital Outpatient Services. The Act also extends the requirement that the therapy caps apply to services furnished to a hospital outpatient until March 31, 2015. This provision was set to expire on March 31, 2014.

Application of Therapy Caps to CAHs.  In the Final Rule, CMS finalized a policy that applies the therapy caps to outpatient therapy services provided in CAHs beginning on January 1, 2014.  Historically, CMS has not applied the therapy caps to services at CAHs.  However, after reviewing the statutory language, CMS concluded that the therapy caps should be applied to outpatient therapy services furnished by CAHs.  To apply the therapy caps, CMS will apply the amount that would be paid under the Medicare Physician Fee Schedule toward the therapy caps rather than the actual amount that a CAH is reimbursed for the services since CAHs are reimbursed based on reasonable costs, which are subject to cost report reconciliation and settlement.

It is important to note is that while the application of the therapy caps to hospital services is set to expire on March 31, 2015, the application of the therapy caps to CAHs is set by regulation and does not expire.  In other words, absent Congressional action, on April 1, 2015, the therapy caps would apply to outpatient CAH services but not outpatient hospital services.

Potential Permanent Fix to Therapy Caps.  Partially to avoid these piecemeal extensions to the therapy caps and exception processes, industry groups have been seeking a permanent repeal of the therapy caps.  A permanent repeal of the therapy caps has been packaged with most of the proposed legislation for the repeal of the Sustainable Growth Rate ("SGR").  However, with the one-year SGR patch, it is unclear at this point whether there is enough support in Congress to pass legislation to repeal the therapy caps any time in the near future.  Lawmakers and industry members seem to have mixed expectations as to the likelihood of a permanent fix in the foreseeable future.

There has been some push to eliminate the pre-payment manual medical review process that applies to therapy services above the $3,700 threshold.  CMS is reportedly considering replacing it with a post-payment review process and expanding the contractors allowed review time to 30 days from 10 days.  This would allow practitioners to provide services and be paid without having to wait for pre-approval, but it could increase uncertainty as the claims would still be subject to review and recoupment.

Practical Takeaways

  • Congress extended the automatic exception and manual review exception processes through March 31, 2015;
  • The therapy caps will continue to apply to services provided by hospital outpatient departments until March 31, 2015; and
  • On January 1, 2014, CMS began applying the therapy caps to services provided at CAHs without an expiration date, unlike hospital outpatient services.


The Medicare therapy caps will likely continue to go through changes.  With the continued changes, providers should make sure that they understand how the therapy caps apply to the services that they provide and ensure that they meet the requirements of the applicable exceptions process if they provide services to a beneficiary that has exceeded his or her therapy cap.