Observational Status

Medicare beneficiaries arriving at a hospital are not always formally admitted, but may be placed on observational status. Any hand therapy services provided in these circumstances are treated as outpatient, Part B services and claims are submitted accordingly. These charges, though incurred in a facility, will count toward the beneficiary’s therapy total (Medicare therapy cap) because they are billed as part B.  

If the observation status converts to a full admission, subsequent therapy services received following the admission will be billed under Part A.

From the medical review perspective, the time the beneficiary spent in observational status before formal admission as an inpatient will not be considered inpatient time. This time will be considered during the medical review process for purposes of determining whether the 2-midnight benchmark was met and, therefore, whether payment for the admission qualifies under Medicare Part A.

What is the Medicare therapy cap?

On February 9, 2018 the Medicare Cap was permanently repealed on Medicare outpatient therapy services.  Medicare contractors have the ability to request to review claims and documentation on therapy services that are over the threshold of $3,000 in 2018.  It should be noted that not all claims over $3,000 will be subject for medical review.  The $3,000 dollar threshold does apply separately to occupational therapy services, and to physical therapy and speech therapy services combined.  Additionally, the KX should continued to be used on claims of $2,110 to indicate the services are medically necessary.  In exchange for these changes and the corresponding costs associated with repealing the cap, negotiators included an offset that would reduce payment for therapy assistant (OTA and PTA) services beginning in 2022 to 85% of what is currently reimbursed.  In the remaining time before the Senate considers its version, ASHT will work with its allies in the therapy community to advocate for an alternative offset.

    Medicare Therapy Cap Repeal FAQ