Are Your Outpatient Therapy Claims Ready For Manual Medical Review by a Medicare RAC?

Manual medical review of outpatient therapy claims are ongoing by Medicare contractors

(September 5, 2013): Since April 1, 2013, Medicare’s Recovery Audit Contractors (RACs) have been conducting manual medical reviews for all Medicare Part B therapy services that exceed a $3,700 threshold. There has been some early confusion on behalf of outpatient therapy providers, and the Centers for Medicare and Medicaid (CMS) have been bombarded with questions requesting clarification for this complex process. More troubling, a recent government report has indicated that the entire process has been haphazardly implemented. This overview will help ensure that you have all the knowledge available so that you are fully knowledgeable about this new and complex review process.

I. Background:

President Obama signed the American Taxpayer Relief Act of 2012 (Act) into law on January 2, 2013. The Act extended the Medicare Part B Outpatient Therapy Cap Exceptions Process through December 31, 2013. More importantly, § 603 of the Act contains a number of Medicare provisions affecting the outpatient therapy caps and manual medical review threshold.

For 2013, Medicare Part B has a $1,900 outpatient therapy cap for Occupational Therapy (OT) services, as well as a combined $1,900 cap for Physical Therapy (PT) and Speech-Language Pathology Services (SLP). These cap amounts apply annually per beneficiary and are determined for each calendar year. Medicare allowable charges, which include both Medicare payments to providers and beneficiary co-insurance, are counted toward the therapy cap. Under outpatient settings, Medicare pays for 80 percent of allowable charges while the beneficiary is responsible for the remaining 20 percent of the charge.

These therapy caps apply to all Part B outpatient therapy settings and providers, which include:

  • Therapists’ Private Practices;
  • Offices of Physicians and Certain Non-Physician Practitioners;
  • Part B Skilled Nursing Facility (SNFs);
  • Home Health Agencies (Type of Bill 34X);
  • Outpatient Rehabilitation Facilities, also known as Rehabilitation Agencies;
  • Comprehensive Outpatient Rehabilitation Facilities (CORFs); and
  • Hospital Outpatient Departments, Excluding Critical Access Hospitals (CAHs).

In addition, the therapy cap will apply to outpatient hospitals as detected by:

  • Type of Bill 12X or 13X;
  • Revenue Code 042X, 043X, or 044X;
  • Services with Modifier GN, GO, or GP[1]; and
  • Services with a Date of Service on or after January 1, 2013

II. Manual Medical Review of Therapy Claims Above the $3,700 Threshold:

The law also mandated that some exceptions to the therapy cap be allowed so that providers could receive reimbursement amounts from Medicare for services above the therapy cap amount. In order to receive this higher reimbursement amount, practitioners must provide therapy that is reasonable and necessary, require the specialized skills of a medical professional, and be justified by supporting documentation in the beneficiary’s medical record.

If these conditions for exceeding the therapy cap in a calendar year are met, a provider may submit claims with a KX modifier[2] included on the claim form. However, claims that exceed the cap and do not include the KX modifier will be denied.

On March 21, 2013, CMS released their long-term solution on its website that outlined how it would meet the mandated requirements for the manual medical review process. For each beneficiary, if OT services and/or the combined PT/SLP services exceed $3,700, the claims are automatically subject to manual medical review. This $3,700 threshold includes the total allowed charges for services provided by independent therapists and all institutional services under Medicare Part B, e.g., SNFs, hospital outpatient departments, and CAHs. CMS is also not precluded from reviewing any of therapy services that may fall below these thresholds.

The Act also extended use of an Advanced Beneficiary Notice (ABN), Form CMS-R-131. An ABN is a standardized notice that a provider or his/her designee must issue to a Medicare beneficiary before providing certain Medicare Part B (or Part A, limited to hospice and Religious Nonmedical Healthcare Institutions) items or services. ABNs are generally issued when:

  • The Provider Believes Medicare May Not Pay for an Item or Service;
  • Medicare Usually Covers the Item or Service; and
  • Medicare May Not Consider it Medically Reasonable and Necessary for a Certain Patient Under a Particular Instance.

CMS has yet to issue additional guidance on ABNs; nevertheless, therapists providing OT, PT, and SLP services should consider providing their patients with an ABN if they believe the service may not meet Medicare coverage criteria for medical necessity.

III. RACs Are Now Conducting the Manual Review Process:

CMS originally directed Medicare Administrative Contractors (MACs) to conduct prepayment review on all claims reaching the $3,700 threshold for claims processed between January 1, 2013 to March 31, 2013. CMS requested MACs conduct these manual medical reviews within 10 days.

Yet, as discussed supra, beginning April 1, 2013, RACs were given the authority to conduct reviews for all claims processed on or after April 1, 2013. Furthermore, RACs are completing not just prepayment reviews but also postpayment reviews. RACs are applying these reviews under the following:

Prepayment Review:

Claims submitted in the Recovery Audit Prepayment Review Demonstration states are reviewed on a prepayment basis. These include claims from the following states: California, Florida, Illinois, Louisiana, Michigan, Missouri, New York, North Carolina, Pennsylvania, Ohio, and Texas.

In these states, MACs are sending Additional Development Requests (ADRs) to the provider requesting that additional documentation be sent to the RAC (unless another process is used by the MAC and the RAC). ADRs are generally sent to ensure that payment for services is appropriate.

The RAC must then conduct a prepayment manual medical review within 10 business days of receiving the additional documentation and then notify the MAC of its payment decision.

Prepayment review of claims will result in an “initial determination” and is assessed on the current claim. Once the status of the claim has been determined, i.e., whether the service provided was or was not medically reasonable and necessary, the claim will be further processed.

Postpayment Review / Postpayment Audit:

In the remaining states, CMS has granted an exception for all claims with a KX modifier and pays the claim upon receipt. The RACs are then conducting immediate postpayment manual medical review on each claim.

Postpayment review occurs when the services have been rendered, claims are submitted for reimbursement, the claim is adjudicated for payment, and then the claim is paid.

In these states, the RAC requests additional documentation, conducts postpayment review and then notifies the MAC of the payment decision. CMS does not indicate a timeframe for notification to the provider.

The provider will be notified of any payment determination, and, if necessary, will be given the options of:

  • Paying back funds by check;
  • Recoupment from future payments;
  • Applying for an extended payment plan; or
  • Appealing the decision.

Section 603 (b) of the Act counts outpatient therapy services furnished in a CAH toward a beneficiary’s annual cap and threshold amount using the Medicare Physician Fee Schedule rate. CAHs are not subject to the therapy cap, the manual medical review process, or the use of the KX modifier.

IV. Providers Seek Clarification on the RAC Prepayment Review Process:

After RACs were given full authority to conduct the manual review process, many in the provider community expressed confusion as to the entire process. For example, AHCA President Mark Parkinson described the process as “bifurcated, confusing and wholly inappropriate.” Mr. Parkinson indicated that the process was likely to have a “chilling impact” on providing therapy care to Medicare beneficiaries. Moreover, he expressed concerns over how the RAC process would affect implementation of Medicare reimbursements for “maintenance therapy” following the Jimmo settlement. Mr. Parkinson believed that MACs, “established administrative entities”, were more likely to administer the system in a more effective manner.

In response to concerns such as these, CMS published a Frequently Asked Questions (FAQ) to clarify the new therapy manual medical review process.

In the FAQ, CMS explains that the manual medical review process will be triggered when a beneficiary's services for that year exceed one of two threshold caps dictated in Section 603 of the Act. As noted above, the cap is $3700 per year per beneficiary for OT services; there is also a combined cap of $3,700 for PT and SLP is $3700 per year, per beneficiary. CMS also noted that, although PT and SLP services are combined to trigger the cap, the medical review of those claims will be conducted separately.

The FAQ further states that these caps and the manual medical review process applies to all Part B Outpatient Therapy settings and providers, including private practices, Part B SNFs, home health agencies (HHAs), outpatient rehabilitation facilities, rehabilitation agencies and hospital outpatient departments. Moreover, the outpatient therapy manual medical review process would occur on a per-claim basis

CMS also noted that, while therapy providers will continue to submit claims to their respective MAC, the manual medical review process will be completed by CMS' RACs. The FAQ also made sure to emphasize the distinction in the manual medical review process for those claims coming from States participating in the Recovery Auditor Prepayment Review Demonstration.

The CMS FAQ also acknowledge the traditional $1,900 therapy cap and made clear that "no Recovery Auditor is approved for therapy review between $1900 and $3700." While that type of review is currently beyond the scope of the mandate, CMS stated that such a review might occur in the future.

For their services, RACs are to be paid on a contingency fee and operate under existing policy guidelines. Notably, RACs are required to use Registered Nurses and/or therapists when conducting medical necessity and coverage decisions, and they must use certified coders in coding determinations. When asked whether the RAC established additional documentation limits be honored, CMS stated that additional documentation limits would not apply to therapy pre- and postpayment reviews. As a result, providers will not be reimbursed for records.

Finally, CMS acknowledged that the appeals process remained unchanged. As a result, therapy providers may continue to appeal their adverse manual medical review determinations through their MAC. Providers must prepare for inevitable documentation requests and account for manual medical reviews in their Medicare audit compliance systems.

V. The Manual Medical Review Process Has Been Bungled:

Under the Act, the Government Accountability Office (GAO) was tasked to report on the implementation of the manual reviews. Unfortunately, a recent GAO report highlights just how much of a struggle implementation has become. The report, which was released in early July 2013, indicates that the entire process was rushed and inconsistent, and simply created confusion not only for MACs but also for SNFs and other therapy providers.

Notably, the report expressed dissatisfaction with the fact that CMS never provided timely guidance for therapy contractors regarding the implementation of the manual review process for outpatient therapy claims. In fact, the report reflects that CMS briefed MACs on the manual review process only a month before it began.

Without any timely guidance, MACs were unable to fully automate their systems for tracking review of the preapproval requests in the time allotted. Even after the reviews started, MACs were unclear on how to manage incomplete provider documentation and how to count the 10-day review timeframe. MACs also did not have time to automate their systems to handle the influx of approval requests. This created an hoc system that resulted in some MACs handling the review process completely different than others. The result was confusion that hampered efforts to collect information about the outcomes of these reviews.

Responding to the GAO report, CMS stated that the new process is more streamlined and should address many of the issues encountered in 2012. CMS also argued that it was pressed and under a shorter timeframe to institute the manual reviews and received no additional funding to do so.

VI. Conclusion:

As this review reflects, CMS’s new manual medical review process has not been implemented with any sense of organization. Medicare Part B therapy providers are sure to feel the burden as the government attempts to correct this new system. If you or your healthcare entity has any questions regarding CMS' new outpatient therapy manual medical review process, or otherwise need assistance with a Medicare audit or RAC compliance plan, please do not hesitate to contact our firm.

Healthcare Law
Robert Saltaformaggio is an Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker is a boutique health law firm with offices in Washington, DC, Houston, DC, McAllen, DC and Baton Rouge, LA. Our attorneys represent Skilled Nursing Facilities and Long-Term Care Facilities around the country in a full-range of health law statutory and regulatory matters and cases. For a free consultation on these and other health law issues, give us a call. We can reached at: 1 (800) 475-1906.

  • [1] These modifiers apply to services delivered under an outpatient SLP, OT, and PT plan of care, respectively.
  • [2] The KX modifier is added to claim lines to indicate that the clinician attests that services are medically necessary and justification is documented in the medical record