Medicare’s Money-Saving Treatment Caps Leave Some Patients Behind

Paperwork issues at physical therapy providers curtail care more often for minority and low-income patients

In an effort to weed out unnecessary treatments and control costs, Medicare — which insures the elderly and disabled in the U.S. — has used soft spending limits on certain therapies for over a decade now. Less controversial than hard limits, soft caps let patients receive treatment up to a certain dollar amount without question — and then get treatment beyond that with Medicare approval. For example, when a physical therapy patient gets close to their $2,410 annual spending limit, Medicare may allow providers who request to extend treatment past that point to do so for medical reasons. 

A working paper confirms the money-saving aspects of these limits for physical therapy but uncovers a caveat: Soft spending caps introduce inequities against poor and minority patients that don’t exist otherwise.

The study, by UCLA Anderson’s Ashvin Gandhi and University of Chicago’s Maggie Shi, is a rare attempt to trace the origins of savings from soft spending caps. When the cap was first implemented, Gandhi and Shi observed that Medicare cut spending on physical therapy by about 7.6% versus a year with no cap. Going further, their work suggests that denials for extensions, or exceptions, account for about 58% of the savings. Deterrence of additional spending — those who don’t file for an exception due to the hassle of filing — is responsible for the remaining 42%. Drilling down into who is deterred or denied exceptions, the researchers found no evidence that the system prevents extended treatments for patients who likely need it. 

However, the authors identify a troubling pattern in who gets past the cap: Low-income and minority patients are much more likely to get stuck at the cap. But the patient demographics don’t seem to have a direct effect on whom Medicare grants permission to. Instead, they suggest that it’s about which physical therapists different patients go to for treatment. Small physical therapy practices are far less adept at successfully filing for exceptions, and thus large providers are about twice as likely to have their exception requests approved. Because minority and low-income patients are more likely to be treated by small providers, they are more likely to be denied exceptions. 

This inequity, it seems, is entirely a paperwork problem.

Culling Unnecessary Treatments

Overall, the study suggests a soft cap was effective in reducing costs without cutting needed care.

Concerns about expensive overtreatment have plagued Medicare since inception, and over the years it has experimented with varied cost cutting methods for several therapies. In 1999, exceptions to physical therapy spending limits were not allowed. In 2005, patients could obtain almost unlimited therapy without permission. The current cap went into effect in 2006.

The study relies on a 20% sample of all Medicare claims for physical therapy between 2005 and 2008. The researchers controlled for the level of medical need, to avoid comparisons between patients with serious and lesser issues. 

Gandhi and Shi had no way of directly observing how much pain patients experienced after treatment, but they could see subsequent billing for opioid prescriptions, surgeries, epidural steroid injections, nerve blocks and other treatments likely to be follow-ups to the issue at hand. Generally, the data suggests that patients who did not file for exceptions or were denied exceptions were no more likely than others to bill for these more serious treatments in the following months. 

Among other observations in the study:

• The cap didn’t appear to dissuade those who wanted extended therapy from asking for it. Patients requested exceptions in 2006 at roughly the same rate as the unconstrained 2005 group freely extended their treatments.

• Medicare reduced therapy costs by about $83 million, or 7.6%, between 2005 and 2006 mainly by denying some 532,000 potential treatment exceptions. By comparison, a hard cap in 1999 produced roughly twice as much savings.  

• Minority and low-income patients were 8% to 11% more likely to be denied exceptions than patients with similar levels of medical need. This discrepancy likely would disappear if small providers, who treat a disproportionately large number of these patients, were better skilled at filling out the paperwork required in exception filings. 

A Missing Code 

Medicare asks providers to add a “KX” billing code to each exception application to indicate that they have documentation to support the patient’s need for extended care. While Medicare doesn’t routinely review this paperwork, by citing this code, the provider testifies that it is available for review at any time. 

According to the researchers’ calculations, including this billing code doubles the likelihood that an exception is granted, regardless of patient demographics, predicted health, or the number of patients a provider treats. Approval rates appear to “move in lock step” with the use of the documentation code.

Small providers — the quarter treating around 575 patients over a two-year period — claimed documentation in just over half their 2006 requests, according to the data. Providers with closer to 1,500 patients were 11.8 percentage points more likely to use it. In all, exception requests by large providers were 48% more likely (16.1 percentage points) to be approved than those of smaller providers.

In both large and small practices, Gandhi and Shi pinpointed times when the providers seemed to learn how to avoid rejections. Their approval rates shot up; faster among large practices that could gain experience more quickly. Those insights suggest these inequities across practices — and thus their patients — could have declined beyond 2008.