Ability to justify medical necessity grows vital as Medicare and private payors intensify scrutiny on claims. Learn four key points a practice should strengthen to stay in step with regulations.

The Patient Protection and Affordable Care Act of 20101 mandates that providers enrolled in Medicare and Medicaid have a compliance program. Furthermore, there has been increased scrutiny in the area of rehabilitation by government and third-party payors requiring physical therapy practices to become more cognizant of the outside forces influencing practice on a daily basis. As a result, practice owners and managers continue to struggle with understanding what the term “compliance” means for their particular practice as well as what steps need to be taken to ensure their practice is compliant.

Developing and implementing a compliance program can seem like a daunting task considering the many different areas requiring attention by an organization. Compliance programs often differ with respect to the scope of the practice and resources available; however, any effective compliance program will at a minimum include the following:

  1. Dedicated Staff
  2. Resources
  3. Risk Assessment
  4. Audit and Monitoring

The changing landscape of health care regulation and reimbursement nearly mandates that physical therapy practices have dedicated resources to assure they remain informed about what appear to be ever-changing rules and regulations. Small group practices or owners of such practices should appoint an individual who will become the practice’s compliance specialist. Perhaps a current staff member has some experience or has an interest in learning about compliance. Practices may consider having dedicated personnel attend a compliance-related continuing education seminar or a certification program to indoctrinate the person on the importance of the subject matter. This “compliance champion” quickly becomes the “go to” for the practice and is able to identify additional resources needed to support the compliance program. Larger organizations or companies practicing in multiple jurisdictions should consider hiring a Chief Compliance Officer or experienced compliance professional.

Some may want to consider contacting a compliance consultant to assist with the development of a program. A few hours with an expert who understands the regulatory scheme and has knowledge of Medicare and other payor requirements could be invaluable to an organization that has severe budget constraints. Consultants do provide experience and expertise, but may lack the connectivity to an organization that the owners would like. Regardless of budgetary constraints, identifying and appointing an individual to assist in efforts to remain compliant and improve the organization overall is a step in the right direction.

Small group practices may want to consider appointing a staff member to become the practice’s compliance specialist. Individuals who have previous experience in compliance or are interested in learning more about compliance are good candidates. Hiring a Chief Compliance Officer or compliance professional may be appropriate for larger organizations.


Various resources are available, most notably through the Health Care Compliance Association.2 However, there are many free resources available through the Office of Inspector General (OIG),3 Centers for Medicare and Medicaid Services (CMS),4 Local Coverage Determination (LCD) regional providers,5 and local professional associations. A great starting point is the OIG Work Plan.6 This annually published plan is typically released early in the fourth quarter and highlights areas that CMS will review and focus on with respect to fraud and abuse related to payment for services covered under Medicare for the coming year. Outpatient physical therapy services have been specifically targeted within the past few years, with particular emphasis on providers lacking the ability to demonstrate “medical necessity” within their documentation. Establishing medical necessity is the driving force behind reimbursement and can be accomplished only through solid, thorough documentation. It is vital that one understand what is meant by “medically necessary.” The Medicare Benefit Policy Manual7 has defined medical necessity as:

“The services provided are of such a level of complexity and sophistication, or the condition of the patient shall be such, that the services required can be safely and effectively performed only by a qualified therapist, or in the case of physical therapy and occupational therapy, by or under the supervision of a qualified therapist.”

Many third-party payors have adopted similar language, and it is important to understand what this terminology means to an organization. The ramifications of not demonstrating medical necessity in the services provided range from the claim being denied to a pattern of abusive behavior that results in external audits conducted by Medicare and third-party payors. These can often result in costly penalties and sanctions to the service provider. In the case of Medicare, this could mean being restricted as a provider. For many providers, there would be a significant decrease in funds to the organization and potential failure of the company. However, an organization that implements these guidelines—and has gained a better understanding of where potential fraud and abuse is occurring—will only strengthen and improve its compliance efforts, thereby mitigating the known associated risks.


Utilizing Local Coverage Determinations for Medicare Part B services, the Medicare Benefit Policy Manual, payor contracts, postpayment utilization review requests, and claim denials as guidance, a service provider’s dedicated compliance personnel can identify areas of risk specific to the practice. With a greater understanding of those items identified as potential areas of fraud and abuse, an organization should look to other areas to identify risk.

The LCD provides descriptions of direct supervision, general rehabilitation, and specific modality guidelines. These areas are common risk issues for many rehabilitation providers and require further attention. In addition to the LCD, reviewing and paying attention to payor specific issues is vital to the protection of the organization. Common issues include maximum visit or dollar limitations per beneficiary annual policy and medical necessity requirements. It is increasingly common to see a patient’s benefits reduced to a dollar or visit amount for a calendar year. Exceeding these amounts carries risk that is borne by the practice if it is not clearly addressed and expressly agreed upon prior to exceeding the maximum limits in coverage. Some payors have also chosen to limit who may provide services to their beneficiaries similar to Medicare. Practices must verify these limitations prior to providing rehabilitation services in order to mitigate financial risk. Lastly, many payor contracts have provisions that prohibit balance billing the patient when the payor has deemed the services to not be medically necessary.

The risk assessment also should include a thorough review of an organization’s policies and procedures, particularly with respect to timely documentation and billing/coding requirements. Medicare, for example, requires that a Plan of Care be certified by a physician within 30 days.7 Similarly updated plans of care must be done every 10 visits or 30 days, whichever comes first.7 Ensuring that your professional staff is adhering to a timely documentation policy helps to secure reimbursement. Proper billing and coding are also essential to support prompt payment and compliance with payor requirements.

Postpayment and utilization review documents can also lead an organization to areas of concern. Postpayment review requests will come from the Medicare carrier, and having a procedure in place to respond will ensure proper compliance. Additionally, an organization may see utilization review documentation that speaks to the medical necessity of treatment. For worker’s compensation claims, this is often used as a cost containment measure. However, the guidelines used can begin to provide material to utilize in the training of staff about documentation specifics. Additionally, commercial payors can be expected to review documentation for purposes of justifying payment. As an example, Aetna references a Clinical Policy Bulletin8 to justify nonpayment on claims determined to be not medically necessary. Many other payors follow very similar methods for justifying payment.


Using the findings derived from the risk analysis, develop a workable auditing and monitoring program that specifically addresses items unique to the organization. According to Merriam-Webster, the definition of audit is “a methodical examination and review.” Using the identified areas of risk, auditing documentation for medical necessity, appropriate billing per payor guidelines, and timely documentation is a good start. To effectively audit these items, plan to create an audit tool that utilizes specific questions to identify problems. For example, questions may be:”Are the current limitations identified supported by the objective tests and measures?”

“Was the Updated Plan of Care created within 10 visits or 30 days whichever comes first?”

In addition to specific audit planning, routine monitoring should be done. The purpose of monitoring is to routinely view areas of concern to determine if any relapse may have occurred following a training period. As an example, an audit may have identified that a facility and its staff were demonstrating inconsistencies in calculating timed code treatment when billing Medicare beneficiaries. Effective compliance programs would complete training with the staff and then routinely monitor learning and retention of the appropriate billing.

Compliance can be rather intimidating for an organization, particularly in the uncertain world in which many health care professionals practice. Continued reform and changes will be inevitable; however, effectively implementing a compliance program will only help to prepare for the future. Compliance is an evolutionary process that must be embraced and supported by the decision makers for any practice that wishes to remain competitive in its marketplace.

Wade A. Meyer, PT, DPT, CHC, CSCS, is Director of Clinical Compliance at ATI Physical Therapy, Bolingbrook, Ill. He holds a bachelor’s degree in biology/athletic training and a doctorate of physical therapy. For more information contact

  1. Patient Protection and Affordable Care Act of 2010. March 23, 2010. Sec. 6401.
  2. Health Care Compliance Association. Available at: www.hcca-info.org.
  3. US Department of Health and Human Services, Office of Inspector General. Available at: oig.hhs.gov.
  4. US Department of Health and Human Services, Centers for Medicare and Medicaid Services. Available at: www.cms.gov.
  5. Wisconsin Physician Services Insurance Corporation. LCD for Outpatient Rehabilitation Therapy Services billed to Medicare Part B (L28531). Available at: [removed]www.wpsmedicare.com/part_b/policy/active/local/_files/l28531_physmed009.pdf[/removed].
  6. US Department of Health and Human Services 2011 OIG Work Plan. Medicare Part A and Part B. Available at: oig.hhs.gov/publications/workplan/2011/.
  7. Medicare Benefit Policy Manual. Chapter 15. Sec. 220. Available at: www.cms.gov/manuals/Downloads/bp102c15.pdf.
  8. Aetna Clinical Policy Bulletin: Physical Therapy Services. Number: 0325. Available at: www.aetna.com/cpb/medical/data/300_399/0325.html.