The 2026 Therapy Reimbursement Guide: Medicare Coverage, Rates, and the Pay Gap

For decades, the work of occupational, physical, and speech therapists has been the backbone of patient recovery—yet our reimbursement rates tell a different story.

If you’ve felt the sting of stagnant pay and rising inflation, you aren’t imagining it; you are experiencing the results of a system designed to value procedures and volume versus outcomes and longitudinal care.

This comprehensive guide will walk you through the reimbursement landscape for rehab therapists, from the historical forces that shaped today’s Medicare payment models to the technical details of how you get paid, and finally to the policy changes that are widening the gap between therapy and other healthcare professions.

This post will help you understand system; Part 2, The Advocacy Playbook for OT and PT, will show you how we can change it.

The System, the Math, and Why It Matters

If you’re an occupational therapist, physical therapist, or speech-language pathologist working in outpatient settings, you’ve likely felt the sting of low reimbursement rates that aren’t even keeping up with inflation.

You’ve earned an advanced degree, you use complex clinical reasoning every day, you coordinate care across multiple providers, and you help create lasting behavior change in your patients. Your work is demanding. Your work influences long-term health outcomes and can prevent the utilization of high-cost, highly variable services downstream.

Unfortunately, your reimbursement rates don’t reflect the value you create. They are also only valued at a fraction of what another cognitive provider like a primary care provider is paid for a similar unit of time.

The gap is stark: A 15-minute therapy unit might reimburse around $30, while a similar-time primary care office visit might reimburse $90 or more for a single code. Primary care physicians, advanced practice providers, and behavioral health providers—whose daily work often mirrors what rehab therapists do—see their value more recognized by policymakers and payers. Recent updates to the Medicare Physician Fee Schedule reflect a deliberate shift of reimbursement dollars toward these providers, while therapy has been left behind.

Understanding why this gap exists—and how the payment system works—is the first step toward empowering yourself and your colleagues to advocate for change.

A Brief History of Rehabilitative Therapy Reimbursement

To understand why therapy is paid the way it is today, we need to go back to the origins of third-party health insurance in the United States.

The Blue Cross Model (1929)

The earliest third-party reimbursement models came from Blue Cross in 1929. Before this, medical care was a completely out of pocket expense. As an insurance company, Blue Cross designed its coverage to mitigate the risk of overutilization of physician services. Their approach had lasting, unintended, and unpredictable consequences:

• Preventive and cognitive services common in primary care were deprioritized in terms of reimbursement. Blue Cross’s reasoning was that these services were harder to quantify and easier to overutilize.

• Coverage focused on discrete events and procedures where costs could be predicted by actuaries and controlled.

• The result? Prevention, care coordination, patient education, and similar cognitive services were systematically undervalued. Their return on investment was not considered. The public began to link medical care primarily to reactive, procedure-based care rather than the ongoing relationship-building and prevention that yields better population health.

Why might this have happened? If we travel back in time, life expectancy from birth for a male in the United States was about 65 years old. The rate of diabetes, the most common chronic disease and one that causes disability and poor health outcomes, has risen markedly in the later generations. Chronic disease is the primary driver of healthcare costs, and the size of that consideration was not like it would be if we were creating this structure today.

The RVU Framework (1980s)

In the 1980s, this procedural bias was further codified through the Relative Value Unit (RVU) framework adopted by the Centers for Medicare & Medicaid Services (CMS). Today, procedural services are still weighted significantly more heavily than cognitive or longitudinal care services in terms of how much they are estimated to be “worth” in reimbursement terms.

The good news? There’s growing bipartisan interest in changing this as part of the solution to our poor health outcomes. But for therapy, the damage has been done over many years. Our codes are largely time-based, valued well below other time-based providers, and fail to capture the complex clinical reasoning, judgment, care coordination, and behavioral change work that happen during every therapy session.

Reimbursement in Medicare Part A Settings

Before diving deep into outpatient therapy reimbursement under Medicare Part B, where most of the advocacy battles are fought, let’s briefly touch on how therapists working in Medicare Part A settings are paid under Medicare. Understanding this context is important because it reveals a critical irony:

In Part A settings, owners keep more direct revenue per day of a patient stay when LESS therapy is provided, while in Part B outpatient settings, owners achieve more revenue when MORE therapy is rendered.

“Part A” settings like home health, acute care hospitals, and inpatient rehabilitation facilities use a bundled payment system called the Prospective Payment System (PPS). A predetermined amount is paid per episode, period, or discharge—not per therapy service. Therapists don’t bill CPT codes in these settings. Instead, they influence payment indirectly through assessments, functional outcomes, and meeting intensity requirements.

Home Health: Patient-Driven Groupings Model (PDGM)

Under PDGM, the home health agency receives a fixed amount per 30-day period based on patient characteristics including clinical grouping, functional level, comorbidity adjustment, admission source, and timing (first or later episodes).

Therapists influence payment classification if they complete the Outcome and Assessment Information Set (OASIS) assessment, but they don’t bill codes. Agencies often set suggested target visit numbers per 30-day period. Remember, fewer visits mean the agency keeps more of the episodic revenue per patient.

Acute Care Hospitals: Inpatient Prospective Payment System (IPPS)

The hospital receives payment based on Medicare Severity Diagnosis-Related Groups (MS-DRGs). Each patient gets one DRG with a predetermined payment based on diagnosis, procedures, and complications.

Therapists don’t bill for services but can influence length of stay (shorter is better for the hospital), readmission rates, and patient satisfaction, but the latter have a relatively low positive impact on revenue. Productivity expectations typically focus on seeing a target number of patients per day.

Inpatient Rehabilitation Facilities: IRF Prospective Payment System

Payment is based on the case-mix group (CMG) per discharge, determined by completion of the IRF Patient Assessment Instrument. Influencing the episode’s reimbursement rate include primary diagnosis or impairment code, functional status, age, and comorbidities.

Therapists influence CMG assignment through functional assessments at admission and discharge. IRFs must provide a minimum of 3 hours of therapy per day—making them the highest-cost inpatient setting of the three mentioned here for many episodes along the continuum of care. Therapists don’t bill codes; productivity focuses on meeting the 3-hour rule and treating target patient numbers per day.

KEY TAKEAWAY: Owners of Medicare Part A inpatient settings keep more revenue when LESS therapy is provided. In contrast, owners of Medicare Part B outpatient settings achieve more revenue when a higher volume of therapy services is rendered. This creates fundamentally different incentive structures.

How the Outpatient Payment System Works: CPT Codes, RVUs, and the Conversion Factor

Now let’s turn to where most therapy advocacy efforts are focused: the Medicare Physician Fee Schedule (PFS), which governs outpatient therapy reimbursement. Understanding the PFS is critical because it serves as the foundation for how other payers, including commercial insurance carriers, set their rates.

CPT Codes: Naming and Describing Services

Every billable healthcare service needs a code. Current Procedural Terminology (CPT) codes are five-digit codes maintained by the American Medical Association (AMA). These codes name and describe medical services. For therapists, most CPT codes are time-based and describe interventions like therapeutic exercise (97110), manual therapy (97140), or neuromuscular reeducation (97112).

RVUs: Assigning Value to Each Code

Each CPT code is assigned a Relative Value Unit (RVU), which reflects the resources required to provide that service. RVUs have three components:

• Work RVU: Reflects the time, skill, and intensity of the clinical work. Think of work RVUs as the currency of provider productivity. Their weighting is based on what the time, complexity, skill, and effort typically required is estimated to be.

• Practice Expense (PE) RVU: Accounts for overhead costs like staff, equipment, and rent.

• Malpractice (MP) RVU: Reflects professional liability insurance costs.

Total RVU = Work RVU + PE RVU + MP RVU

The Conversion Factor: Turning RVUs Into Dollars

CMS multiplies the total RVU by the conversion factor (CF)—a national dollar amount set each year. For 2026, the CF is $33.40 for non-APM (Alternative Payment Model) clinicians. Therapists don’t currently qualify for APM participant status under current law, so we’re stuck with the lower rate. (APM participants get a 0.5% higher CF.)

It’s important to note that the majority of the 2026 increase is due to one-time Congressional funding adding 2.5%—this will not renew in 2027, meaning another potential cut is on the horizon.

Payment = RVU × Conversion Factor

The final adjustment to the payment is a geographic adjustment to account for the different costs associated with providing care to a patient in different parts of the country.

Real-World Example: The Payment Gap

Let’s compare what an occupational therapist bills versus what a primary care physician bills for similar time spent with a patient.

OT bills 97112 (neuromuscular reeducation):

• Work RVU: ~0.50

• PE RVU: ~0.48

• MP RVU: ~0.01

• Total RVU: 0.99
  

  • OT Payment = 0.99 × $33.40 = $33.07

PCP bills 99213 (established patient office visit):

• Work RVU: ~1.30

• Total RVU: ~2.75
  

  • PCP Payment = 2.75 × $33.40 = $91.85

That’s almost a 3-fold difference for work of similar cognitive expertise. And here’s another wrinkle to know about: when a Nurse Practitioner bills code 99213 ‘incident to’ a physician, they’re reimbursed at the same rate as the physician. An NP billing independently (in states where they have that authority) receives 85% of the physician rate. Yet therapists, who also hold advanced degrees and provide complex care, are stuck with codes valued far lower than comparable cognitive services provided by nurse practitioners.

The History That Created the Gap

Why is there such a stark payment difference? The answer lies in who controls the coding and valuation process.

The CPT Editorial Panel: Who Decides What Services Exist

The AMA CPT Editorial Panel determines which services get their own CPT codes. The panel is dominated by physicians. This means the services physicians provide are more likely to have discrete, highly valued codes, while services common to therapists often get lumped into broad, time-based categories. Specialty medicine services incur the highest RVU weights of all.

The RUC: Who Decides What Services Are Worth

The Relative Value Scale Update Committee (RUC) is a volunteer panel of physicians that advises CMS on how to value CPT codes—meaning they recommend the RVU weights. The RUC is also physician-dominated. Physicians essentially determine how they are valued and how all others who bill the PFS are valued.

As a result, therapy has received few discrete codes and few high-value codes. Most therapy codes are time-based and don’t sufficiently account for the complex clinical reasoning, judgment, care coordination, patient education, and behavior change work that happen during every therapy session.

Budget Neutrality: The Zero-Sum Game

One of the most important aspects of the Medicare Physician Fee Schedule to understand is budget neutrality. If you understand this, you understand why the conversion factor can’t be increased unless volume or cost of services goes down.

By law, the PFS must be budget neutral, meaning any changes that increase spending in one area must be offset by decreases elsewhere. There are winners and losers, and it’s a zero-sum game. You can think of it like any other budget. If you need $5000 per year for your vacation but spend more than you planned in other areas, you won’t have enough to take the vacation.

Budget neutrality locks in undervaluation. When new CPT codes are created or RVU weights are increased for some providers, other providers must see their weights reduced to maintain budget neutrality.

The conversion factor can only go up if there’s a corresponding drop in RVUs. This creates a vicious cycle where systemic undervaluation becomes permanent.

Congress Must Pass More Funding to Increase the Budget of the Physician Fee Schedule

If stakeholders like healthcare professionals and CMS itself push Congress to add funding to increase the budget of the Physician Fee Schedule at CMS, Congress can pass bills in both Houses of Congress and the President can sign that increase into law. This is typically done for short periods of time, like funding for one to two years.

But as you may know, passing funding bills is hard, and it has to be paid for in one of three ways: reducing spending in another part of the federal budget, raising taxes, or increasing the deficit. In short, political dynamics are at play.

Case Study: The G2211 Add-On Code and Its Impact on Therapy

A recent example illustrates how budget neutrality has impacted therapy negatively in the recent past, and that’s the implementation of HCPCS code G2211, the Office/Outpatient (O/O) Evaluation and Management (E/M) visit complexity add-on code.

CMS created G2211 to recognize the additional resources required when physicians provide office visits that build longitudinal relationships with patients and address the majority of health care needs with consistency and continuity over time. The code was intended to better account for the complexity inherent to primary care and ongoing care for serious or complex chronic conditions. For 2024, G2211 pays approximately $16 and can be added to any office E/M visit (codes 99202-99215) when the provider serves as the continuing focal point for all needed services or provides ongoing care for a single serious or complex condition.

The intent makes total sense: recognize the cognitive, coordinating work that primary care does. CMS originally proposed G2211 for implementation in 2021. Specialty physician societies were worried about the budget neutrality impact described above and successfully lobbied Congress to require CMS to delay implementation until January 2024. When it finally went into effect, the estimated $3.3 billion annual cost of the new code triggered significant budget neutrality cuts across the fee schedule.

Approximately 90% of the negative 2.17% budget neutrality adjustment in 2024 was attributable to G2211. Specialties that don’t bill office E/M visits, including rehab therapists, were cut to fund increases for primary care. Behavioral health providers like clinical psychologists and licensed clinical social workers also did not see a cut despite the fact that they don’t bill E/M codes. CMS protected them from a cut to their reimbursement. Then for January 1, 2025, behavioral health professionals began to be able to bill the new behavioral health interprofessional consultation codes (G0546-G0551). They allow these practitioners (and licensed professional counselors  and licensed marriage and family therapists), who are limited in statute to diagnosing and treating mental illness, to bill for interprofessional consultations.

PTs, OTs, and STs have not been viewed through the same lens of value as primary care and behavioral health, and this has led to being on the negative side of the equation as CMS systematically shifts more reimbursement towards these primary care providers and behavioral health providers.

This is how the system works against therapy: When CMS recognizes the value of cognitive, longitudinal care for one group of providers, budget neutrality forces cuts to everyone else. Therapists provide equally complex, longitudinal, behavior-change-focused care but don’t get similar recognition or codes. We’re left funding other people’s raises.

Other Factors Putting Downward Pressure on Therapy Reimbursement

Multiple Procedure Payment Reduction (MPPR)

The Multiple Procedure Payment Reduction (MPPR) was originally intended to account for efficiencies when multiple imaging procedures are performed during the same session. The logic was that the second procedure costs less to perform because the patient is already positioned, equipment is already set up, etc.

CMS applied this same logic to therapy services, reducing payment for the practice expense component by 25-30% on the second and subsequent therapy units billed in a single day. This penalizes therapists for delivering comprehensive care. Unlike imaging, there are no real ‘efficiencies’ when providing manual therapy after therapeutic exercise—the therapist is still providing individualized, hands-on treatment. The MPPR lacks logic when applied to therapy, yet it persists.

The Two-Tier Conversion Factor (Starting 2026)

Starting in 2026, as written into statute by the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, CMS implemented a two-system conversion factor: one for clinicians participating in Advanced Alternative Payment Models (APMs), who CMS calls QPs (Qualifying APM Participants) and one for everyone else. QPs receive a 0.5% higher CF (.75% vs. .25%). Only physicians and advanced practice providers (APPs) can qualify for APM status under current law. This creates a permanent, structural payment disadvantage that widens over time.

Lower Practice Expense and Malpractice RVUs for Therapy Codes

Therapy codes are systematically assigned lower practice expense RVUs and malpractice RVUs compared to physician services. This reflects historical assumptions about the cost and risk of therapy services that don’t account for modern practice realities. Therapists often work in private practices with similar overhead to physicians, yet our PE RVUs don’t reflect this.

Understanding the KX Modifier and Therapy Thresholds

One area that causes confusion for many clinicians is the KX modifier and annual therapy thresholds. Understanding these is essential for ensuring you get paid for medically necessary services that exceed Medicare’s annual limits.

What Is the KX Modifier?

Going back all the way to 1997 with the Balanced Budget Act, the original “hard cap” on therapy services billable per calendar year was created as a temporary cost-control measure. From 1999-2005, that cap was suspended various times by Congress. In 2006 with the Deficit Reduction Act, Congress created the Exceptions Process, which introduced the KX modifier. Using the KX modifier when billing for therapy services allowed therapists to bypass the cap for any medically necessary services, as long as they documented that necessity and appended the modifier.

Then from 2006-2017, this “exceptions process” was not yet a permanent part of Medicare statute. Congress had to vote for “extenders” every year or two (similar to how Congress keep “extending” telehealth flexibilities).

In February of 2018, Congress passed the Bipartisan Budget Act. This law permanently repealed the “hard cap” and replaced it with the “threshold system” after 20 years of temporary extensions. This is an example of how hard it is to add permanent funding to federal statute.

For 2026, the therapy threshold is $2,480 for PT and SLP services combined and $2,480 for OT services. These increased $70 dollars from 2025. These amounts are indexed annually to the Medicare Economic Index (MEI). When a patient’s therapy services exceed these thresholds, you must append the KX modifier to your CPT codes. The KX modifier signals to Medicare that the services are medically necessary and justified by appropriate documentation in the medical record.

Why are PT and SLP combined? There’s a “missing comma theory” about why PT and SLP share one cap and OT has its own cap. In the legislation, it says “we propose a cap on outpatient occupational therapy, physical therapy and speech therapy.” It is believed that when the text was drafted and no comma was placed between PT and SLP, they changed the intended course of history. Had a comma been placed between PT and SLP, they would each have their own cap.

How to Use the KX Modifier

Using the KX modifier is straightforward but requires diligent tracking:

• Track cumulative therapy costs for each Medicare patient throughout the year.

• When costs exceed $2,480 (the 2026 limit), append the KX modifier to every subsequent therapy code.

• Ensure your documentation justifies continued medical necessity—this means clear progress notes, functional goals, and evidence the patient is improving or maintaining function that would otherwise decline.

• You do NOT need to submit special documentation with the claim—the KX modifier itself is sufficient. However, be prepared: your documentation could be requested for targeted medical review.

Targeted Medical Review (TMR) Threshold

In addition to the KX modifier threshold, there’s a separate Medical Record (MR) threshold set at $3,000 (frozen until 2028). If a patient’s therapy costs reach $3,000 or more, claims may be selected for targeted medical review—essentially an audit. CMS will request your medical records to verify medical necessity. This doesn’t mean you can’t treat beyond $3,000, but your documentation needs to be airtight.

Why the KX Modifier Matters to Patients

The KX modifier is critical for patient access. Without it, patients who need extended therapy, such as those recovering from stroke, traumatic brain injury, or complex orthopedic surgeries, would be cut off from medically necessary care unless they were able to pay out of pocket for care.

From a practice perspective, failing to use the KX modifier correctly results in claim denials and lost revenue. From an advocacy perspective, understanding the KX threshold helps therapists communicate to policymakers that Medicare already has mechanisms in place to prevent overutilization.

Major Changes in 2026 and What They Mean for Therapy

CMS finalized several significant changes to the Physician Fee Schedule for 2026. While some changes affected all providers, the differential impact on therapy versus primary care and behavioral health is stark.

Efficiency Adjustment to Non-Time-Based Services

CMS applied a -2.5% reduction to the intra-service provider time component of work RVUs for non-time-based codes. Because therapy codes are predominantly time-based, therapists avoided this cut to work RVUs. However, we didn’t see a raise—we just avoided a cut. Meanwhile, the adjustment was part of CMS’s ongoing effort to better value cognitive services, which primarily benefits primary care physicians.

Reduction in Indirect Practice Expense for Hospital-Based Services

CMS reduced indirect practice expense RVUs for services by clinicians furnished in hospital-owned facilities. This affects therapists working in hospital outpatient departments, reducing their reimbursement compared to those in private practice settings.

The Growing Gap: Therapy vs. Primary Care and Behavioral Health

Over the past several years, CMS has made deliberate policy choices to shift reimbursement toward primary care physicians and behavioral health providers. These changes reflect bipartisan recognition that our healthcare system undervalues prevention, care coordination, and mental health services. The problem? Therapy provides these same services, yet we’ve been left out of the reimbursement increases. The question is, have we recognized the opportunity and advocated effectively and to the right stakeholders?

Consider the following:

• Primary care E/M codes were revalued upward in 2021, resulting in payment increases of over 10% that year.

• The G2211 add-on code (implemented 2024) provides an additional ~$16 per qualifying office visit for primary care and specialists managing complex conditions.

• Behavioral health providers saw increases in their psychotherapy codes and gained new codes for integrated behavioral health services.
  

  • When G2211 was implemented, the conversion factor was dropped that year by 3.37%. PT, OT, and ST saw a cut between 3.4-4%. *(see chart below)

  •  A redistribution was also required because G2211 utilization was expected to be high, and that triggered a mandatory budget neutrality adjustment that pulled funding away from those who don’t bill E/M, including therapists

  • However, in that same year, behavioral health providers received an approximate 19.1% upward adjustment to work RVUs for psychotherapy and the new HBAI codes, as well as certain substance use disorder codes, which is being phased in over four years and started in 2024

PTs, OTs, and STs are doing the same type of high-value cognitive work as PCPs and BH providers like managing chronic conditions, coordinating care, educating patients, driving behavior change, but our codes don’t capture this value, and policymakers aren’t prioritizing us in payment reforms like they are prioritizing PCPs and BH providers.

Congressional Fixes

Let’s address the role of Congress in taking temporary action when there’s a conversion factor cut. In an annual funding package for discretionary spending, Congress can provide a temporary “fix” to mitigate conversion factor cuts.

*Why no CMS cut to the conversion factor? The reason is because of the changes for 2026 re: efficiency adjustment and reduction to indirect practice expenses…more money to primary care and more money to non-hospital owned providers (aka the site neutral policies).

Summary: Why Therapy Is Undervalued

Let’s bring it all together. Therapy is systematically undervalued in the Medicare payment system for a number of interconnected reasons. And if Medicare undervalues us, other payers follow suit:

• Historical bias toward procedures: The insurance model that emerged in the 1920s prioritized discrete, procedural services over cognitive, preventive, and longitudinal care. This bias was codified into the RVU system in the 1980s and persists today.

• Physician control of coding and valuation: The CPT Editorial Panel and the RUC—both dominated by physicians—determine which services get codes and how those codes are valued. Therapy has few discrete, high-value codes.

• Budget neutrality: The zero-sum nature of the PFS means increases for one group require cuts for others. Recent increases for primary care and behavioral health have been funded in part by cuts to therapy.

• Inadequate codes: Therapy codes are predominantly time-based and don’t capture the complexity of clinical reasoning, care coordination, patient education, and behavior change that therapists provide.

• Structural disadvantages: Policies like MPPR, exclusion from APM participation, and lower PE and MP RVUs create additional downward pressure on therapy reimbursement.

• Lack of political prioritization: While policymakers have recognized the need to better value primary care and behavioral health, they haven’t extended the same recognition to therapy—despite the fact that we provide many of the same services.

The Path Forward: Understanding Is the First Step

If you’ve made it this far, you now understand more about how therapy reimbursement works than most clinicians, and probably more than many administrators. This knowledge is power.

Understanding the math, including how RVUs work, what the conversion factor is, and why budget neutrality creates a zero-sum game, is the first step in empowering therapists to mobilize at the grassroots level. All meaningful change in healthcare policy happens through sustained advocacy. Individual therapists calling their legislators, therapy organizations coordinating advocacy campaigns, and professional associations negotiating for better representation in the RUC and CPT Editorial Panel—this is how we change the system.

In Part 2, we’ll explore:

• What advocacy entails and how everyday clinicians can get involved

• Specific advocacy directions: pursuing new CPT codes, increasing work RVUs for existing codes, challenging MPPR, gaining access to APM participation

• The role of value-based care (VBC) and how therapists can position themselves as essential members of advanced primary care teams

• How to talk to patients, administrators, and policymakers about the value therapy provides

For now, remember this: You are not imagining the payment gap, payment cuts, and wage stagnation. It’s real, it’s structural, and it’s the result of decades of policy decisions that systematically undervalue cognitive, longitudinal, behavior-change-focused care. But it’s not inevitable. With knowledge, organization, and persistence, we can change it.

The first step is understanding the system. You’ve taken that step. The next step is using that understanding to advocate for change. We’ll show you how in The Advocacy Playbook for OT and PT.

Appendix: Medicare Reimbursement Comparison Across Settings

Note: Inpatient Rehabilitation Facilities (IRFs) are the highest-cost inpatient setting of the three Part A settings shown above—more expensive than acute care hospitals per discharge.