Episode-Based Payment for the Medicare Outpatient Therapy Benefit

Published:April 05, 2016DOI:



      To conduct an analysis of Medicare outpatient therapy episodes of care and associated payment implications.


      Retrospective observational design using Medicare claims data. To descriptively analyze the composition of outpatient therapy episodes, both variable- and fixed-length episodes are explored. The variable-length episode definition organizes services into episodes based on the time pattern of therapy service utilization, using 60-day clean periods. Fixed-length episodes are also examined, beginning with the first therapy utilization in calendar year 2010 and extending 30, 60, and 90 days.


      The study is focused on community-dwelling users of outpatient therapy.


      The sample includes all Medicare patients who used outpatient therapy beginning at any point in 2010.


      Not applicable.

      Main Outcome Measures

      Mean episode payments and episode lengths in calendar days.


      Variable-length outpatient therapy episodes have a mean payment of $881. On average, outpatient therapy episodes last 43 calendar days. Mean therapy durations for the 30-, 60-, and 90-day fixed-length episodes are 20, 31, and 38 calendar days, respectively. The 30-, 60-, and 90-day fixed-length initial episodes account for 40%, 55%, and 63%, respectively, of total Medicare payments. Simulations of episode-based payment illustrate the difficulty of avoiding a large number of substantial underpayments, because of the right-skewed distribution of total actual payments.


      A strength of episode payment is that it reduces cost and potentially wasteful variation within episodes. Given the substantial variation in therapy episode expenditures, absent improvements in available data and in predictive information, a pure lump sum episode payment would result in substantial revenue changes for many episodes. Additional data are needed to better explain the wide variation in episode expenditures.


      List of abbreviations:

      CY (calendar year), FFS (fee for service), OT (occupational therapy), PT (physical therapy), SLP (speech-language pathology)
      To read this article in full you will need to make a payment

      Purchase one-time access:

      Academic & Personal: 24 hour online accessCorporate R&D Professionals: 24 hour online access
      One-time access price info
      • For academic or personal research use, select 'Academic and Personal'
      • For corporate R&D use, select 'Corporate R&D Professionals'


      Subscribe to Archives of Physical Medicine and Rehabilitation
      Already a print subscriber? Claim online access
      Already an online subscriber? Sign in
      Institutional Access: Sign in to ScienceDirect


        • Pearce J.
        Risk assumption in the Medicare bundled payment initiative.
        Singletrack Analytics, Woodbury2012
        • Mechanic R.E.
        Mandatory Medicare bundled payment—is it ready for prime time?.
        N Engl J Med. 2015; 373: 1291-1293
        • Urdapilleta O.
        • Weinberg D.
        • Pedersen S.
        • Kim S.
        • Cannon-Jones S.
        • Woodward J.
        Evaluation of the Medicare acute care episode demonstration.
        Centers for Medicare and Medicaid Services, IMPAQ International, Washington (DC)2013
        • Centers for Medicare & Medicaid Services
        Bundled Payments for Care Improvement Initiative (BPCI) fact sheet.
        2015 (Available at:) (Accessed November 2, 2015)
        • Centers for Medicare & Medicaid Services, Department of Health and Human Services
        Medicare program. Comprehensive care for joint replacement payment model for acute care hospitals furnishing lower extremity joint replacement services.
        Fed Regist. 2015; 80: 41198-41316
        • St Pierre M.
        • Dombi W.
        Home health PPS: new payment system, new hope.
        Caring. 2000; 19: 6-11
        • Centers for Medicare & Medicaid Services, Department of Health and Human Services
        Medicare program. CY 2015 home health prospective payment system rate update. Proposed rule.
        Fed Regist. 2014; 79: 38386
        • Centers for Medicare & Medicaid Services, Department of Health and Human Services
        Medicare program. Revisions to payment policies under the physician fee schedule and other revisions to Part B for CY2016.
        Fed Regist. 2015; 80: 41685-41966
        • Pham H.H.
        • Ginsburg P.B.
        • Lake T.K.
        • Maxfield M.
        Episode-based payments: charting a course for health care payment reform.
        National Institute for Health Care Reform, Washington (DC)2010
        • Mathematica Policy Research
        Summary: episode-based payment.
        Mathematica Policy Research, Washington (DC)2009
        • Morley M.
        • Bogasky S.
        • Gage B.
        • Flood S.
        • Ingber M.J.
        Medicare post-acute care episodes and payment bundling.
        Medicare Medicaid Res Rev. 2014; 4: E1-E12
        • Ciolek D.
        • Hwang W.
        Outpatient rehabilitation services payment system evaluation, final project report.
        AdvanceMed, Baltimore2004
        • Ciolek D.
        • Hwang W.
        CY 2008 outpatient therapy utilization report.
        Computer Sciences Corp, Baltimore2010
        • Amico P.
        • Pope G.C.
        • Pardasaney P.
        • et al.
        Refinements of the Medicare outpatient therapy annual expenditure limit policy.
        Phys Ther. 2015; 95: 1638-1649
        • Amico P.
        • Pope G.C.
        • Pardasaney P.
        • et al.
        Developing outpatient therapy payment alternatives: payment alternatives report.
        Center for Medicare & Medicaid Innovation, Baltimore2014
        • UNAIDS
        2010 global report: UNAIDS global report on the AIDS epidemic.
        UNAIDS, Geneva2010
        • Medicare Payment Advisory Commission
        Report to the Congress: Medicare payment policy.
        MedPAC, Washington (DC)2010
        • AdvanceMed
        Development of a model episode-based payment system for outpatient therapy services.
        Centers for Medicare & Medicaid Services, Baltimore2004