Medicare outpatient therapy in 2027: the KX threshold operating guide

Why 2027 planning starts in October

Medicare outpatient therapy runs on a calendar-year accrual. Every January 1, each beneficiary's incurred therapy expenses reset to zero and start climbing toward two numbers: the KX modifier threshold and the targeted medical review threshold. The amounts for the coming year are set in the Physician Fee Schedule rule. For 2027, CMS published its proposals in the CY 2027 PFS proposed rule, CMS-1848-P, which appeared in the Federal Register on July 16, 2026, with comments due September 14, 2026. The final rule is expected this fall.

That makes October the right month to rebuild the controls that depend on those numbers. A clinic that waits for the final rule and then edits its claim scrubber in late December is setting up a January in which claims above the new threshold go out without the KX modifier, and CMS is clear that those claims are denied. This guide lays out the 2027 numbers as proposed, explains how the accrual actually works, and gives an operating model for PT, OT and speech groups that bill Medicare Part B.

Every figure in this guide comes from a Federal Register rule, the CMS Therapy Services page or an HHS Office of Inspector General report. Where a number is still a proposal, we say so.

The 2027 numbers as proposed

The KX modifier thresholds are the former therapy cap amounts. Section 50202 of the Bipartisan Budget Act of 2018 repealed the hard caps but kept the dollar amounts as thresholds above which the claim must carry the KX modifier as the provider's attestation of medical necessity. There is one amount for PT and speech-language pathology combined, and a separate amount for OT. The amounts rise each year by the Medicare Economic Index and are rounded to the nearest $10.

For CY 2027, CMS proposes a 2.5 percent MEI increase. Multiplying the CY 2026 threshold of $2,480 by 1.025 and rounding gives a proposed CY 2027 KX threshold of $2,540 for PT and SLP combined and $2,540 for OT. CMS also says it will use historical MEI data through the second quarter of 2026 to set the final number, so the final amount can still move by a rounding step.

The targeted medical review threshold does not move. The proposed rule states that the threshold for targeted medical review is $3,000 through CY 2027, for PT and SLP combined and separately for OT. Beginning with CY 2028, that threshold will also be updated by the MEI each year. In practical terms, the band between the KX threshold and the review threshold narrows from $520 in 2026 to $460 in 2027 if the proposal is finalized.

Four years of threshold step-ups

The threshold has climbed every year since the caps were repealed, tracking the MEI forecast that CMS adopts in each year's rule. The table below shows the last four finalized or proposed amounts with the MEI percentage stated in each rule and the Federal Register document that set it. The pattern matters for budgeting: patients with chronic conditions who reach the threshold every year will reach it a little later in 2027 than in 2026, but only by about $60 of allowed charges.

How the accrual actually works

The most common misunderstanding we see is that the threshold counts what your clinic billed. It does not. CMS tracks each beneficiary's incurred expenses for therapy services across the calendar year and counts them toward the thresholds by applying the PFS rate for each service, less any applicable multiple procedure payment reduction for always-therapy services. Three consequences follow.

First, the accrual is per beneficiary, not per provider. A patient who had 12 visits at another clinic in the spring arrives at yours with part of the threshold already used. Your own visit count tells you nothing about where the patient stands. Second, the accrual uses the fee schedule amount, not your charge, so a clinic with high chargemaster prices does not reach the threshold faster. Third, therapy furnished by critical access hospitals is also tracked at the PFS rate even though CAHs are not paid under the PFS, so a rural patient's hospital outpatient therapy counts too.

The MPPR matters to the accrual because it lowers the counted amount. CMS applies the reduction to the practice expense component of always-therapy services: since April 1, 2013, the rate is 50 percent in both office and institutional settings, the service with the highest practice expense RVU is paid in full and the second and subsequent services that day are reduced. A day with four timed units accrues less toward the threshold than four separate days with one unit each.

• Check year-to-date therapy accrual on every new Medicare patient at intake, not at the 10th visit.
• Re-check at each recertification for patients who see other providers during the episode.
• Compute your own running estimate from the PFS amount less MPPR, not from charges.
• Treat the KX and review thresholds as separate counters for PT and SLP combined and for OT.

What the KX modifier attests, and what it does not

When a beneficiary's incurred expenses exceed the threshold, the therapist and the billing provider add the KX modifier to subsequent medically necessary services. The proposed rule describes what that modifier means: the therapist and provider attest that the services above the threshold are reasonable and necessary and that documentation of medical necessity is in the medical record. Claims above the threshold without the KX modifier are denied.

The modifier is not a pass. It is a signed statement that the progress reports, the plan of care and the treatment notes justify continued skilled care. That is why the KX threshold and the documentation clocks belong in the same workflow. If a patient will cross $2,540 in March, the progress report covering that period has to show measurable progress toward the goals in the certified plan, or show why skilled maintenance is required.

CMS's Therapy Services page also notes that the limitation of liability protections that began in 2013 still apply when services are denied for certain reasons, including failure to include a necessary KX modifier. In practice, a denial caused by a missing KX modifier is generally the provider's loss rather than the patient's bill, which is one more reason to make the modifier decision before the claim leaves.

Targeted medical review: who gets picked

Above $3,000, claims are not reviewed automatically. Section 1833(g)(5)(E) of the Act tells CMS to target review, and the CY 2027 proposed rule lists the factors CMS may use. Reading them as a risk profile is the most useful way to prepare.

The history explains why the review exists. In a 2018 audit of claims from the second half of 2013, the HHS Office of Inspector General found that 61 percent of the sampled Medicare outpatient physical therapy claims did not comply with medical necessity, coding or documentation requirements, and estimated $367 million in improper payments over that six-month period. Of 300 sampled claims, 184 were noncompliant and 116 were properly claimed.

• A high claims denial percentage for therapy services, or lower compliance with requirements.
• A billing pattern that is aberrant compared with peers, such as medically unlikely units of service in a day.
• A provider that is newly enrolled or has not previously furnished therapy services under Part B.
• Services furnished to treat a particular type of medical condition.
• A provider that is part of a group that includes another provider identified on these factors.

Assistant services and the 85 percent rate

Services furnished in whole or in part by a physical therapist assistant or occupational therapy assistant carry the CQ or CO modifier and, since January 1, 2022, are paid at 85 percent of the otherwise applicable PFS amount. CMS applies a de minimis standard: if the assistant's independent portion is 10 percent or less of the service, the reduction does not apply. Assistant services still accrue toward the KX threshold, so a group with a high share of PTA visits needs the same accrual tracking as a therapist-only practice.

For a revenue forecast, the useful split is visits by provider type, then units with CQ or CO, then the share of patients likely to cross the threshold. Each of those is visible in a clinic's own claims history.

The two payment adjustments also interact in a way that surprises billing teams. The MPPR reduces the practice expense of the second and later always-therapy services on the same day, and the CQ or CO reduction then applies to the payment for the assistant-furnished service. Neither adjustment changes whether the KX modifier is needed; that decision rests only on the beneficiary's accrual and the documentation. A clean claim line for an assistant-furnished timed service above the threshold therefore carries three separate decisions: the GP or GO discipline modifier, the CQ or CO modifier, and the KX modifier.

Remote therapeutic monitoring proposals for 2027

For PT clinics that bill remote therapeutic monitoring, the CY 2027 proposed rule would tighten three conditions of payment for RTM, and each one changes how a therapy group runs the program if finalized.

First, CMS proposes that RTM be furnished only to established patients, matching the existing RPM rule. Second, it proposes that the billing practitioner furnish a separately reportable initiating visit, in person or by telehealth, in association with the onset of RTM, and that RTM be discussed at that visit; a code that does not involve a face-to-face visit by the billing practitioner cannot count. Third, it proposes that time counted toward RTM come only from clinical staff who are direct employees of the practitioner or practice, ending payment for RTM time furnished by contracted third-party monitoring companies beginning January 1, 2027.

For a PT clinic, the operational questions are which evaluation or treatment visit will serve as the documented initiating visit, whether any monitoring vendor's staff are counted toward 98980 and 98981 time today, and whether enrollment of brand-new patients needs to wait until after the first visit. If the final rule keeps these proposals, the vendor question has to be settled before January.

• Established patients only (proposed).
• Separately reportable, face-to-face initiating visit at which RTM is discussed (proposed).
• Clinical staff time counts only if staff are direct employees of the practice (proposed, from January 1, 2027).

An operating model for January 1, 2027

The controls below are the ones we install for therapy groups ahead of a threshold year. None of them depends on the final rule beyond swapping one number.

• October: load $2,540 as a provisional KX value and $3,000 as the review value in the scrubber, effective for dates of service on or after January 1, 2027.
• October: inventory RTM patients, the visit used to initiate each one, and whether any monitoring time comes from non-employed staff.
• November: when the final rule posts, confirm or replace the provisional values and the RTM decisions; record the Federal Register citation in the payer matrix.
• December: run a list of active Medicare patients whose episodes will continue into January; their accrual resets, so their January claims start below the threshold again.
• January: re-check year-to-date accrual for every new Medicare patient at intake, and flag those within one plan-of-care interval of $2,540.
• Ongoing: hold any claim above the threshold that lacks a current progress report or certification; release it with KX only after the record is complete.
• Quarterly: report therapy denials with remark codes tied to the threshold, the share of KX lines with complete documentation, and review requests received.

What to watch in the final rule

Three items in the final CY 2027 PFS rule will decide whether this plan needs edits. The final MEI update will set the exact KX amount. The final RTM language will decide whether the established-patient, initiating-visit and employed-staff proposals take effect. And the conversion factor will set the dollar value of every therapy unit; Our separate note on the CY 2027 conversion factor covers that proposal. We will update our therapy payer matrix and this guide when the final rule is published.