Contract therapy billing, explained

If you run a contract therapy company — or pay one — the money flow behind each month’s invoice is worth understanding precisely, because every dispute, delay, and write-off traces to a mechanic somewhere in this chain.

Why the SNF pays you, not Medicare

Under SNF consolidated billing, the SNF bills Medicare on a single claim for virtually everything provided to a Part A resident — including therapy delivered by your contractors. Your therapy company cannot bill Medicare directly for those residents. Instead, you invoice the SNF (“under arrangement”), and the SNF pays you out of its per-diem reimbursement. (PT, OT, and SLP remain subject to consolidated billing even during non-covered stays — the SNF still bills, though payment then follows Part B rules rather than the Part A per diem.)

That one rule shapes everything: your invoice is a facility-to-facility commercial document, governed by your contract, not a claim governed by a fee schedule. Which is why the contract’s rate mechanics matter so much.

The five ways contracts price therapy

1. Per diem — a flat rate per resident treatment day, sometimes varying by payer type.
2. Per visit — a rate per completed visit, often by discipline.
3. Per minute — a rate per documented treatment minute, sometimes with per-CPT overrides.
4. Percent of the Medicare Physician Fee Schedule — line items priced as a negotiated percentage of what Medicare would pay for those codes in that locality.
5. Percent of the state Medicaid fee schedule — same idea against the state’s schedule.

The percentage methods are where complexity concentrates, because “what Medicare would pay” is itself computed: RVUs × geographic indices × conversion factor, then adjusted. Three adjustments matter most:

• MPPR (Multiple Procedure Payment Reduction): the practice-expense portion of the second and subsequent always-therapy units and procedures on the same day is reduced 50%.
• Assistant reduction: Part B services pay 85% when a PTA/COTA independently furnishes more than 10% of the service (the CQ/CO modifiers and de minimis rule, Claims Processing Manual ch. 5 §20.2.5; CMS exceptions apply, and Critical Access Hospitals are excluded).
• Sequestration: the 2% reduction applied to Medicare payments.

If your contract says “80% of Medicare,” both parties need to agree on 80% of which number — before, not after, the first disputed invoice.

Why invoices get disputed

Having watched this cycle across facilities, the dispute causes rank consistently:

1. Thin detail. A summary invoice with a big number and no resident-level backup invites a challenge. (Resident detail must also respect HIPAA’s minimum-necessary rule — the business office needs enough to verify, not the full chart.)
2. Rate drift. A contract amendment changed rates effective the 15th; the invoice priced the whole month at the old rate.
3. Documentation gaps. A charge for a visit whose note is unsigned — the SNF’s auditors will find it even if yours didn’t.
4. Fair-market-value questions. Contract-therapy arrangements typically rely on the Anti-Kickback Statute personal-services safe harbor, whose conditions include fair-market-value compensation (42 CFR §1001.952(d)); undocumented rate provenance turns a billing question into a compliance question.

The month-end mechanics that decide cash flow

The operational insight most teams learn expensively: documentation completion gates billing. Even a handful of unsigned notes at month-end can hold the entire invoice run while someone chases signatures.

The fix is structural, not motivational:

• Surface unsigned and missing documentation the day it happens, not at month-end.
• Route problem charges to an exception worklist so the clean 97% of the invoice ships on time while the 3% gets resolved.
• Reconcile late-arriving documentation into the next cycle by rule, not by memory.
• Keep a computation trace per line — when a partner asks “why is this the price?”, the answer should be a click, not an archaeology project.

What to look for in tooling

Whether you build this on spreadsheets or software, the requirements are the same: rate cards with effective dating and payer-level overrides; contract-configurable application of MPPR, assistant reductions, and sequestration for percentage methods; UB-04-aligned line derivation (revenue codes by discipline, HCPCS/CPT with modifiers, correct units); exception workflows; approval gates; and an audit trail from signed note to paid invoice.

That end-to-end chain — signed documentation in, defensible invoice out — is exactly what CareDocs.ai contract therapy billing automates, with the fee schedules built in.

Running contract therapy across multiple facilities? See the contract therapy solution or bring a real contract to a demo — we’ll model your rates and show you the invoice.