Occupational therapy billing looks deceptively simple until you're dealing with Medicare therapy thresholds, prior authorization stacking across commercial payers, and evaluation codes that get downcoded because the documentation didn't capture complexity the right way. This is the practical guide — codes, rules, and the specific mistakes that cost OT practices money every month.
OT evaluations aren't one-size-fits-all. CMS uses three complexity levels and the code you select has to match the documentation — not just the patient's diagnosis.
| Code | Level | Typical Patient Profile |
|---|---|---|
| 97165 | Low complexity | Single performance deficit, established condition, minimal clinical decision-making |
| 97166 | Moderate complexity | Multiple performance deficits, new or evolving condition, moderate clinical decision-making |
| 97167 | High complexity | Significant functional limitations across multiple domains, complex medical history, high-level decision-making required |
Most OT evaluations land at 97166. Where practices leave money behind is billing 97165 on patients who genuinely present with moderate complexity — often because the therapist didn't document the breadth of the functional limitations. The code selection follows the documentation, and the documentation has to tell the story.
The OT treatment codes overlap heavily with physical therapy, which creates payer confusion and occasional denial on the basis of "duplicate service." Know what you're billing and be ready to defend the medical necessity of each distinct service.
97530 and 97535 are where OT most clearly differentiates from PT — functional activities and ADL training are core OT. Document the specific functional goals and the patient's response. Generic notes like "patient tolerated treatment well" don't defend medical necessity when the payer audits.
Medicare sets an annual therapy threshold — in 2026, that's $2,330 combined for OT, or $2,330 for PT and speech combined. Once a patient's allowed charges cross that threshold, you must append the KX modifier to each subsequent therapy code to attest that the services are medically necessary and that the patient's care meets Medicare's coverage criteria.
The KX modifier isn't a rubber stamp. You're certifying that you have documentation in the chart to support medical necessity for continued treatment. CMS can and does pull records when the KX modifier is used heavily, and if the documentation doesn't hold up, you're looking at repayment demands.
You can't bill Medicare for OT without a certified plan of care. The plan must be established by the treating therapist, certified by a physician or non-physician practitioner, and it has to be in place before treatment begins — not signed after the fact. Backdated certifications are a compliance issue.
Plans of care expire. Medicare requires recertification at least every 90 days, or at the start of a new certification period. Track this actively. If you're billing claims after the plan of care has lapsed because the physician signature was delayed, those claims will eventually come back as overpayments.
Commercial payers have gotten aggressive about prior authorization for outpatient OT. United, Aetna, and several regional Blues plans now require auth for initial evaluations in certain states — not just extended treatment. This catches practices off guard because the authorization requirement isn't always in the provider portal; it's buried in the payer's clinical policy updates.
Verify prior authorization requirements at eligibility check, not at billing. By the time you're billing, the patient has already been treated — if auth was required and you didn't get it, you're eating that visit.
Some payers allow retro-authorization within a specific window (usually 48–72 hours). Know which payers offer this and have a workflow to catch missed auths quickly.
OT billing generates a predictable set of denials. Here's what to watch for and how to address each one systematically:
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The practices with the cleanest OT billing share a few habits. Evaluation codes are selected after the note is written, not before. The treating therapist and the biller have a shared vocabulary around complexity criteria. Prior auth tracking happens at scheduling, not at billing. And every appeal response ties specific documentation language back to the payer's own clinical policy language — not generic medical necessity arguments.
OT revenue is more recoverable than most specialties because the appeal success rate for medical necessity denials is relatively high when the documentation is solid. That's the lever. Strong notes, specific functional goals, and a biller who knows the payer's own published criteria — that combination wins most OT denial appeals.
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