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Primer on Reimbursement

joan burlingame, CTRS, ABDA, HTR

Discussions on reimbursement tend to focus on billing and getting paid for services rendered or the historical development of cost control systems like managed care. This limited focus ignores the conceptual basis for reimbursement and the day to day aspects. This, in turn, frequently leads the therapist down a frustrating and financially dismal path. A deeper understanding is required to get a better percentage of billables paid. The conceptual aspects of reimbursement are best seen as a series of overlapping spheres. The better you are able to align all the spheres, the more likely the patient will receive quality health care and the therapist will receive payment for his/her services.

The four spheres associated with reimbursement are 1. the level of illness or disabling condition (based on the World Health Organization Model of disease, impairment, disability and handicap), 2. the quality and use of standardized clinical services, 3. the insurer’s resolve to pay for services (including the type of services listed as covered in the insurance contract, the insurance company’s speed of payment and the insured’s willingness/ability to pay his/her portion) and 4. the therapist’s management and collection skills.

Level of Illness or Disabling Condition

In the early 1980’s the World Health Organization (WHO) developed a health care service delivery model based upon a continuum of care. This model outlined a hierarchy of health care services, placing priority on addressing the more basic, biological aspects first and progressing to the more complex conditions involving the intertwined physiological, psychological and environmental aspects of the illness or disabling condition. The World Health Organization’s Model identified four levels of care. These four levels of care are 1. the disease level, 2. the impairment level, 3. the disability level and 4. the handicap level. Insurance policies and government subsidies are more likely to pay for health care services which address the biological/physiological end of the continuum (disease and impairment levels) than the functional ability end of the continuum (disability and handicap levels).

Health care conditions at the disease level tend to be found at the very basic cellular or tissue level. At this level an abnormal situation is causing the body to function outside the expected and desired range. Examples include: arthritis, seizure, syncope, high blood pressure, ear infection and severe abdominal pain. Treatment at the disease level is geared toward reducing or preventing whatever is interfering or interrupting the normal physiological and developmental process. This treatment is usually medical in nature (e.g., within the scope of practice of physicians and nurses). Interventions at this most basic level are covered by most insurance policies. When billing for disease level interventions, providers use the ICD-9-CM codes.

Recreational therapists, depending on the policies and procedures where they work, may provide some services at the disease level. However, most of these services are provided only in emergencies and are not considered as treatment based on an assessment and as part of the patient’s care plan. Examples of interventions at the disease level provided by recreational therapists include protecting the patient’s head during a seizure, assisting with a quad cough while on a community integration outing, protecting the patient during an acute psychiatric crisis or interventions to address life threatening autonomic dysreflexia while on an outing away from nursing and medical staff. In almost all situations this type of intervention is considered to be the most basic of care and already covered under room rate. A potentially billable service at this level provided by the recreational therapist might be teaching relaxation techniques or using biofeedback, when these interventions are clinically indicated to address an acute or chronic disease condition.

Health care conditions at the impairment level are related to a loss (or lack of development of) normal function. Any health problem at the impairment level tends to be an either-or situation. This is because providers have defined a distinct line between "normal" and "abnormal" levels of body function. Examples of impairments include below normal strength or endurance, below normal cognitive functioning, abnormal trembling of the muscles and a loss of normal vision. Thresholds have been determined for what is "normal" and "abnormal," leading to an either-or situation. This doesn’t necessarily imply impairments lack degrees of severity.

Obviously functions such as muscle strength are associated with measurements of how much or how little. But at the most basic impairment level a determination must always be made as to whether the degree of physiological function is great enough to be considered a health concern. A body function which is suboptimal for the patient’s desired activity but which does not fall below the medically accepted level of impairment would not usually qualify for reimbursement as a health care intervention. An athlete who wants to compete in a wheelchair sporting event may want the recreational therapist to help him/her increase strength and endurance. However, if the athlete’s muscle strength is within normal ranges for muscle strength (above the threshold for impaired muscle strength), it is not likely that the recreational therapist’s services related to strengthening and endurance will be reimbursed under a health insurance policy. This is because the perceived lack of strength does not fall below the threshold for impairment.

Insurance companies still tend to cover health concerns at the impairment level just as they did health concerns at the disease level. ICD-9-CM codes are frequently used as the billing codes for health concerns at the impairment level, although for therapy CPT codes are also used.

Health care conditions at the disability level are related to performance of tasks at a non-self-sustainable levels (e.g., the individual cannot take care of himself/herself). Treatment at the disability level tends to address either activities of daily living (generally within the scope of practice of occupational therapists) or advanced activities of daily living (generally within the scope of practice of recreational therapists). The key distinction between WHO’s second and third level is that impairment relates to how the body functions and disability relates to how the individual performs. A lack of endurance due to severe deconditioning may be the impairment but the impairment shows up as a disability because the patient cannot walk from his/her car to the store or push a grocery cart so therefore cannot shop for himself/herself. Unlike impairments, disabilities are not based upon thresholds but upon the degree to which a task can be performed. Interventions at the disability level seek to enhance performance of each component skill required to complete a task. Therapists use their skills to modify activities or develop programs/interventions to enhance the individual’s performance through education, adaptive techniques or use of specialized equipment.

By far the majority of services which the recreational therapist provides falls within the disability level. Advanced activities of daily living include "1. basic environmental community safety skills, 2. community mobility skills, 3. consumer skills, 4. community resource identification, 5. advanced dressing skills, 6. time management skills and 7. social interaction skills." (burlingame & Skalko, 1997, p. 9) Leisure and free-time activities are frequently the modality through which these performance skills are addressed.

Only the more comprehensive insurance policies cover services provided for health care needs at the disability level. This is reflected in the relatively few options for billing codes available for interventions at the disability level. These billing codes are usually found in the CPT Manual whose codes change on a yearly basis. Generally, the recreational therapist has only three to five billing categories from which to select. As an example, treatments related to learning how to use public transportation to attend outpatient treatment session, the development of memory books and other adaptive devices to help with pathfinding or teaching the patient how to maneuver around the community in a wheelchair might all be coded as "mobility training."

There is one notable (and significant) exception to a shortage of reimbursement for interventions at the disability level. The federal government has legislated that certain classes of treatment and residential settings must provide treatment (often called "active treatment") if the facility is to get any reimbursement for its services at all. In this case, interventions such as reality orientation, exercise groups to maintain/increase strength and skill training (e.g., relaxation techniques, interpersonal skills, developing skills to engage in a new hobby) are considered such a vital component of treatment that payment for this type of service is already included in the room rate. In this case, the therapist may not seek additional third party reimbursement for these services. This would be considered billing twice for the same service, and in the case of Medicare, be considered Medicare Fraud. (For more information on billable services recorded under Section T of the MDS, see an article by burlingame titled "Section T" in Idyll Arbor’s Journal of Recreational Therapy Practice).

The first three levels of the WHO Model relate to attributes: "attributes of normal biological function at the basic or cellular level" for disease; "attributes of normal physiological and developmental processes function based on threshold requirements" for impairments; and "attributes of normal skills (functional performance based on task analysis, adaptive skills and equipment)" for disability. (burlingame, 1998, p. 94) The fourth level of the WHO Model, the handicap level, relates to circumstances. Handicaps are barriers which are either internal to the individual or externally caused by the community and/or environment. Handicaps (barriers) lead to restrictions in an individual’s social role in one or more of the following seven areas: 1.  orientation, 2.  physical independence, 3.  mobility, 4.  occupation, 5.  social integration, 6.   economic self-sufficiency and/or 7.  other handicaps. Handicaps (barriers) are seldom treated as acute or even subacute health care problems so they are almost never covered by insurance.

The World Health Organization’s Model and how it applies to recreational therapy can be found in "Clinical Practice Models" by burlingame found in Perspectives of Recreational Therapy edited by Brasile, Skalko and burlingame (1998).

Quality and Standardization of Services Delivered

The bottom line for determining if quality services were delivered is twofold: 1. that, as a direct result of the treatment, desired outcomes were achieved and 2. the patient (customer) was satisfied. Achieving positive patient outcomes requires all treatment to be based on assessed need using purposeful interventions with known (or strongly suspected), positive and appropriate impact. In terms of receiving reimbursement for recreational therapy, this generally means that the recreational therapist is providing standardized interventions which mirror the type of impairment and disability services typically provided in the region. In many ways it makes sense that standardized interventions more easily receive reimbursement. First, if the intervention is standardized, the insurance company case managers see it being implemented at multiple facilities. Second, standardized interventions are more likely to have been fine-tuned by a number of clinicians, producing a better product with (hopefully) anticipated, positive patient outcomes. And third, interventions tend to be dropped if patients are not satisfied with the treatment, so patient satisfaction is likely to be positive for a well implemented, standardized intervention.

The therapist must start with an assessment which helps identify observable and measurable baselines. This assessment may be based on the use of standardized assessments such as Module 1A of the Community Integration Program (Armstrong & Lauzen, 1994), the Mini-Mental State Examination (Folstein, Folstein & McHugh, 1975), or the Therapeutic Recreation Activity Assessment (TRAA) (Keogh Hoss, 1993). The patient’s assessment may also be based on the use of scales, such as the Standard Classification of Grading Breathlessness (Goldenson, Dunham & Dunham, 1978), range of motion or muscle strength. The more specific the scale, the better it is for establishing baselines. These measurement tools help the therapist identify baseline deficits (and strengths) at the impairment and disability levels. Scales which summarize a patient’s functional ability in general categories, such as the Global Assessment of Leisure Functioning (GALF) (Dehn, 1995) or the Leisure Competence Measure (LCM) (Kloseck & Crilly, 1997) are good tools but may be too general to be the sole tool used for reimbursement. Both the GALF and LCM are appropriate tools to use when summarizing findings to the insurance company, after the specifics are reported.

Many facilities use an assessment tool developed in house by their own staff. An assessment tool developed in house which has not gone through the formal process of testing for reliability and validity is called an in house reporting form. This type of tool may be used as a basis for reimbursement as long as it is well thought out and based on good clinical judgment. However, during any appeals process this type of assessment is more likely to be called into question. At Idyll Arbor we use an in house reporting form to record information obtained through the patient interview and through a review of the medical chart. We also include information obtained from standardized testing tools and scales. The more specific the testing tool, the easier it is to document impairment or disability.

The type of treatment interventions provided for the patient, based on assessed need, should be reasonably expected to achieve the desired outcome. For purposes of billing insurance companies or working with case managers, treatment interventions should address impairments or disabilities. Using such treatment protocols as found in the Community Integration Program (Armstrong & Lauzen, 1994) can easily be presented to insurance representative or case managers as nationally accepted treatment interventions based on impairment and disability.

Patient satisfaction is a key element of a therapist’s ability to receive third party reimbursement for his/her services. Health insurance policies are legal contracts between the insured patient and the insurance company. Legally, if the therapist’s bill is not paid, it is the patient’s responsibility to follow up with the insurance company to make sure that the therapist gets paid. The therapist has no legal claim unless s/he has a signed contract with the insurance company which states that the insurance company will honor the therapist’s billings. Otherwise, the therapist may pressure and cajole the insurance company but in almost every state in the United States, the state insurance commissioner will act only on the behalf of the patient, not the health care provider. While specific steps to help out in this process are covered in the next section, the bottom line is that if the patient is not satisfied with the services received, the therapist is not likely to get paid.

Insurer’s Resolve to Pay for Services

Insurance companies are in the business of providing funding for health care services outlined in the contract (insurance policy) they have with the individuals they cover. They are also in the business of making money. On close examination you will find that many insurance companies actually pay out more in claims than they take in through premiums. And yet these companies stay in business for decades and seem to be making money. How can this be? Insurance companies bring in billions of dollars in premiums and place these premiums in both short term and long term investments. The longer they can hold on to the premiums they have collected, the more interest money they can earn. Holding on to money owed to providers is such a pervasive practice that it isn’t considered to be bad business or unethical. Typical insurance company practices stretch out the reimbursement payment from net 30 (a standard business billing concept which says that all bills will be paid within 30 days) to net 90 or even 120! Being successful in collecting the fees due to you for your services not only requires having a majority of your billable services related to disease, impairment or disability level interventions, and having interventions which provide scientifically based outcomes but also being able to short circuit the insurance companys’ stalling tactics.

The first step in short circuiting the insurance companys’ tactics involves an attitude change on the part of the therapist. If you are providing quality services which the patient has agreed to, you should get paid. Period. The patient owes you the money and must make sure that you get paid. The therapist can take one of three approaches to payment: 1. wait to see if the patient and/or insurance company pays the bill for services after it is sent, 2. arrange assignment of benefits and collection of co-payment at time of treatment and/or 3. full payment by the patient at the time the service is received with the therapist providing the patient with the documentation s/he needs to get repaid by the insurance company.

The first approach, a wait to see if the patient and/or the insurance company pays, does not tend to be a successful approach. Bills tend to be generated weekly or bi-monthly (if the therapist is good a getting bills out). Typically that patients recreational therapists treat will have many health care related bills from health care organizations who use collection agencies to collect unpaid bills. Unless the recreational therapist is willing to use a collection agency the patient will find it less painful to pay the provider using a collection agency (which will hurt the patient’s credit rating) versus the recreational therapist calling and asking for payment. This approach to billing also makes it easy for the insurance companies to procrastinate. Almost all states have laws which dictate how quickly an insurance company must pay a claim. However, in most of those states it is the patient who must request action from the state and not the therapist. The insurance companies know this, and literally bank on this.

The second approach, arranging for the assignment of benefits and collection of co-payments, tends to achieve better results. This allows the therapist to collect some money up front and to hope for the balance of the payment. Whenever possible, the paperwork for the assignment of benefits (in which the patient provides written permission for the insurance company to pay the therapist directly) should be submitted electronically. Arranging for electronic submission requires some up-front work from the therapist but may be well worth the hassle. Sixty-eight percent of all the insurance claims in the United States submitted on paper are processed overseas, with the majority of claims being processed in Ireland, then Jamaica, then Mexico (Flint, 1996). The cross-water shipping of your paperwork, plus the lack of understanding of the English language (where you explain your services) is the cause of much of the delay and denials when claims are processed on paper instead of electronically.

There is one additional step in this approach which may help speed up payment to the therapist. At the same time the therapist is having the patient fill out the paperwork for assignment of benefits, s/he should ask the patient to sign a letter to the insurance commissioner to be sent only in the event the insurance company delays payment. The letter should be from the patient (remember, insurance is a contract between the insured and the insurance company), addressed to the state’s insurance commissioner and "cc"ed to the patient’s insurance company. This letter needs to have only three sentences: 1. My therapist filed a claim for health care services to (name of insurance company) which has not been paid, nor has it been denied. 2. You will find a copy of this claim attached to this letter. 3. Because of this delay I would like to file a formal complaint against (name of insurance company). Allow the insurance company thirty days after you have submitted the claim. If the company has not paid your claim (or sent you a valid reason for denial) within 30 days, send the letter. This request from the patient to the state’s insurance commission is a problem for the insurance company. Not only that, the insurance company will be required to answer, in writing, the complaint to the insurance commissioner.

The third approach is to always expect payment in full at time of service.. This allows the therapist to get paid and not have to deal with insurance company denials. Remember, if the insurance company denies the claim, the patient is still legally required to pay you for your services.

As your practice ages, you will begin to know which patients (and insurance companies) pay right away, and which are cooperative but slow paying. Patients (or their insurance companies) who fall into the cooperative but slow paying categories should be given four choices: 1. they can pay with credit card (you will need to set up a merchant account with your bank), 2. accept a post-dated check (or checks if a payment plan is worked out) and deposit the check(s) on the date of the post-date, 3. accept a debt card (again, you will need to set this up with your bank) or 4. accept cash. Bartering may also be an option for a therapist in private practice. Idyll Arbor’s first office was heated by a wood stove. Firewood was gladly accepted instead of cash.

Denials for payment of claims is a standard event and one which the therapist will need to deal with on a weekly basis. The types of denials seen by a recreational therapist will most likely fall into three categories: 1. denial due to recreational therapy being an uncovered/unrecognized health care profession, 2. denial due to fees being above the usual and customary rate, and 3. denials because the patient’s benefit package does not include the type of services provided.

Denials due to recreational therapy not being a recognized provider may be valid. Most insurance policies list the types of providers they will accept claims from and recreational therapy is often not on their list — yet. Idyll Arbor has had to work with many of the insurance company supervisors providing them with documentation as to how our recreational therapists could efficiently and effectively address impairment and disability needs. More than once have we heard from an insurance company supervisor or case manager that s/he wished the OTs or PTs would be as articulate about the services provided. The key here is to work with a supervisor in the benefits department or a case manager. Individuals in the claims departments seldom have the authority to make decisions about which services will be approved on an ongoing basis. And remember, the supervisor’s job is to help the insurance company to save money. Point out ways in which you can save money for them. After all of this work, your claim may still be denied. However, it is the patient’s responsibility to ensure that you get paid, so if the insurance company does not pay, the patient should.

One way in which insurance companies save money is to claim that the therapist’s fees are outside the normal rate for his/her community. If your fees are similar to other recreational therapists or occupational therapists in your community, the insurance company knows this from their own records. This stalling tactic should not be tolerated. When the insurance company sends a letter to your patient stating that your fees are outside the customary rates, the company is implying that your are trying to overcharge the patient. This can harm your patient/therapist relationship. The letter below which is from QuadraMed is an example of a letter which might be sent to an insurance company. Send the letter registered mail with return receipt requested. (QuadraMed offers many seminars and publications on reimbursement strategies. If you are seriously considering going into private practice you may want to find out more about what they offer by calling 1-800-875-5181.)


From: John Smith, MD Date: ___________

To: (Name of Insurance Company)

Dear (Name of Insurance Company)

Libel is a serious offense in this state. It has come to my attention that your company has notified my patient, whose claim is attached, that you feel my fees are above the usual and customary or normal rate for this community. I consider this to be untrue and libelous. What I believe you have the right to say is that your company is unwilling or unable to pay for the standard of care freely chosen by the patient.

You must be prepared to substantiate your opinion of my fees in a court of law or notify the patient in the attached claim that you are retracting your assertion about my fees.

I also suggest that you seriously consider re-phrasing your communications to accurately reflect your company’s ability to reimburse or cease and desist with your present communications, which are inaccurate and intrusive in the doctor/patient relationship.


Dr. John Smith

cc: Jane Q. Patient

Insurance Commissioner

Enclosure: Insurance claim and documentation

(Letter from QuadraMed used with permission, Flint, 1996.)

A third common reason for denial is that the types of services provided by the recreational therapist are truly not covered by the insurance policy held by the patient. The further up the World Health Organization’s model the treatment goes, the less likely that it will be covered. The chapter "Clinical Practice Models" in Perspectives in Recreational Therapy: Issues of a Dynamic Profession (burlingame, 1998) covers how recreational therapy practice fits into the World Health Organization’s model in greater detail. As long as the therapist has provided ethical service (e.g., informed the patient of all charges which are to be paid, whether covered by insurance or not), the patient should be expected to make arrangements for payment for the services s/he received.

One last note about denials of claims. Insurance companies regularly deny all or part of as much as 50% of all claims submitted. If you take all denials which you feel are unreasonable to appeals, you will soon get the reputation of being willing to take the time to take denied claims to appeals. As far as recreational therapy services are concerned (we are not big ticket items as are MRI’s), it is more cost effective for the insurance company to pay your claims instead of going through the appeals process, even if they always win the appeals process. It pays (literally) for the recreational therapist to be diligent with his/her documentation and to follow through when s/he feels that a claim was denied unfairly.

Therapist’s Management and Collection Skills

Diligence, patience and making sure that all paperwork is done immediately are a key elements in receiving reimbursement. This means that the patient’s medical charts are updated each time the therapist sees or talks to the patient, that insurance claims are sent out on a daily or weekly basis (preferably electronically) and that unpaid claims are followed up every 30 days. It also means that the therapist (or his/her office staff) make sure that the patient is aware of the therapist’s policy on timely payment and that all the appropriate forms for billing are filled out prior to the therapist seeing the patient for the first time.

Once the therapist identifies the patient’s impairments and disabilities and decides what treatments will be appropriate, s/he can determine the best billing code(s) to use when submitting a bill to the insurance company. Without this initial documentation it will be hard for the therapist to win if the billing needs to go through the appeal process (for denial of claims). At Idyll Arbor we write the appropriate billing code(s) right in our progress notes. The billing code(s) are written in the date column and are placed on the same line as the appropriate corresponding documentation. This supports our claims during any appeal process. It also shows the administrative law judge (the judge hearing the appeals) that we knew what we were doing and were very purposeful and professional in our delivery of service.

This article is meant to be only a cursory introduction to reimbursement. Obtaining payment can be very complex, especially when the therapist interacts with many types of health care funding programs, including health maintenance organizations, preferred provider organizations and capitated systems. One of the best ways that a therapist can be diligent is to attend a seminar yearly put on by a health consulting firm dealing with reimbursement issues.


Armstrong, M. & S. Lauzen, (1994). Community Integration Program, Second Edition. Ravensdale, WA: Idyll Arbor, Inc.

Brasile, F, T. K. Skalko & j. burlingame (Editors). (1998) Perspectives in Recreational Therapy: Issues of a Dynamic Profession. Ravensdale, WA: Idyll Arbor, Inc.

burlingame, j. & Skalko, T. (1997). Idyll Arbor’s Glossary for Therapists. Ravensdale, WA: Idyll Arbor, Inc. Now available as Idyll Arbor’s Therapy Dictionary.

burlingame, j. (1998). "Clinical Practice Models." in F. Brasile, T. Skalko, j. burlingame. Perspectives in Recreational Therapy: Issues of a Dynamic Profession. Ravensdale, WA: Idyll Arbor, Inc.

Dehn, D. (1995). Leisure Step Up. Ravensdale, WA: Idyll Arbor, Inc.

Flint, D. L. (1996). The Health Care Staff Training Manual. San Diego, WA: QuadraMed Company.

Folstein, M. F., S. Folstein & P. R. McHugh. (1975). "Mini-Mental State: A Practical Method for Grading the Cognitive State of Patients for the Clinician." Journal of Psychiatric Research 12(1975): 189-198.

Goldenson, R., J. Dunham & C. Dunham. (1978). Standard Classification of Grading Breathlessness in j. burlingame and T. Skalko, (1997). Idyll Arbor’s Glossary for Therapists. Ravensdale, WA: Idyll Arbor, Inc. Now available as Idyll Arbor’s Therapy Dictionary.

Keogh Hoss, M. (1993). Therapeutic Recreation Activity Assessment. Ravensdale, WA: Idyll Arbor, Inc.

Kloseck, M & R. G. Crilly. (1997). Leisure Competence Measure. London, Ontario: Leisure Competence Measure Data System.

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