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Note from the Instructor: CMS Releases OPPS Final Rule

This note from the instructor is written by Kimberly Anderwood Hoy Baker, JD, CPC, regulatory specialist for HCPro.  

CMS released the OPPS final rule. There are three significant changes I wanted to discuss in my note this week. First, CMS finalized the packaging of most ancillary services. They also finalized the Comprehensive APC (C-APC) policy. Lastly, certification for most inpatient cases was eliminated.

For CY2015, CMS eliminated the ancillary services status indicator X and conditionally packaged most of these services, reassigning them to status indictor Q1. Status indicator Q1 triggers packaged payment if any other code with a status indictor S (significant procedure), T (surgical procedure) or V (visit) is reported on the claim. The service is only paid separately if no other service with an S, T, or V status indicator is reported. This separate payment will be made based on the codes reported on the claim and no additional action will be required by the provider, unlike the laboratory packaging for CY2014 which requires application of the modifier L1 for labs to be paid separately.

Under this new increased packaging policy, CMS conditionally packaged services with a geometric mean cost of $100 or less, except preventative services, psychiatry–related services, and drug administration services. The number of services assigned status indicator Q1 increased from 11 to 538. Newly conditionally packaged services include minor procedures such as foreign body removals, application of splints and strapping; diagnostic procedures such as x-rays and ECGs; and pathology and blood product– related services along with many others.

Continuing the increased level of packaging under OPPS, CMS finalized 25 C-APCs that make a single comprehensive payment for expensive primary procedures and all the related and “adjunctive” services reported on the claim with them. There are 248 primary procedures, identified by status indicator J1. CMS ranked each of the primary procedure codes in a table in Addendum J. The assignment of the final C-APC is controlled by the highest ranking primary procedure code reported on the claim.

CMS finalized a “complexity adjustment” allowing the C-APC to be increased one level if specific secondary or add-on codes are reported on the claim with the primary procedure. CMS finalized 63 complexity adjustment pairs affecting only 29 of the 248 primary procedure codes. The complexity adjustment pairs are published in a table in Addendum J.

CMS also published a list of services that will be excluded from the C-APC payment in Table 6 of the final rule. In general, services required to be paid separately by statute continue to be paid separately, including: preventative services; pass-through drugs, biologicals and devices; brachytherapy seeds and sources; and cost based services such as vaccines. Also excluded are services paid on other fee schedules, including ambulance services, mammography services, and therapy provided under a plan of care and reported on a separate monthly claim.

Lastly, CMS finalized their revised proposal to exclude self-administered drugs from packaging to the C-APC unless they function as supplies integral to the procedure. In CY2014, CMS had originally proposed to package the self-administered drugs into the C-APC. The finalized rule means patients will still be responsible for most self-administered drugs in hospital outpatient departments.

Also included in this otherwise outpatient rule was a change to the requirements for certifications for hospital inpatients. CMS eliminated the need for certification for most inpatients, with the requirement now only applying to patient stays of 20 days or greater and cost outlier cases. This change provides relief from a very onerous requirement for providers. However, the requirement for a certification prior to billing an outlier case will require hospitals to be diligent in monitoring for cases that hit outlier. These cases can be difficult to identify because it requires you know the final DRG as well as all the charges on the case, some of which may be added later.

Additionally, I had hoped that CMS would allow inpatient status orders to be signed in the same manner as other orders. They had previously taken the position that the order had to be signed before discharge because it was the first element of the certification which had to be signed before discharge. Now that certification is not required in most cases, I was hoping they would loosen this requirement to match the requirements for other kinds of orders. In the preamble commentary to the rule, however, they reiterated the requirement that the inpatient order must be signed before discharge, even if the case does not require a certification.

Providers interested in these new rules should review the comment and response sections of the CY2015 OPPS Final Rule preamble because they contain good clarifications and information. Additionally, the Addenda contains detailed information on the status indicators for codes and the rankings and complexity adjustments for the C-APCs, and can be found on the final rule home page.

Note from the instructor: Summary of potential adjustments to Inpatient Prospective Payment System (IPPS) payment for inpatient hospital discharges during FY 2015, Part II

This note from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.  

Under the HVBPP, for each FY (beginning with FY 2013), value-based incentive payments are made to hospitals that meet or exceed certain performance standards for that FY, resulting in an upward adjustment to the hospital’s base operating payment. The incentive payments for each FY are funded by a prescribed percentage reduction (the “applicable percent”) to the total base operating payments of all hospitals subject to the HVBPP, resulting in a downward adjustment to every participating hospital’s base operating payment.

Those hospitals subject to the HVBPP include most IPPS hospitals, except the following:

  • Hospitals subject to the reduced update for failure to meet Inpatient Quality Reporting program requirements;
  • Hospitals for which the Department of Health and Human Services (DHHS) has cited deficiencies posing immediate jeopardy to health/safety of patients; and
  • Hospitals that fail to meet minimum number of cases/measures for that FY.

Given the possibility of both an upward and a downward adjustment, a specific hospital’s total HVBPP adjustment may result in either an increase or a decrease to the hospital’s base operating payment for each case during the FY. The HVBPP adjustment is made by applying the hospital’s FY “value-based incentive payment adjustment factor” to each inpatient discharge. CMS publishes both proxy and final adjustment factors in Tables 16A and 16B, respectively, of the IPPS Final Rule for each FY.

For each FY, a hospital’s value-based incentive payment, if any, is based on the hospital’s Total Performance Score, as determined by its “Achievement” or “Improvement” score (whichever is higher) during the Performance Period. The “Achievement Score” is based on the hospital’s performance compared to all other hospitals. The “Improvement Score” is based on the hospital’s performance compared to its performance during the “Baseline Period.”

For discharges during FY 2015, CMS has implemented the following changes to the HVBPP:

  • CMS is withholding 1.5% of anticipated DRG operating payments to create the funding pool for incentive payments
  • There are four quality domains
    • The Clinical Process of Care domain, weighted at 20%
    • The Patient Experience of Care domain, weighted at 30%
    • The Outcomes domain, weighted at 30%
    • The Efficiency domain, weighted at 20%
  • The Performance Period for each domain is as follows:
    • For the Clinical Process of Care and Patient Experience of Care domains–CY 2013
    • For the Outcomes domain
      • Three 30-day mortality measures—10/1/12-6/30/13
      • Agency for Healthcare Research and Quality patient safety indicator 90 (AHRQ PSI-90)—10/15/12-6/30/13
      • Central line-associated bloodstream infection (CLABSI)—2/1/13-12/31/13
    • For the Efficiency domain–5/1/13-12/31/13

HACRP adjustments for inpatient discharges during FY 2015

The HACRP is designed to reduce the number of HACs, including HAIs, arising during inpatient hospital stays. Effective for discharges on or after 10/1/14, payment to “applicable hospitals” is equal to 99% of what would otherwise apply to such discharges. As noted earlier, this reduction adjustment is made to the “base operating portion of the applicable hospital’s DRG payment,” which includes all applicable DSH, IME, LV, HRRP and HVBPP adjustments  For purposes of the HACRP, “applicable hospitals” include IPPS hospitals, sole community hospitals (SCH)s, and Indian Health Service (IHS) hospitals.

Adjustments are only made to applicable hospitals with the worst HAC rates. For FY 2015, these are hospitals that rank in the top quartile of all subsection (d) hospitals for HACs acquired during the “applicable period.” DHHS will determine the HACs to be counted and the “applicable period” during which measurement will be taken to determine a hospital’s “Total HAC Score” for a specific FY.

  • For FY 2015, CMS has finalized measures in the following two domains:
    • Domain 1, composed of a single composite measure, AHRQ PSI-90, which is a claims-based measure, weighted at 35%; and
    • Domain 2, composed of two CDC National Healthcare Safety Network (NHSN) measures, weighted at 65%
      • Central line-associated bloodstream infection (CLABSI); and
      • Catheter-associated urinary tract infection (CAUTI), which are chart-abstracted measures
  • The 24-month applicable periods are
    • 7/1/11-6/30/13 for the AHRQ measures
    • 1/1/12-12/31/13 for the two NHSN measures

Source authorities

More information on the issues discussed above can be found in the following principal source authorities:

FY 2015 IPPS Final Rule, 79 Fed. Reg. 49854–50449 

FY 2014 IPPS Final Rule, 78 Fed. Reg. 50496–51040 

FY 2013 IPPS Final Rule, 77 Fed. Reg. 53258–53750 

Fact sheets: CMS to Improve Quality of Care during Hospital Inpatient


Fact sheets: Fiscal Year 2015 Policy and Payment Changes for Inpatient

Stays in Acute-Care Hospitals and Long-Term Care Hospitals

Note from the instructor: CMS Revises Audit Timeframes and Reminds Auditors of Quality Obligations

This note from the instructor is written by Kimberly Anderwood Hoy Baker, JD, regulatory specialist for HCPro.  


CMS issued a transmittal changing the audit timeframe for complex reviews from 60 to 30 days for some MAC and Recovery Audit Contractor (RAC) reviews. The change could significantly affect the volume and timeliness of complex reviews for providers. The transmittal also contained a number of other “Business Requirements” reminding auditors of requirements related to the quality of their determinations.

CMS changed the timeframe for MAC complex pre-payment reviews and RAC complex post-payment reviews to 30 days when providers submit documents within the prescribed 45 days following the advanced development request (ADR). The transmittal did not affect MAC post-payment reviews or reviews by other contractors. Presumably, the transmittal also did not affect pre-payment reviews by RACs under the pre-payment demonstration, although they were not addressed specifically in the transmittal.

Contractors must make and document their review determination within 30 days. In addition to making their determination, the MAC must enter the determination in the Fiscal Intermediary Shared System and the RAC must communicate their determination to the provider within the allowed 30 day timeframe. If the determination is affected by state laws requiring an evidentiary hearing for the beneficiary, the contractor should review the claim within 30 days, conduct the hearing, and then “continue with processing the claim” on the next day.

The 30 days are counted from when the records are received in the contractor’s mail room. Additional funding is not being provided for the MACs, so according to the transmittal they will have to “adjust their medical review strategy and medical review workloads” to meet the requirements. Not only will this change significantly increase the timeliness of complex reviews for providers, but MACs may do fewer reviews overall in order for their current staff to complete reviews in the required new timeframe. Their only other option would be to hire more reviewers; however, with no additional funding being provided, it is unlikely MACs will want to increase staff.

Speaking of staff, the transmittal also addresses the credentials of the review staff of RACs and Supplemental Medical Review Contractors (SMRCs), reminding them to comply with their Statements of Work (SOW). The transmittal also reminds RACs and SMRCs to follow the requirements from their SOW for consulting other healthcare professionals.

The “Business Requirements” discuss the establishment of a QI process by the RAC, SMRC and Comprehensive Error Rate Testing (CERT) contractors. The QI process should verify “the accuracy of MR decisions” and include inter-rater reliability assessments that must be reported as required by CMS. The transmittal also reminds auditors, including the RAC, CERT, SMRC and Zone Program Integrity Contractors (ZPICs) that they must request ABNs in situations where an ABN is mandatory.

Overall the transmittal seems to be directed at improving the complex medical review process for providers, in terms of timeliness, quality and, indirectly, volume.


Note from the instructor: Critical Access Hospitals and Patient Coinsurance Amounts

This note from the instructor is written by Debbie Mackaman, RHIA, CPCO, regulatory specialist for HCPro.  

The OIG published a report regarding the amount of coinsurance a Medicare beneficiary pays when receiving outpatient services at a critical access hospital (CAH). A CAH is a rural hospital that is reimbursed based on a reasonable cost methodology rather than being paid a prospectively determined amount under the outpatient APC or inpatient MS-DRG payment systems. As of July 1, there are 1,326 CAHs in the country which creates a significant impact on the Medicare system and its beneficiaries.

A CAH must follow unique licensure limitations including operating a combined maximum of 25 acute care beds and swing beds used for skilled nursing services. A CAH is also limited to an annual average per patient length of stay of 96 hours. With the implementation of the 2-midnight rule, a physician must also certify that the patient can be expected to be discharged or transferred from the CAH within 96 hours of the order to admit.

A CAH is reimbursed 101% of its reasonable costs for inpatient and outpatient services. Each CAH submits a cost report on an annual basis which is used by the MAC to identify its reasonable costs and create the CAH-specific annual interim payment rate. The patient’s deductible and coinsurance for inpatient services is calculated in exactly the same manner as a PPS hospital based on a benefit period. However, when the patient is receiving outpatient services, the patient pays 20% of the CAH’s reasonable charge rather than a pre-determined amount that is a portion of the total APC payment.

In a CAH, a unique situation is born in that a patient who receives an outpatient service in a CAH actually pays more out of pocket for the same exact service that could have been provided in a PPS hospital. In the report, the OIG cites that Medicare patients paid two to six times more for coinsurance at a CAH than at a PPS hospital. According to the 2009 and 2012 claims data for 10 common HCPCS codes, the patient paid on average 47% of the costs for outpatient services.

As with most hospitals, a CAH’s charge for an individual service is usually more than the actual cost of the service or the Medicare payment. Although a CAH’s charges are not directly tied to their costs, their charges must be reasonable according to the Medicare Provider Reimbursement Manual and general principles of cost reimbursement. Because charges are higher than costs, the amount of coinsurance when calculated based on the charge can represent a considerable proportion of actual payment.

There are several examples listed in the OIG report and here is a general comparison for an Emergency Room Evaluation and Management service between a CAH and an OPPS hospital and the difference in the beneficiary’s out of pocket expense.

E/M = 99284 CAH OPPS
Charge $650.00 $650.00
Cost/Charge Ratio 0.50 0.50
Wage Index N/A 1.00
Total Payment $328.25 $293.71
Patient’s Coinsurance $130.00 $58.75


In the report, the OIG recommends CMS seek legislative authority to modify how coinsurance amounts are calculated for outpatient services received at CAHs. One of the OIG’s suggestions was to calculate the coinsurance based on the interim payment rate, which would significantly decrease the beneficiary’s coinsurance amounts. Another suggestion was to use the same coinsurance amounts that are assessed under OPPS. CMS responded to the report but did not agree with or comment on the recommendations.

CAHs have been under much scrutiny by the OIG and CMS over the past 18 months and changes are imminent due to the costs to the Medicare program and its beneficiaries. We recently saw this when some CAHs, including necessary provider CAHs, were reclassified as urban under the revised wage indices and now must reapply to maintain their CAH designation. If the coinsurance calculation were to change as recommended by the OIG, this would significantly impact the bottom line of the CAHs across the country unless CMS agrees to make up the difference-which is doubtful.

Note from the instructor: Summary of potential adjustments to Inpatient Prospective Payment System (IPPS) payment for inpatient hospital discharges during FY 2015, Part I

This note is from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.  

The most significant changes to the IPPS are implemented as of the beginning of the government’s FY, which is October 1. Most inpatient short-term acute-care hospitals are reimbursed for inpatient stays based upon the IPPS. The IPPS is a prospective payment system implemented in 1982. Under the IPPS, hospitals generally receive a single payment for all of the services provided to a particular patient during that inpatient stay. That single payment is based upon the DRG to which the stay is assigned. The reimbursement for each DRG is based upon the average resources necessary to treat a patient with the same principal and secondary diagnoses, procedure(s) and other relevant factors.

In recent years, CMS has implemented a number of programs designed to encourage cost and administrative efficiency, while preserving the quality of inpatient hospital services. Many of these programs fall under the rubric of what CMS refers to as “pay for performance.” Recently, I have been reviewing the IPPS FY 2015 Final Rule (FY 2015 FR), including the potential adjustments to the otherwise applicable IPPS payment for a particular inpatient stay. Trying to find all of the relevant information on these adjustments has been a daunting task. I thought it might be helpful to provide a brief summary of the major adjustments to which hospitals’ IPPS payments may be subject during FY 2015. This is Part I of a two-part series that will focus on these adjustments. Part II will appear in the November 4 edition of the Medicare Insider.

Since not all of the particulars are set out in the FY 2015 FR, I will list the principal souces I used to identify relevant information at the end of this Note. Also, to keep the summary as brief as possible, I will use acronyms for a number of the particulars. Please see the source authorities for more information on these acronymns and other details with respect to the IPPS adjustments discussed. Finally, these potential adjustments apply to IPPS payment for inpatient discharges during FY 2015 (October 1, 2014—September 30, 2015).

Potential adjustments to the Operating Standardized Amount (OSA)

The IPPS payment is composed of two separate payments: the DRG operating payment (Operating Payment) and the DRG capital payment. The majority of adjustments, if any, are made to the Operating Payment. To calculate a particular hospital’s Operating Payment during FY 2015, the hospital has to begin with the applicable OSA, from Table 1A or 1B of the FY 2015 FR. The OSA is the average per case operating costs for all inpatient stays in IPPS hospitals for that FY. Those hospitals whose wage index (WI) is greater than one will find their OSA in Table 1A. Those whose WI is equal to or less than one will find their OSA in Table 1B. Each year, CMS determines the OSA for that year, based upon the full market basket increase, which is 2.2% for FY 2015. They then divide each OSA into a labor and non-labor related portion.

Inpatient Quality Reporting Program (IQR). A number of years ago CMS implemented the first of its quality initiatives, currently referred to as the IQR. Under the IQR, hospitals are required to meet certain quality reporting and reliability criteria in order to receive the full market basket increase for that FY. For FYs prior to FY 2015, hospitals that failed to meet these criteria were subject to a two percentage point reduction to the otherwise applicable full market basket increase for each of their Operating Payments.

For FY 2015, any hospital that fails to meet the relevant IQR requirements will be subject to a one-quarter reduction of the full market basket update, rather than a two percentage point reduction. This will result in its receiving an update of 1.475%, rather than the full market basket update of 2.2%.

EHR Incentive Program. In addition, any hospital that is subject to the EHR Incentive Program, but is not a meaningful EHR user for FY 2015, will also be subject to a one-quarter reduction of the full market basket update. This will result in its receiving an update of 1.475%, rather than the full update of 2.2%.

These two reductions are cumulative. Therefore, any hospital that fails to meet both the IQR and EHR requirements for FY 2015 will be subject to an update of .75, rather than 2.2%, for all discharges during FY 2015.

Tables 1A and 1B include the applicable OSA amounts (divided into labor and non-labor related portions) for each of the above-noted scenarios for FY 2015.

WI adjustments. CMS has long recognized that inpatient hospital services are labor intensive, constituting a significant portion of a hospital’s total operating costs. CMS has also long recognized that labor costs vary, depending upon where a hospital is located. Therefore, CMS, with the assistance of the Office of Management and Budget (OMB), periodically classifies hospitals into certain common geographic areas (currently referred to as core-based-statistical areas [CBSAs]). These classifications presume comparability in terms of labor and other related hospital operating and capital costs. Once classified to a particular CBSA, CMS determines the WI for all hospitals located in that CBSA. The WI is a comparison of the average labor costs for all hospitals located in that CBSA to the average labor costs for all hospitals across the country.

During the calculation of a particular hospital’s Operating Payment, Medicare adjusts the labor-related portion of that hospital’s OSA by multiplying it by the hospital’s current WI. Once adjusted, the WI-adjusted labor-related portion of the OSA is added back to the non-labor-related portion of the OSA, before continuing the computation process.

OMB has just completed a revision of the market basket CBSAs, based upon the 2010 Census data. This revision resulted in a number of changes to the CBSAs to which specific hospitals are assigned, and, in many cases, changes to the WIs for those hospitals. During FY 2015, hospitals standing to benefit from these changes will be subject to the WI of the CBSA to which they were assigned under the new OMB delineations. To minimize any adverse impact on Operating Payments due to the adoption of these new OMB delineations, CMS is adopting a one-year transition for all hospitals standing to experience a decrease in their wage index exclusively due to the implementation of the new OMB delineations. During FY 2015, their WI will be based on a 50/50 blend of the WI of the CBSA in which they were geographically located in FY 2014 and the WI of the CBSA to which they were classified under the new OMB delineations. The new OMB delineations will be fully implemented for these hospitals in FY 2016, at which time they will be fully subject to the WI of their new CBSA classification.

CMS is also adopting a three-year transition for the relatively few hospitals previously located in an urban county that would become rural under the new OMB delineations. For FYs 2015, 2016, and 2017, assuming no other form of WI reclassification or redesignation is granted, CMS will assign these hospitals to the area WI of the urban CBSA in which they were geographically located in FY 2014.

Source authorities

More information on the issues discussed can be found in the following principal source authorities:

FY 2015 IPPS Final Rule, 79 Fed. Reg. 49854–50449

FY 2014 IPPS Final Rule, 78 Fed. Reg. 50496–51040

FY 2013 IPPS Final Rule, 77 Fed. Reg. 53258–53750 

Fact sheets: CMS to Improve Quality of Care during Hospital Inpatient


Fact sheets: Fiscal Year 2015 Policy and Payment Changes for Inpatient

Stays in Acute-Care Hospitals and Long-Term Care Hospitals

Note from the instructor: Defending Medical Review Decisions at ALJ Hearings

This note from the instructor is written by Debbie Mackaman, RHIA, CHCO, regulatory specialist for HCPro.  

As providers seek answers and further clarification while they consider taking CMS up on their 68% solution, a transmittal has been published regarding a CMS contractor’s obligation to participate in ALJ hearings going forward. Transmittal 543 creates a new section to Chapter 3 of the Medicare Program Integrity Manual and directs MACs to assign a physician to take part in ALJ hearings when the claim is directly related to their own determination or redetermination.

In November 2012, the OIG published a report for FY 2010 asserting ALJs reversed Qualified Independent Contractor (QIC) decisions 56% of the time and decided in favor of appellants due to different interpretations of Medicare policies. However, when MACs participated in appeals at the ALJ level, the tables were turned in favor of the MAC. It is no surprise the OIG recommended that CMS increase its participation at the ALJ level of appeals and that CMS concurred. Transmittal 543 now directs the MACs to do so. Other contractors, such as Recovery Auditors, Zone Program Integrity Contractors (ZPICs) and the new Supplemental Review Contractors (SMRCs) will also be participating in more ALJ hearings as directed through their scope of work.

According to CMS, a significant amount of time and effort is spent by its contractors to ensure that review staff are making quality decisions and they have taken the position that a decision to deny a claim at any level should be more consistently justified. In this transmittal, CMS identified several factors to be considered in defense of their medical review findings including CMS and MAC policies, the amount of the claim being appealed, and if the claim at issue is a part of a recurring theme seen in past and current ALJ appeals. In most circumstances, the Contractor Medical Director (CMD) or other employed physician will have oversight of the MAC’s participation in the ALJ hearing with additional support provided by an attorney, nurse reviewers or other clinicians, as needed.

When a provider appeals at the second level, the QIC makes the reconsideration decision based on all pertinent information, both information previously submitted to the MAC and any new evidence. When the provider or Medicare contractor chooses to appeal to the third level, all previously submitted information is passed along to the ALJ and a hearing date is set. Beginning on October 27, 2014, all Medicare contractors will need to coordinate with the QIC to receive the notice of ALJ hearing. Unfortunately, this transmittal does make reference to the two-year moratorium on scheduling ALJ hearings that was imposed earlier this year. Once the hearing notice is issued, a MAC must elect to participate in the hearing process within 10 calendar days of the notice. The QIC may also participate with the MAC so collaboration on their position statements and timing between the two entities is critical to defending their case.

There are two ways that the MAC can become involved in a case at the ALJ level.

  • Electing ‘party status’ requires CMS approval. As a party, the MAC can file position papers, call or cross-examine witnesses of other parties, and request discovery. The MAC may also be questioned by the ALJ or other parties regarding any issue related to the claim under appeal. If CMS does not approve the MAC’s request for party status, the MAC may be a participant instead.
  • Electing ‘participant status’ allows the MAC to file position papers and provide testimony to clarify CMS and MAC policies related to the case. However, they may not call or cross examine witnesses of another party. The MAC must respond to ALJ questioning but may defer answering questions by the appellant.

With either type of participation, the MAC must be able to confidently discuss the details of each claim under appeal, as well as the background on earlier appeal decisions and provide clarification on coverage policies and payment requirements. And just as providers anticipate to what level they may take their appeal to before accepting an adverse determination, CMS has directed the MACs to also be more proactive in evaluating if providers can be expected to appeal up through the ALJ hearing level. The current rule of thumb for providers is to write the initial appeal letter as if the intent was to take it to the ALJ level. This method has proven to be very effective and efficient for providers and we can expect to see the same from MACs.

Since providers also spend a more than a significant amount of time and money appealing cases to the ALJ level, it is difficult to say if providers will see a decrease in their success rate as MACs become more involved in the ALJ hearings as the OIG found in FY 2010. However, it can be assumed that providers will need to put more weapons in their cache to maintain their current level of effectiveness. This new mandate will not be affected by the 68% solution being offered and it could prove to be very time consuming for MACs and their CMDs given the volume of current ALJ appeals written by savvy and aggravated providers and mired in this very broken system.

Note from the instructor: Medicare clarifies key components of claims processing for clinical diagnostic laboratory services

This note from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.  

In transmittal (R3071CP) and related MLN Matters article (MM8883), CMS updated its guidelines for correct processing of certain laboratory services (“lab services”). These updates primarily focus on the appropriate claims billing jurisdiction for lab services performed by “independent laboratories,” including the applicable billing jurisdiction for related specimen collection fees and travel allowance. For further information, hospitals should review the relevant sections of the Medicare Claims Processing Manual (MCPM), Chapter 16.

Definition of relevant terms

Let us begin with definitions of key terms found in Chapter 16 of the MCPM. For purposes of these billing rules, an “independent laboratory” is both independent of an attending or consulting physician’s office and of a hospital that meets at least the requirements to qualify as an emergency hospital under relevant provisions of the Social Security Act. A “referring laboratory” is a Medicare-approved laboratory that receives a specimen to be tested and refers the specimen to another laboratory for performance of the laboratory test. A “reference laboratory” is a Medicare-enrolled laboratory that receives a specimen from another, referring laboratory for testing and actually performs the test.

Billing rules regarding who can bill for referred lab services provided by an independent laboratory

Medicare has special billings rules for referred lab services performed by an independent laboratory. In such cases, a referring laboratory generally may bill for certain lab services (those listed on the clinical laboratory fee schedule) when performed by a reference independent laboratory only if the referring laboratory meets certain conditions:

  • the referring laboratory is located in, or is part of, a rural hospital;
  • the referring laboratory is wholly owned by the entity performing such test, the referring laboratory wholly owns the entity performing such test, or both the referring laboratory and the entity performing such test are wholly-owned by a third entity; or
  • the referring laboratory does not refer more than 30% of the clinical laboratory tests for which it receives requests for testing during the year (not counting referrals made under the wholly-owned condition described above)

On the other hand, claims for referred laboratory services may be made only by suppliers having specialty code 69 (i.e., independent clinical laboratories). Claims for referred laboratory services made by other entities will be returned as unprocessable. Independent laboratories should use modifier 90 to identify all referred laboratory services. The name, address, and CLIA number of both the referring laboratory and the reference laboratory should be reported on the claim.

In any event, only one entity may bill for a lab service referred to an independent laboratory. It is the responsibility of the referring laboratory to ensure the reference laboratory does not bill Medicare for the referred service if the referring laboratory does so (or intends to do so).

Please note that the above-referenced restrictions on the billing of referred lab services apply only to lab services performed by independent laboratories and do not apply to services performed in a physician office laboratory or a qualified hospital laboratory.

Updates on billing jurisdiction

Irrespective of who may bill for referred lab services, in its recent update, CMS clarified that the location where the independent laboratory performs the test determines the appropriate billing jurisdiction for the lab services, as well as for the related specimen collection fees and travel allowance. This is the case even if the sample originates in a different jurisdiction from where the sample is being tested. In addition, jurisdiction is not affected by whether or not the independent laboratory uses a central billing office or whether or not the independent laboratory provides services to customers outside its MAC’s service area.

Hospitals are encouraged to review their current lab referral policies and their related claims submission and billing practices to assure they are in compliance with applicable Medicare rules, as clarified in these recent CMS releases.

CGI posts three new issues

CGI posted three new issues in three categories to its CMS list for providers in Region B. (See link for individual state applicability.)

According to the CGI website, the new issues are:

For professional services:

  • Trastuzumab (Herceptin), Multi-dose vial waste: Professional Post Pay. The purpose of this post pay edit package is to perform review of appropriate billing of Trastuzumab (HerceptIn), HCPCS code J9355, for multi-dose vial waste review.

For outpatient:

  • Trastuzumab (Herceptin), Multi-dose vial waste: Outpatient Post Pay. The purpose of this post pay edit package is to perform review of appropriate billing of Trastuzumab (HerceptIn), HCPCS code J9355, for multi-dose vial waste review.

For outpatient services:

  • Rituximab (Rituxan), 100mg-Dose vs. Units Billed Post Pay. Rituximab, (Rituxan), 100mg (J9310) should be billed one (1) unit for every 100mg per patient administered. Hospitals need to ensure that units of drugs administered to patients are accurately reported in terms of dosage specified in the full HCPCS code descriptor.

Note from the Instructor: Updates on Related Claims Denials and Settlement Process

This Note from the Instructor is written by Kimberly Anderwood Hoy Baker, JD, CPC, regulatory specialist for HCPro.  

This note will cover a couple updates to information in the last couple Medicare Insider Note from the Instructor columns. CMS has rescinded and replaced the transmittal on related claims three times since I wrote my column two weeks ago. Also the website with information on the settlement process for outstanding appealed claims, discussed by Debbie Mackaman in last week’s note, was updated late last week with new information.

Two weeks ago, I reported on Transmittal 534 to the Program Integrity Manual allowing denial of related claims when an inpatient claim in denied. Subsequently, CMS published Transmittal 537 rescinding and replacing Transmittal 534, but it has now been removed from their website. Even though Transmittal 537 no longer appears on the CMS website, the substantive portion still appears as the attachment to Transmittal 534. And even though Transmittal 534 makes no indication it has been rescinded and replaced, Transmittal 540 purports to do just that and itself has been rescinded and replaced with Transmittal 541, although again Transmittal 540 makes no reference to having been rescinded and replaced.

So what does all this mean? Even though Transmittal 534 and Transmittal 540 still appear on CMS’ website in their entirety and do not state they have been rescinded, they do not appear to contain current CMS policy on related claims. It appears that Transmittal 541 is the most current CMS policy on review of related claims when inpatient services are denied.

Just what did CMS change? Most importantly, they appear to have limited the policy currently to inpatient surgical claims that are denied as not reasonable and necessary.  If the hospital documentation, including history and physical and progress notes, doesn’t support medical necessity of an inpatient surgical procedure, the physician’s Part B claim for performing the procedure would be denied. The new transmittal continues to allow the denial of the physician’s claim without requesting records from the physician, meaning the physician’s claim may be denied based on the hospital record.

The transmittal still applies to just MAC and ZPIC reviewers, although Recovery Auditors can request approval to review related claims through their standard issue approval process. Even the MACs and ZPICs, however, must get approval from CMS before starting these reviews and the MACs must post their intention to do so on their website 30 days prior to starting the reviews.

Also updated this last week was the Inpatient Hospital Reviews website where CMS published information about a settlement process for providers to resolve outstanding appealed claims related to patient status by accepting 68% of the amount in dispute. Debbie reported last week on a set of Frequently Asked Questions posted on September 16 as well as other details about the settlement process.

Subsequently, CMS posted the recording of the teleconference they held on September 9discussing the settlement process. Another conference will be held October 9 and readers can register at the MLN Connects website. Additionally, on September 16 they also published a revised Administrative Agreement related to the process for settlement.

For more information on review of related claims, please see the September 9 Note from the Instructor and for more information on the settlement process, please see the September 16 Note from the Instructor.

Note from the Instructor: Frequently Asked Questions Posted for the 68% Solution

CMS hosted an MLN Connects™ National Provider Call regarding the administrative agreement it is offering to acute care hospitals and critical access hospitals (CAHs) to resolve patient status denials and their related appeals with admission dates prior to October 1, 2013. A Frequently Asked Question document was also posted to the CMS Inpatient Hospital Reviews website that provided some clarity to the solution that is being put on the table.

As appeals continue to pile up and hospitals wait for another determination that may lead to payment for their services from months to years ago, the government has offered them what may be called by some a ‘screaming deal’.  According to CMS, any hospital willing to withdraw all of their valid pending appeals for patient status denials will receive 68% of what the net allowable amount would have been for the claims in question. This includes only denials for admissions prior to October 1, 2013, currently in the appeals process-either pending an appeal decision or the provider has not yet exhausted their appeal rights with the MAC, Qualified Independent Contractor (QIC), ALJ, or Department of Appeals Board (DAB). The net allowable amount for each claim includes any add-on payments (i.e. Disproportionate Share Hospital, Indirect Medical Education) the hospital would have received if payment in full was made and after deduction of the patient’s deductible or coinsurance amounts, where applicable.

CMS is encouraging acute care hospitals paid under the prospective payment system, those receiving periodic interim payments, Maryland waiver hospitals, as well as CAHs paid under a cost-based methodology to seriously consider this offer as a way to “alleviate the administrative burden of current appeals on both the hospital and Medicare system”.  Unfortunately, inpatient psychiatric facilities (IPF) and inpatient rehabilitation facilities (IRF) are not part of this settlement option and CMS did not indicate if these providers would be considered at a later date.

In Round 1, hospitals will submit their signed Administrative Agreement and proposed spreadsheet of eligible claims/appeals for CMS review. CMS will review and validate the list and then notify the hospital if there are any discrepancies between their list and their contractor’s eligible claims list.

In Round 2, hospitals will be able to review the discrepancies from the first round validation process. At this point, hospitals will have two choices-resubmit a revised spreadsheet and Administrative Agreement for CMS validation or scrap the entire settlement process and continue with the appeals process instead. If the provider decides to proceed with validation and CMS has signed the agreement, payment will be made through the MAC in one or two lump sum payments within 60 days. The hospital will receive a .pdf file from CMS containing a list of all claims involved in that lump sum payment for their internal accounting purposes.

Here are a few details to keep in mind regarding this settlement process.

  • CMS has stated that a hospital’s decision to voluntarily settle under this agreement does not indicate “fault or liability” against the providers or CMS for this one time deal.
  • The Recovery Auditor who may have been involved in the revised determination will continue to be paid their contingency fees according to their current contracts without any reduction in their payment.
  • If any of the appeals being settled are part of a larger Zone Program Integrity Contractor or OIG potential fraud investigation, the reviews by those agencies will continue despite a hospital taking this deal.
  • A hospital will not have to submit formal withdrawals for the appeals to the MAC, QIC, ALJ or DAB since the final settlement agreement serves as the request for withdrawal of all eligible claims.
  • The claims will remain as denied in the Medicare system and no claim-level adjustments will take place.
  • Cost reports will remain intact and will not be adjusted for any reason based on this settlement process.
  • The hospital must carefully review the refund requirements or collection process for deductible and coinsurance amounts based on when the Round 1 Administrative Agreement is signed by the provider. In some instances the patient will pay these amounts and in others the amounts will be waived.

Hospitals will have until October 31, 2014, to submit the required documents for Round 1. An extension can be requested from CMS if the deadline cannot be met. Hospitals who may be considering taking the government up on their offer should act quickly to determine if any of the current appeals should be withdrawn now before the initial Administrative Agreement is signed. This would allow the hospital to bill for expanded Part B services (i.e. TOB 121). In some cases, the hospital may be paid more for the claims than the current 68% offer. For details on the services that are billable under Part B, review the Medicare Benefit Policy Manual, Chapter 6 § 10.1, the Medicare Claims Processing Manual, Chapter 4 § 240, and MLN Matters article SE1333.

This is an ‘all or nothing’ proposition so hospitals need to cautiously approach the table by weighing the costs of continuing to appeal all of the claims in aggregate vs. continuing to wait and hope for payment for patient status denials that may now be several years old. Although this settlement is being touted as a 68% solution to the appeals backlog, the other side of the coin shows that this is a 32% reduction in the overall payment a hospital would have received.

For anyone who missed the call, a recording and transcript will be posted to the CMS website on September 17.