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Note from the Instructor: Implanted Devices Received for Free in Clinical Trials or as Sample

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

I thought I would take the opportunity to review free and discounted device billing in this week’s note. The OIG continues to find issues in hospital specific reviews and hospitals have had difficulty complying with the requirements, including situations where the available codes are not adequate for clinical trials and free samples. In late January, CMS issued a transmittal announcing the implementation of Condition Code 53[1] to address this situation, but the confusion and difficulty will inevitably continue

The first and most difficult step is identifying the devices and cases that must be reported under CMS’ free and discounted device policy. CMS specifies the devices the policy applies to in Table 27 of the 2015 OPPS Final Rule (see table below) and their associated APCs are listed in Table 26 (see table below). The problem is that free and discounted devices come into the hospital in a variety of ways, including devices ordered for a specific patient to free samples that come in with physicians, outside the inventory control systems.

Nevertheless, the OIG and CMS have indicated in policy statements and audits that any savings the hospital receives when providing procedures should be passed on to the Medicare program. For hospitals, this means a robust compliance initiative to find these devices and discounts. Multiple departments have to work together, including staff in supply, surgery, accounts payable, coding and billing. The appropriate staff in these departments have to be aware and look out for discounts as well as samples and clinical trial items that qualify for the policy.

Once the devices are identified, they must be properly reported to ensure the payment to the hospital is adjusted appropriately. Payment under OPPS is generally made for the procedure and not the device, and generally determined by the reported codes rather than charges. Therefore, simply reporting the items with a zero charge will have no effect on the payment to the hospital.

CMS changed the policy for free and discounted devices in January 2014, causing some confusion around free samples and clinical trial. The guidelines since January 2014 require hospitals to report value code FD[2] when they furnish a “new replacement device” received without cost or with a credit of 50% or more of the cost of the replacement device. When value code FD is reported, it must be accompanied by condition code 49 (Product Replacement within Product Lifecycle) or 50 (Product Replacement for Known Recall of a Product).

This guideline left hospitals unsure how to report free devices received as part of clinical trials or free samples, particularly when they are associated with initial placement of the device. It was clear under prior policy statements and OIG audits that hospitals needed to report that they received these devices for free, but the existing codes left no way to do that. If the provider reported the device code with zero dollars, they would still receive full payment unless they also reported value code FD with the amount of the credit. The problem is that value code FD requires an accompanying condition code and the two available condition codes do not apply.

Claims Processing Transmittal 3181 solves this problem – or it will, once the adoption of condition code 53 is effective July 1 and implemented in processing systems July 6. The effective date of a policy usually relates back to the date of service on which the affected item is provided. However, in this case the effective date relates to the date the claim for services is received. The accompanying revisions to the claims manual make it clear that the policy itself is retroactive to January 1, 2014.

What this means for providers is that if they have received free samples or devices in clinical trials, they will have to hold those claims until July. Further, they may have to search their records to make sure they identified all free samples and clinical trial devices furnished since January 1, 2014. Some of these claims may be beyond timely filing once the system can actually accept them in July. Providers may have to submit one of the new automated adjustment claim requests, which will be implemented in April.

When a provider submits a claim with value code FD and one of the applicable condition codes, the payment for the procedure is then reduced by the amount reported with FD. The reduction is limited to the device offset percentage for the procedure, which represents the amount of the APC payment CMS calculated represents the packaged devices for the procedure. The offset percentage is available on the Annual Policy Files website for 2015.

This new transmittal gives providers an opportunity to review their policies and procedures related to free and discounted devices to ensure they are catching them all and are reporting them correctly. Unfortunately, some claims will have to be held until July for billing, but at least at that time we will have clearer instructions and the correct codes available to bill these special situations that have been a frustration for providers up to this point.

Table 26: APCs that Require Value Code FD Reporting
APC    APC Description
0039    Level III Neurostimulator & Related Procedures
0061    Level II Neurostimulator & Related Procedures
0064    Level III Treatment Fracture/Dislocation
0089    Level III Pacemaker and Similar Procedures
0090    Level II Pacemaker and Similar Procedures
0107    Level I ICD and Similar Procedures
0108    Level II ICD and Similar Procedures
0227    Implantation of Drug Infusion Device
0229    Level II Endovascular Procedures
0259    Level VII ENT Procedures
0293    Level IV Intraocular Procedures
0318    Level IV Neurostimulator & Related Procedures
0319    Level III Endovascular Procedures
0351    Level V Intraocular Procedures
0385    Level I Urogenital Procedures
0386    Level II Urogenital Procedures
0425    Level V Musculoskeletal Procedures Except Hand and Foot
0655    Level IV Pacemaker and Similar Procedures
Table 27 Devices that Require Value Code FD Reporting
HCPCS Code CY 2015 Short Descriptor
Code   HCPCS Short Descriptor
C1721 AICD, dual chamber
C1722 AICD, single chamber
C1728 Cath, brachytx seed adm
C1764 Event recorder, cardiac
C1767 Generator, neurostim, imp
C1771 Rep dev, urinary, w/sling
C1772 Infusion pump, programmable
C1776 Joint device (implantable)
C1777 Lead, AICD, endo single coil
C1778 Lead, neurostimulator
C1779 Lead, pmkr, transvenous VDD
C1785 Pmkr, dual, rate-resp
C1786 Pmkr, single, rate-resp
C1789 Prosthesis, breast, imp
C1813 Prosthesis, penile, inflatab
C1815 Pros, urinary sph, imp
C1818 Integrated keratoprosthesis
C1820 Generator, neuro rechg bat sys
C1840 Lens, intraocular (telescopic)
C1881 Dialysis access system
C1882 AICD, other than sing/dual
C1891 Infusion pump, non-prog, perm
C1895 Lead, AICD, endo dual coil
C1896 Lead, AICD, non sing/dual
C1897 Lead, neurostim, test kit
C1898 Lead, pmkr, other than trans
C1899 Lead, pmkr/AICD combination
C1900 Lead coronary venous
C2619 Pmkr, dual, non rate-resp
C2620 Pmkr, single, non rate-resp
C2621 Pmkr, other than sing/dual
C2622 Prosthesis, penile, non-inf
C2626 Infusion pump, non-prog, temp
C2631 Rep dev, urinary, w/o sling

[1] Condition code 53: Initial placement of a medical device provided as part of a clinical trial or free sample – code is for outpatient claims that have received a device credit upon initial medical device placement in a clinical trial or a free sample.
[2] Value code FD: Credit Received from the Manufacturer for a Replaced Medical Device

Note from the instructor: Review of hospital partial hospitalization outpatient mental health services

This note from the instructor is written by Judith L. Kares, JD, regulatory specialist for HCPro.  
This note is the second note in a three-part series focusing on Medicare rules relating to hospital outpatient and inpatient mental health services (alternatively referred to as “psychiatric services”). Last week we discussed non-partial hospitalization outpatient psychiatric services. This week we will review Medicare rules relating to coverage, coding, billing and payment for partial hospitalization outpatient psychiatric services.
Partial hospitalization services are outpatient psychiatric services provided under a structured program that provides intensive psychiatric care through active treatment. Partial hospitalization is more intense than outpatient day treatment, resembling a highly structured, short term hospital inpatient program.
In order to be covered, all outpatient mental health services, including partial hospitalization services, must be both incident to a physician’s services and reasonable and necessary. They also must meet the following criteria:
  • Be provided under an individualized treatment plan, established by a physician;
  • Be supervised and periodically evaluated by a physician to determine progress toward treatment goals; and
  • Be for diagnostic study or be reasonably expected to improve the patient’s condition.
Partial hospitalization services are generally provided in lieu of hospitalization. That is, beneficiaries either have been discharged from inpatient psychiatric treatment, and partial hospitalization services are ordered in lieu of continued hospitalization, or they are considered to be at reasonable risk for inpatient hospitalization if they do not receive partial hospitalization services.
In order to be eligible for partial hospitalization, however, beneficiaries must meet certain additional requirements, set out below:
  • Be under the care of a physician who certifies they need 20 hours per week of therapeutic services as evidenced by their care plan;
  • Require a comprehensive, structured multimodal treatment requiring medical supervision and coordination provided under an individualized plan of care;
  • Have a mental disorder which severely interferes with multiple areas of daily life, including social, vocational and/or educational functioning, generally of an acute nature;
  • Generally, have an acute onset or decompensation of an Axis I mental disorder as defined in DMS IV;
  • Be able to cognitively and emotionally participate in the active treatment process and be capable of tolerating the intensity of a partial hospitalization program (PHP);
  • Not require 24 hour supervision and have an adequate support system to maintain themselves outside the PHP; and
  • Not be an imminent danger to themselves or others.
Certain specific documentation requirements must also be met, including the following:
  • An initial psychiatric evaluation and certification by a physician of the beneficiary’s diagnosis and psychiatric need for partial hospitalization and evidence the beneficiary would require inpatient psychiatric hospitalization if the PHP services were not provided;
  • A recertification by day 18, and every 30 days thereafter, by a physician treating the patient that the beneficiary would require inpatient psychiatric hospitalization in the absence of the PHP services;
  • An individualized active treatment plan prescribed and signed by a physician; and
  • Progress notes documenting the services provided.
Coding and billing
Hospitals should report condition code 41 to indicate a claim for partial hospitalization services. Since there are no specific HCPCS codes for reporting partial hospitalization, hospitals must report the individual services that comprise partial hospitalization, using a defined set of HCPCS codes, along with specified revenue codes. The applicable mental health revenue codes are in the 090X (Behavioral Health Treatment/Services) and 091X (Behavioral Health Treatment/Services – Extension of 090x) series of codes.
Most PHP services have an SI of “P,” but some PHP services are also payable as non-partial hospitalization outpatient mental health services and have status indicator “Q3”. For the complete list of partial hospitalization HCPCS codes, see the 1/1/15 update to the Integrated Outpatient Code Editor Specifications (IOCE), Appendix P, Section B “Partial Hospitalization Services.” In that section, Medicare has set out two lists of HCPCS codes to identify mental health services which qualify for coverage and payment as partial hospitalization services:
  • “List A,” which is a list of psychotherapy codes approved for partial hospitalization; and
  • “List B,” which is a list of all codes approved for partial hospitalization.
Hospitals should report units of service based on the description of the HCPCS code being reported to ensure proper application of payment grouping and edits. If the HCPCS code does not have a defined time, hospitals should not bill for sessions of fewer than 45 minutes.
There are two APCs for per diem payment of partial hospitalization services provided in a hospital outpatient department.
  • APC 0175 “Level I Partial Hospitalization for Hospital-based PHP” when a hospital provides at least three partial hospitalization services from List B, at least one of which is a psychotherapy service on List A.
  • APC 0176 “Level II Partial Hospitalization for Hospital-based PHP” when a hospital provides at least four partial hospitalization services from List B, at least one of which is a psychotherapy service on List A.
For payment purposes, the APC is assigned to a List A service, and the status indicator for all other partial hospitalization services is changed to “N” for packaged. If fewer than three services from List B or no psychotherapy services from List A are provided, each line with a partial hospitalization service on the claim will be denied. (See IOCE Appendix C-a for a summary of the claims adjudication process for partial hospitalization services.)
Future focus
In a future issue of the Medicare Insider we will complete our overview of hospital mental health services by focusing on inpatient psychiatric services.

Note from the instructor: Review of hospital non-partial hospitalization outpatient mental health services

This note from the instructor is written by Judith L. Kares, JD,regulatory specialist for HCPro.  
In preparation for a custom Medicare Boot Camp-Hospital version course, I had an opportunity to review the Medicare rules relating to hospital outpatient and inpatient mental health services (alternatively referred to as “psychiatric services”). This week we will focus on non-partial hospitalization outpatient services. In future issues, we will turn our attention to partial hospitalization outpatient services and inpatient psychiatric services. In particular, we will review the Medicare rules relating to coverage, coding, billing and payment for these services.
In order to be covered, outpatient psychiatric services must be both incident to a physician’s services and reasonable and necessary and must meet the following additional requirements:
  • The services must be provided under an individualized treatment plan, unless only a few brief services are furnished. The treatment plan should be established by a physician and include the type, amount, frequency and duration of services, the diagnoses being treated and the anticipated goals of treatment.
  • The services must be supervised and periodically evaluated by a physician to determine the progress toward treatment goals.
  • The services must be for diagnostic study or must be reasonably expected to improve the patient’s condition (designed to reduce or control the patient’s psychiatric symptoms so as to prevent relapse or hospitalization and improve or maintain the patient’s level of functioning).
As long as the patient continues to show improvement in accordance with his/her individualized treatment plan, and the frequency of services is within accepted norms of medical practice, there is no limit on the length of time services may be covered.
Coding and billing
There is considerable guidance on the coding and billing of outpatient and inpatient psychiatric services included in the relevant sections of the American Medical Association’s 2015 CPT Manual (the CPT Manual) and the 2015 HCPCS Level II Manual. HCPCS codes identifying psychiatric services are primarily included in the 90,000 series of CPT codes and in the HCPCS Level II “G” codes. In particular, the CPT Manual provides significant guidance with respect to the selection of specific codes to be reported, when certain combinations of codes may or may not be reported together, when certain codes should be used in lieu of other codes, etc.
In addition to the CPT and HCPCS Level II Manuals, the January 2015 update of the Integrated Outpatient Code Editor (IOCE) Specifications, Attachment A, (IOCE Specs) provides additional guidance, including Appendix C-b (Mental Health Logic) which describes the claims flow and billing process for non-partial hospitalization outpatient mental health services. In particular, the IOCE Specs warn hospitals to avoid the following pitfalls:
  • If HCPCS code G0129 for occupational therapy as a component of a partial hospitalization program is billed on a non-partial hospitalization claim, the claim will be returned to the provider.
  • If HCPCS code G0176 for activity therapy is billed on a non-partial hospitalization claim, the line item will be rejected and the remainder of the claim will be processed for payment.
  • If HCPCS code G0177 for training and educational services related to a patient’s disabling mental health problem is billed without other mental health services on the same day, the claim will be returned to the provider.
In addition to reporting the applicable HCPCS code for the covered non-partial hospitalization outpatient services, hospitals should also report an appropriate revenue code. The mental health revenue codes are primarily in the 090X (Behavioral Health Treatment/Services) and 091X (Behavioral Health Treatment/Services – Extension of 090X) series of codes.
Covered non-partial hospitalization mental health services are paid under the OPPS, as are most hospital services payable under Part B. Separately payable services under the OPPS are assigned to ambulatory payment classifications (APCs), which are the basis for payment. Not all covered and payable services are separately payable, however. That is, there is generally a separate payment for a significant service, but the payment for other services that are an integral part of a separately payable service are often “packaged.” When a service is packaged, the payment for that service is included in the payment for the more significant service into which it is packaged. When “packaged,” a service is identified with status indicator “N.”
Most non-partial hospitalization services are identified with status indicator “S,” which identifies those codes as separately payable services when not payable as part of a “composite” payment. When certain criteria are met, however, those codes are paid under a single composite payment, rather than separately. A composite payment is designed to provide a single payment for certain combinations of HCPCS codes (which would otherwise each be separately payable) when the composite criteria are met. Services that are potentially payable as part of a composite payment are identified with status indicator “Q3” in Addendum B and Addendum M to the calendar year (CY) 2015 OPPS final rule.
During CY 2015, payment for hospital non-partial hospitalization outpatient psychiatric services is capped at the reimbursement for APC 0176 Level II Partial Hospitalization in a Hospital-based Partial Hospitalization Program (PHP). The national allowable for APC 0176 is $195.70.
The IOCE aggregates the separate payments for multiple outpatient mental health services (identified with status indicator “Q3” in Addenda B and M) provided on the same date of service. If the sum of the payment amounts for the individual mental health services is greater than the payment amount for APC 0176, the Mental Health Composite APC 0034 is assigned to the first listed mental health code and the status indicator for all other mental health codes subject to composite payment is changed to “N” packaged.
If, however, the sum of the payment amounts for the individual mental health services does not exceed the payment amount for APC 0176, the individual services are processed for payment under standard OPPS/IOCE payment logic. That is, they will each be identified with status indicator “S” and individually separately payable based on the individual APC to which they are assigned, as set out in Addendum B.
A Medicare patient received individual psychotherapy for 45 minutes (CPT code 90834, for which the national payment rate is $115.52) in a hospital outpatient provider based clinic, followed by one hour of face to face psychological testing with a technician (CPT code 96102, for which the national payment rate is $199.33). Assuming that both codes have a status indicator of “Q3” in Addendum B, what is the total amount the hospital can expect to receive for these services (ignoring any wage index adjustment)?
$195.70 for Composite Mental Health APC 0034–The payment for CPT code90834 is $115.52, the payment for CPT code 96102 is $199.33 for a total of $ 314.85, which exceeds the payment of $195.70 for APC 0176 Level II Partial Hospitalization in a Hospital-based PH. Therefore, the payment is made under the Mental Health Composite.

Note from the Instructor: OIG Continues to Audit Hospital E/M Levels

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

The OIG recently published a report about overpayments to hospitals for clinic visits in calendar year 2012. While this may sound like old news and may not come as a surprise to hospitals, billing for Evaluation and Management (E/M) services continues to be an audit focus even though the reimbursement rules for PPS hospitals changed in 2014.

It is well known the OIG has been reviewing how Medicare pays for new and established patients for many years, and some healthcare systems have paid back millions of dollars for billing new patients when the visit should have been reported for an established patient instead. Unfortunately, CMS did not have edits in place to identify Medicare payments for patients who were already registered at a facility, so hospitals had to police themselves.

Beginning in CY 2009, CMS clearly established the definitions for hospital outpatients of ‘‘new’’ and ‘‘established’’ based on whether or not the patient had been registered as an inpatient or outpatient of the hospital within the past three years. A patient was considered to be established if they had been treated at the hospital within the three years prior to the current visit and the hospital would report E/M codes 99211-99215. Conversely, a patient who had not been registered as an inpatient or outpatient within the three years prior to the current visit would be considered to be a new patient and the hospital would report E/M codes 99201-99205. CMS reiterated that a payment difference existed between new and established patients and put hospitals on notice regarding the risk of overpayment when assigning a new patient level for an established patient.

Prior to this clarification, the determination of new vs. established was based on the creation of a hospital medical record within the past three years. CMS may not have been aware that from time to time, a medical record is created in anticipation of treatment or for other administrative purposes, and treatment may not have occurred within the three year timeframe.

Although the definitions seemed to be clear, the application of this concept in the hospital setting was always difficult because for every patient who presents to a hospital, the same “administrative burden” is created without regards to whether they have been seen in the last three years, whether the patient was new or established, based on the CMS definition. The patient is treated independent of their last visit. In fact, some hospitals understood the compliance risk based on their volume and internal procedures for billing a new patient when an established patient should have been billed so they chose to bill all visits as established to prevent the overpayment.

Fast forward to calendar year 2014: hospitals paid under the outpatient prospective payment system (OPPS) began to bill all of their clinic encounters using one HCPCS code – G0463 “Hospital outpatient clinic visit for assessment and management of a patient”. This approach appeared to solve the administrative burden of hospital staff having to determine if a new or established E/M code should be reported. However, the payment under new APC 0634 significantly changed the reimbursement from Medicare for clinic visits. CMS decided to leave the various E/M levels for emergency department billing intact.

In the recently released report, the OIG recommends CMS recoup the past improper payments as a way to correct the problem and also to “serve to educate and improve providers’ current billing practices”. CMS responded by saying it takes the recovery of overpayments seriously but “the average overpayment is $24, yet it will cost CMS an average of $90 per claim to review”. CMS also pointed out the audit issue no longer exists with the implementation of G0463 for any clinic visit in the hospital setting. The OIG countered by saying this is essentially an automated review issue and medical record review will not be necessary. Expect to see this recovery issue at a MAC or RAC near you!

So why do we need to care about this old issue going forward? Despite reporting one HCPCS code (G0463) for all clinic visits, CMS continues to permit hospitals to develop their own internal systems for charging purposes based on the intensity of hospital resources using 99201-99215. Guidance previously issued in 2007  stated hospitals should continue to use their own internal guidelines to determine the appropriate reporting of different levels of clinic and emergency department visits. It’s unclear if CMS’ intent with implementing G0463 was to do away with billing for varying levels of hospital resources.

This means most hospitals are continuing to charge for their clinic visits to all payers based on the prior new and established definitions and 10 E/M levels. Although the risk of an upfront overpayment for clinic visits has been diminished, the risk still exists for hospitals to correctly report their costs via charges for the hospital resources used for the clinic visit. Most hospitals have continued to use their prior E/M leveling and CDM billing processes; however, for Medicare patients, all levels now default to G0463 for billing purposes. Until CMS changes its mind or issues national guidelines, hospitals may best be served to do an internal audit in this area to verify that E/M level assignment and charging procedures are being followed as originally intended.

Note from the Instructor: CMS Releases Updated -X{EPSU} Modifier Guidance…Sort Of

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

Providers have been under CMS, OIG and other contractors’ scrutiny for many years regarding the use–and sometimes abuse–of Modifier -59. The National Correct Coding Initiative (NCCI) edits can be bypassed by reporting Modifier -59 when certain HCPCS code pairs are billed for the same date of service and reporting a modifier is allowed. In a general search of the internet on Medicare compliance with Modifier -59, many providers have fallen victim to government audits and have been subject to recoupments. Let me take you down memory lane to try to understand how we ended up where we are today.

In November 2005, the OIG released a report “Use of Modifier -59 to Bypass Medicare’s National Correct Coding Initiative Edits” in which they found that 40% of code pairs billed with Modifier -59 in 2003 were not compliant with reporting requirements which led to $59 million in improper payments. Since most of the errors were due to services that were not distinct from each other or not documented sufficiently, the OIG recommended carriers perform pre- and post-payment audits of the use of this modifier. The OIG also recommended carriers update their claims processing systems to ensure providers bill the modifier with the correct code in the NCCI code pair.

Based on another study by the OIG, CMS responded in December 2009 stating it would explore a system edit for Modifier -59. CMS had issued Transmittal R902CP in 2006, which contained guidance on the matter. However, it was limited to drug infusions and further development of a specific edit was abandoned because CMS thought it would increase appeals volume. In light of the current appeals backlog, CMS’ crystal ball appeared to be working back then.

Fast forward to August 15, 2014, in Transmittal 1422, CMS states Modifier -59 is:

  • Infrequently (and usually correctly) used to identify a separate encounter;
  • Less commonly (and less correctly) used to define a separate anatomic site; and,
  • More commonly (and frequently incorrectly) used to define a distinct service.

Using data from the 2013 Comprehensive Error Rate Testing (CERT) report, the transmittal describes:

  • A projected $2.4 billion in Medicare Physician Fee Schedule (MPFS) payments were made on lines with Modifier -59, with a $320 million projected error rate. In facility payments, primarily OPPS, a projected $11 billion was billed on lines with a -59 modifier with a projected error of $450 million. This is a projected one year error of $770 million.
  • Note this is not entirely due to incorrect -59 modifier usage as other errors can and do exist on a -59 line. However, it has been observed that incorrect modifier usage was a major contributor although error code definitions do not allow an exact breakdown. If 10% of the errors on -59 lines are attributable to incorrect -59 modifier usage, it still amounts to a $77 Million per year overpayment as a result.

CMS’ solution to this ongoing problem was to introduce four new subset modifiers to replace Modifier -59, in most instances:

  • -XE, separate encounter, a service that is distinct because it occurred during a separate encounter;
  • -XS, separate structure, a service that is distinct because it was performed on a separate organ/structure;
  • -XP, separate practitioner, a service that is distinct because it was performed by a different practitioner; and,
  • -XU, unusual non-overlapping service, the use of a service that is distinct because it does not overlap usual components of the main service.

This announcement appeared to be a bit premature when in an October 2014 MLN Connects Provider eNews, CMS stated providers would have the option to continue using Modifier -59 until CMS issues examples of circumstances in which the -X modifiers are or are not appropriate.

On January 22, 2015, CMS releases MLN Special Edition article, Continued Use of Modifier 59 after January 1, 2015.  Most providers have been waiting for this guidance since they first announced the new -X{EPSU} modifiers back in August 2014. Unfortunately, it does little to give physicians, hospitals, and DME providers direction on the proper use of the new modifiers, which will continue to be under the same-if not more-scrutiny than Modifier -59.

The guidance states providers may continue to appropriately use Modifier -59 after January 1, 2015 and MACs should be able to accept the –X {EPSU} modifiers. Additional guidance and education will be forthcoming as CMS continues to introduce the –X modifiers in a “gradual and controlled fashion”, although CMS had previously stated that “rapid migration” to reporting –X modifiers was encouraged. The article goes on to state future guidance will include additional descriptive information about the new modifiers and will also identify situations in which a specific –X {EPSU} modifier will be required.

The good news in all of this is CMS says it will publish specific guidance before implementing edits or audits. I am not sure this will produce a warm fuzzy feeling for providers who have strived to be in compliance with the NCCI edits all along and are struggling with training staff on the appropriate use of the modifiers. Since CMS announced the -X{EPSU} modifiers, providers have been on a never-ending rollercoaster ride and it doesn’t appear they are going to be getting off any time soon.

Note from the Instructor: CMS Makes Big Changes to the RAC Program

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

On December 30, CMS released a new version of the Recovery Audit Program Improvements document they have had posted on their website for some time. The new version has significant, positive changes for providers that should improve providers experience in dealing with Recovery Auditors.

One of the most significant improvements is a limitation on the look-back period for patient status reviews. Formerly, Recovery Auditors could look back at and review claims paid in the prior three years. Under the announced improvements, if a hospital submits a claim for an inpatient stay within three months of the date of service, the Recovery Auditor will only have six months from that date of service to review the claim. Presumably, beyond six months, the Medicare Administrative Contractor (MAC) will still be able to open claims during the normal reopening period (four years), but this would significantly limit the Recovery Auditors ability to review claims long after the fact.

Another significant improvement from a provider’s perspective is a tightening of the timeframe for the Recovery Auditors to complete their review of a claim. Recovery Auditors will only have 30 days to complete their complex reviews and notify providers of their findings. This matches the new Additional Development Request (ADR) review timeframe for MACs that CMS announced in October 2014.

The new improvements continue the “discussion period” process, but with a very significant change. The Recovery Auditor must wait 30 days following their determination, to allow the provider to request a discussion with the contractor, prior to sending the claim’s adjustment request to the MAC for recoupment. And the Recovery Auditors must maintain a process for confirming receipt of provider correspondence, including discussion requests, within three days of receipt.

As for the volume of reviews, three significant changes should assist providers who have felt over-burdened by inpatient status reviews. First, reviews will be “diversified” across all claim types (e.g. inpatient, outpatient, etc.). Second, providers new to reviews will have review limits applied incrementally to allow them to adjust to reviews. Lastly, providers with a low level of denial rates will have a lower level of review, and rates will be adjusted as a provider’s denial rate declines.

In addition to the improvements to address provider’s concerns, CMS also instituted several performance standards for the Recovery Auditors. They must maintain an overturn rate of less than 10% at the first level of appeal. If they don’t, they will be placed on a corrective action plan, including decreasing ADR limits or ceasing certain kinds of reviews until the problem is corrected. In addition, for automated reviews they must maintain a 95% accuracy rate or there will be a progressive reduction in their ADR limits.

Unfortunately, the improvements are not set to go into place until the next Recovery Auditor contracts are in place. The only new contract currently in place, effective December 30, 2014, is the DME, Home Health and Hospice Recovery Auditor, which was awarded to Connolly, LLC. CMS also announced that Region 3 would be in place by the end of 2014, but there’s been no word on a new contractor. The last update on the CMS website indicates that Regions 1, 2, and 4 will not be awarded until late summer 2015.

Note from the Instructor: Taking another look at Medicare bad debt reimbursement

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

In preparation for an upcoming custom MBC-H course, I had an opportunity to review the Medicare rules relating to bad debt. This issue has become even more prevalent in recent years as underlying health care costs have skyrocketed, significantly increasing beneficiaries’ cost sharing liability, particularly under Part B. In addition, with the growth in inpatient denials and the recent expansion of providers’ ability to rebill those denials under Part B, many beneficiaries are now incurring significant cost sharing that would not have arisen if these inpatient stays had been covered under Part A. Therefore, providers are experiencing increasing financial losses due to their inability to recover for applicable Medicare deductibles and coinsurance under Parts A and B.

Reimbursable bad debt

Under the Medicare program, bad debts attributable to uncollected deductibles and coinsurance for covered services are reimbursable, so long as certain requirements are met.

Under Medicare, costs of covered services furnished to beneficiaries are not to be borne by individuals not covered by the Medicare program, and, conversely, costs of services provided for non-beneficiaries are not to be borne by the Medicare program. Uncollected revenue related to covered services furnished to beneficiaries (including uncollected deductibles and coinsurance amounts) generally means the provider has not recovered the cost of services covered by that revenue.

To assure the failure of beneficiaries to pay the deductible and coinsurance amounts does not result in those costs being borne by others, the costs attributable to the deductible and coinsurance amounts that remain unpaid are added to the Medicare share of allowable costs. Bad debts arising from other sources, however, are not allowable costs.

To be allowable, bad debt must meet the following criteria:

  • The debt must be related to covered services and derived from deductible and coinsurance amounts.
  • The provider must be able to establish that reasonable collection efforts were made.
  • The debt was actually uncollectible when claimed as worthless.
  • Sound business judgment established there was no likelihood of recovery at any time in the future.

Timing of write off

The amounts uncollectible from specific beneficiaries are to be charged off as bad debts in the accounting period in which the accounts are deemed to be worthless. In some cases, an amount previously written off as a bad debt and allocated to the program may be recovered in a subsequent accounting period; in such cases that income must be used to reduce the cost of beneficiary services for the period in which the collection is made.


In determining reasonable costs for hospitals, the amount of allowable bad debt is reduced, as follows:

  • For cost reporting periods beginning during FYs 2001 through 2012, by 30%.
  • For cost reporting periods beginning during a subsequent fiscal year, by 35%.

Implications for providers

Hospitals and other providers need to review their existing policies to assure they meet the relevant requirements for Medicare bad debt reimbursement. In particular, they need to assure they treat Medicare beneficiaries in the same way they treat all other patients with respect to bad debt, and they make consistent, reasonable efforts to bill and collect beneficiary and other patient cost sharing amounts.

Medicare has indicated that a reasonable collection policy must involve the issuance of a bill on or shortly after discharge or death of the beneficiary to the party responsible for the patient’s personal financial obligations. It should also include other actions, such as subsequent billings, collection letters and telephone calls or personal contacts with this party, to demonstrate they are making a genuine, rather than a token, collection effort. The provider’s collection policy may even include using or threatening to use court action to obtain payment.

Providers also need to make reasonable efforts to determine if and when such debt is unlikely to be recovered in the future. Medicare guidelines state that, if, after reasonable and customary attempts to collect a bill, the debt remains unpaid more than 120 days from the date the first bill is mailed to the beneficiary, the debt may be deemed uncollectible. All these policies, as well as their individual efforts to comply with them, should be carefully documented in the beneficiary’s file.

Source authorities

More information on bad debt reimbursement can be found in the following source authorities:

42 CFR. § 413.89

Medicare Provider Reimbursement Manual, Part I, Chapter 3

Note from the instructor: Part D coverage for prescription drugs and biologicals not covered under Parts A or B

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

Prompted by a number of questions in recent Medicare Boot Camp-Hospital (MBC-H) classes and preparation for a custom MBC-H/Physician class, in this week’s note we will discuss differences in coverage for certain hospital services under Parts A, B, and D of Medicare. In particular, we will explore coverage under Part D for prescription drugs and biologicals (Prescription Drugs) not covered under Parts A or B when provided to hospital inpatients or outpatients.

Part D

Part D is an optional federal Medicare program designed to subsidize the costs of Prescription Drugs and Prescription Drug insurance premiums for individuals entitled to Medicare benefits under Part A or enrolled in Medicare benefits under Part B. Beneficiaries who enroll in most Medicare Advantage plans, as well as those who qualify for both Medicare and Medicaid (full-benefit dual eligibles) automatically receive the Medicare drug benefit. Enacted as part of the Medicare, Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), Part D originally went into effect on January 1, 2006 and has been subsequently amended by several federal statutes, including the Medicare Improvements for Patients and Providers Act of 2008.

Under the MMA, Medicare beneficiaries generally receive coverage for Prescription Drugs in one of two ways:

  • Enrollment in a supplemental Prescription Drug Plan (PDP) offered by a private insurance company, to supplement the health coverage they receive under Medicare Part A and/or B; or
  • Enrollment in a Medicare Advantage Plan that offers coverage for Prescription Drugs (MA-PD) as an integral part of the health coverage it provides under Medicare Part C.

Organizations offering drug plans (both PDPs and MA-PDs) have flexibility in the design of the Prescription Drug benefit packages they offer, including the establishment of formularies. Formularies are lists of Prescription Drugs that have been approved by that Plan for coverage. Even when not included on the formulary, beneficiaries may request an exception in certain circumstances. Other variables include deductibles, coinsurance, coverage, and out-of-pocket limits.

Currently, there is a coverage gap—popularly referred to as the donut-hole—during which the beneficiary bears the primary responsibility for payment of what would otherwise be covered Prescription Drugs. This gap occurs between the time the beneficiary has met the initial coverage limitation under the particular PDP or MA-PD and before he or she has reached his/her out-of-pocket threshold. Over time, the intent under Part D is for coverage to expand and cost sharing to diminish. More information on Part D can be found in related regulations—42 CFR Part 423—and the Medicare Prescription Drug Manual, Publication 100-18, which is available on the CMS Website.

Parts A and B

Medicare Parts A and B are sometimes referred to as original, traditional or fee-for-service Medicare. These are the original programs designed to cover both inpatient and outpatient hospital and other facility services, as well as professional and ancillary health care services. Part A primarily covers inpatient services provided by various health care facilities (e.g., hospitals, skilled nursing facilities, home health agencies, etc.). Part B primarily covers outpatient services provided by various health care facility (including hospitals), professional and ancillary providers.

Under a covered Part A inpatient hospital stay, there is broad coverage for the Prescription Drugs provided during that stay, including self-administered drugs (drugs that are generally administered orally, topically, in suppository form or by subcutaneous injections).

There is much more limited coverage for Prescription Drugs provided in the hospital outpatient setting under Part B. Most drugs administered by any method other than by infusion or deep, penetrating intramuscular injections, are considered usually self-administered and, therefore, not covered under Part B. There are three limited exceptions:

  • Statutorily covered drugs, including
    • Blood clotting factors for hemophilia patients,
    • Drugs used in immunosuppressive therapy,
    • Erythropoietin for dialysis patients, and
    • Certain oral anti-cancer drugs and anti-emetics used in certain situations.
  • Drugs provided incident to a physician’s service that are not usually self-administered; that is, drugs administered by infusion or deep, penetrating intramuscular injections; and
  • Certain self-administered drugs if they are an integral component of a procedure or are directly related to it or facilitate the performance of, or recovery from, the procedure, but not if they are the treatment itself. An example of a Prescription Drug covered under this exception would be an antibiotic ointment applied to a wound or surgical incision to guard against infection.

Potential coverage under Part D for Prescription Drugs not covered under Part B

As noted above, most Prescription Drugs otherwise medically appropriate are not covered under Part B when provided in the hospital outpatient setting. In that case, there may be coverage for those drugs under Part D. Whether there is coverage for those drugs under Part D, generally, or for a specific beneficiary, in specific circumstances, will largely depend upon the terms of coverage under that particular PDP or MA-PD. Generally, only those Prescription Drugs included on the Plan’s formulary will be covered. With respect to a specific beneficiary, coverage will also depend upon whether he or she has met the applicable deductible, has reached the initial coverage limitation and/or has reached his or her out-of-pocket threshold.

Medicare has created a brochure for original Medicare beneficiaries (“How Medicare Covers Self-administered Drugs Given in Hospital Outpatient Settings”), which can be downloaded from the following CMS website. In its brochure, Medicare notes most self-administered drugs provided in the hospital outpatient setting will not be covered and the hospital will probably bill the beneficiary for those non-covered drugs. In that case, they recommend a Medicare beneficiary with Part D do the following:

  • Check with the hospital to see if it participates in Part D.
  • Since most hospital pharmacies do not participate in Part D, the beneficiary may need to pay up front and out-of-pocket for these drugs and submit the claim to his/her PDP for a refund.
  • Follow the instructions in the PDP’s enrollment materials on how to submit an out-of-network claim, or call the plan for information about how to submit a claim.
  • The beneficiary should keep copies of any receipts and any paperwork sent to the PDP.

The PDP will probably ask for the following additional information:

  • Certain information, like the emergency room bill showing what self-administered drugs were given. He or she may also need to explain the reason for the hospital visit.
  • The PDP may ask if the beneficiary could have reasonably obtained any of the drugs from a participating network pharmacy. For example, if he or she could have taken a dose of a drug obtained from a network pharmacy before the outpatient hospital appointment, the PDP may not pay for that drug.

To determine whether the drug is covered under Part D, the PDP will check to see whether it is included on the PDP’s formulary or qualifies under an exception. Even if the drug is covered, the PDP may only reimburse the in-network cost for the drug, minus any deductibles, copayments, or coinsurance that would normally apply. In addition, the beneficiary also may need to pay the difference between what the hospital charged and what the PDP paid. This amount will be counted toward his/her Part D out-of-pocket costs, so long as he or she submits the claim to the PDP. If the drug is not covered, the beneficiary will be obligated to pay the full amount that the hospital charged for the drug.

Potential coverage under Part D for Prescription Drugs not covered under Part A

Presumably, Prescription Drugs that are provided in the inpatient hospital setting but are neither covered under Part A nor fall within one of the limited coverage categories under inpatient Part B, would also potentially qualify for coverage under Part D, following the same process and analysis outlined above.

Hospitals are encouraged to educate themselves and their patients with respect to the coverage policies and procedures for Prescription Drugs under Parts A, B, and D and to facilitate their patients’ ability to communicate and seek guidance from their respective PDPs and MA-PDs on these issues.

Note from the Instructor: CMS Posts Hospital Outpatient Supervision Documents

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

CMS posted a document on its Advisory Panel on Hospital Outpatient Payment website regarding hospital outpatient therapeutic services that were evaluated for a change in supervision levels.  The three page document contains a chart that includes the HCPCS code, level of supervision required for coverage, and the effective dates of the changes for various services.

Hospital outpatient therapeutic services paid under OPPS or paid to critical access hospitals (CAHs) on a cost basis must be furnished “incident to” a physician’s service to be covered. In order to qualify for “incident to” coverage, the service must meet four requirements:

  1. The service must be furnished in the hospital or a provider-based department of the hospital;
  2. There must be an order for the service;
  3. The service must be an integral, though incidental, part of a physician’s service; and
  4. The service must be provided under the correct level of physician supervision.

CMS began amending and clarifying the requirements for supervision extensively in 2010 and this process continues under the Hospital Outpatient Payment Panel subregulatory process. In most cases, CMS has designated direct supervision to be the default level of supervision for hospital outpatient therapeutic services. CMS also designated general supervision as appropriate for specific services based on recommendations from the Panel and provider comments. General supervision requires the service is furnished under the physician or non-physician practitioner’s (NPP’s) overall direction and control, but does not require them to be present during the service. Effective for dates of service January 1, 2015, CMS has listed the following as requiring general supervision when provided in a hospital outpatient department, including provider-based departments:

  • 99490 Chronic care management service, 20 minutes;
  • 99495 Transitional care management, 14 days post discharge; and,
  • 99496 Transitional care management, 7 days post discharge.

Several years ago, CMS defined a list of non-surgical extended duration therapeutic services (NSEDTS) which must be provided initially under direct supervision and then may be transitioned to general supervision once the supervising physician or NPP determines the patient is stable and the remainder of the service can be delivered safely under general supervision. This transition must be documented in the patient’s medical record. In the notice just published, there were no changes listed for NSEDTS in 2015.

Also included on the CMS website, which will be of interest for CAHs and small rural hospitals, is a brief notice stating non-enforcement of supervision requirements for these providers will continue through December 31, 2014 as afforded through H.R. 4067.

Beginning in 2010, CMS instructed its contractors not to enforce the supervision requirements for therapeutic services provided to outpatients in CAHs and further expanded the non-enforcement to small rural hospitals in 2011. The non-enforcement instruction expired for the hospitals on January 1, 2014 and since then, there has been a lot of activity through various lobbying groups and organizations. The Protecting Access to Rural Therapy Services (PARTS) Act, which will now have to be reintroduced in 2015 under the new Congress, was intended to permanently change supervision levels from direct to general for therapeutic outpatient services which are not high risk or complex for certain hospitals. Through the passing of H.R. 4067, CAHs and small rural hospitals have dodged the supervision bullet once again by receiving a one year extension.

Note from the instructor: Update to the CMS Post-Acute Transfer Policy Qualifying DRGs

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

CMS released Transmittal 3138 rescinded and replaced Transmittal 3066 regarding technical errors cited in the FY 2015 IPPS final rule correction notice published in the Federal Register on October 3, 2014. Recently, I have received several questions regarding CMS’s Post-Acute Transfer and Special Payment Policy so I thought it would be a good time to review how a PPS hospital’s payment may be affected by it.

A “post-acute transfer” is a discharge by a PPS hospital to one of several specific settings. The final DRG has been assigned by CMS to a “Qualifying DRG”. For FY 2015, there are a total of 753 Medicare Severity (MS)-DRGs and 279 of those are listed as “Qualifying DRGs”, affected by the post-acute transfer policy. The list of current MS-DRGs and if they qualify for payment under the policy can be found in Table 5 of the IPPS Final Rule.

Certain post-acute settings reported on the UB-04 claim form may trigger the post-acute payment policy. MLN Matters MM4046 and MLN Matters SE0801 provide detailed information to help hospitals select the most appropriate discharge setting. The effect on the DRG payment to the discharging/transferring hospital will depend on if the Qualifying DRG falls into the “post-acute DRG” category or the “special pay DRG” category as designated in Table 5.

When a discharge is paid as a transfer

  • The patient was discharged to one of the specific post-acute settings and the payment will be made under one of the Qualifying DRGs identified as a “post-acute DRG”.
  • A “per diem” rate is determined by dividing the full payment for the discharge DRG by the geometric mean length of stay (LOS) for the discharge DRG listed in Table 5.
  • The first day of the admission is paid at twice the per diem rate in recognition of the extra expenses incurred on the day of admission.
  • All subsequent days are paid at the per diem up to the full DRG amount.

When a discharge is paid under the special payment methodology

  • The patient was discharged to one of the specific post-acute settings and the payment will be made under one of 35 Qualifying DRGs identified as one that exhibits exceptionally high costs early in the hospital stay-called a “special pay DRG”.
  • A “per diem” rate is determined by dividing the full payment for the discharge DRG by the geometric mean LOS for the discharge DRG listed in Table 5.
  • The discharging hospital is paid 50% of the full DRG payment plus 50% of the calculated per diem rate for the first day.
  • All subsequent days are paid at 50% of the per diem up to the full DRG amount.

According to CMS, for a DRG to qualify for the special payment methodology under the post-acute transfer policy, the geometric mean LOS must be greater than four days and the average charges of 1-day discharge cases in that DRG must be at least 50% of the average charges for all cases within the DRG. Also, DRGs that are part of an MS–DRG group will qualify under the special payment policy if any one of the MS–DRGs sharing that same base MS–DRG falls into the special payment methodology. The special payment rules only apply to post-acute transfers and do not apply to discharges or transfers to short-term acute care hospitals.

For FY 2015, five new MS-DRGs were added to the Qualifying DRG list subject to the post-acute care transfer and special payment policy. The following DRGs will be paid under the special payment policy:

  • 266 and 267 – Endovascular Cardiac Valve Replacement with and without MCC respectively; and,
  • 518, 519 and 520 – Back & Neck Procedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator, with CC, and without MCC/CC respectively.

MS-DRG 483 – Major Joint/Limb Reattachment Procedure of Upper Extremities was removed from the “Qualifying DRG” list because it was merged with MS-DRG 484 and the severity of illness level was reduced.

Facilities should pay special attention to discharge status codes 03-Discharged/Transferred to a Skilled Nursing Facility (SNF) with Medicare Certification in Anticipation of Skilled Care and discharge status code 06 – Discharged/Transferred to Home Under Care of Organized Home Health Service Organization in Anticipation of Covered Skilled Care. According to CMS and the OIG, these particular discharge status codes have created both overpayments and underpayments over the years in relation to the post-acute transfer and special payment policy. More information can be found in a recent OIG audit report.