Billy K. Richburg

Medicare billing includes intricacies that all healthcare financial leaders should understand. Do you know how to minimize their impact on your organization?

At a Glance

Here are steps providers should take to ensure appropriate Medicare payment:

  • Group claims under MS-DRG on "bill drop."
  • Small urban or rural hospitals: Investigate the possibility of attaining critical access hospital or sole community hospital status.
  • Identify managed care contracts that pay therapies from the physician fee schedule, then audit payments to ensure the nonfacility rates are being paid.
  • When FIs and MACs bundle procedures that are not performed at the same time, all such payments should be appealed.

Some say life was simpler in the 1960s. Medicare certainly was.

When Medicare debuted in 1965, its simple payment system paid inpatient claims based on hospital-specific per diems and outpatient claims based on "reasonable costs."

Today, there is no "simple" version of Medicare. But Medicare drives most hospitals' business and continues to affect the private managed care side of the industry, so providers tolerate it because they have no choice.

The increasing complexity of payment calculations has created an environment where important payment details are embedded in thousands of pages of "final rules" and "manuals." Following are five commonly misunderstood components of the inpatient and outpatient prospective payment systems-and how providers can minimize their impact.

MS-DRG: Same Song, Different Verse

Most healthcare finance professionals would agree that severity-adjusted diagnosis-related groups (DRGs) of some sort are a logical evolution of the case rate prospective payment system (PPS). Two individuals with the same diagnosis rarely require exactly the same resources to meet their care needs, and severity adjustment is a first step toward compensating providers appropriately. The Medicare severity-adjusted DRG (MS-DRG) system is one of several available to the industry, and although it may not be the best option, it generally meets the requirements that the Centers for Medicare and Medicaid Services (CMS) specified for a severity-adjusted system

Unfortunately, however, CMS created confusion by using the same three-digit DRG numbers (up to 579) that have been in use since 1983

For example, this system lacks a "one-to-one" crosswalk. The only crosswalk possible is one driven by the grouper itself, using the billing codes and patient demographics. Even the crosswalk published by CMS took a "one-to-many" approach, as illustrated in Exhibit 1.

Exhibit 1

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This system is costly to implement, due to the need to distinguish DRG 001 in the first 24 grouper versions from DRG 001 in the current version. Although there are always costs associated with each grouper change, this is the first time in many years that providers have been obligated to reeducate their staff on the 100 percent change reflected in Grouper 25. Yet absorbing these training costs has been necessary to allow providers to transition to the MS-DRGs without incurring losses due to underdocumentation and weak coding.

Unfortunately, many providers choose not to group their own claims under MS-DRG, and this may be the worst example of unnecessary risk exposure. Due to the complexity of the system, providers should not presume fiscal intermediaries (FIs) and Medicare administrative contractors (MACs) will group claims correctly. Instead, providers should group claims on "bill drop" or immediately thereafter if a third-party grouping function is used.

What Is a "Specialty Hospital"?

CMS has been quite open in its intention that "specialty hospitals" would bear the brunt of the reduced payments under MS-DRG.Unfortunately, the payment reductions are not limited to specialty hospitals. In fact, any hospital that doesn't serve a general cross section of the Medicare population is likely to suffer. And the majority of these hospitals are not "specialty" at all. They are rural hospitals under 100 beds and urban hospitals under 50 beds.

In the correction to the 2008 final rule for IPPS, CMS lists the estimated impact of all the changes for 2008, primarily driven by the severity-adjusted DRGs and their cost-based weights. All hospitals were estimated to gain 3.7 percent over average 2007 payments, with urban hospitals gaining 3.3 percent to 4.3 percent.

By comparison, rural hospitals were expected to gain only 2.4 percent, and urban hospitals with less than 100 beds, only 2.2 percent.

Although there is no short-term fix, there are several longer-term strategies for small urban and rural hospitals.

If your facility has fewer than 25 beds (excluding designated psychiatric and rehabilitation beds), you can pursue critical access hospital (CAH) status. This affords you payment "at cost," just as hospitals were paid prior to PPS. Consider, for example, the DRG reimbursement and the CAH reimbursement for a fictitious South Dakota facility with a $1,500 per diem. For DRG 194 (simple pneumonia or pleurisy with complications or comorbidity), with no outlier and a six-day length of stay, the payment would be $7,520.21. By comparison, the CAH payment for the same services would be $9,000, for an increased payment of $1,479.79.

If your facility has 25 to 99 beds , you should investigate the possibility of qualification as a sole community hospital (SCH). As an SCH you could be entitled to a "hospital-specific" payment in addition to your DRG, and, if you are rural, you also could receive a 7.1 percent bonus on your outpatient APC payments

If your facility is larger,a strategic review of clinical services is in order. Although they require time and money, upgrades to ICU, diagnostic imaging, and surgery can help recruit medical staff in other specialties, allowing you to approach the "average" Medicare demographic that drives MS-DRGs and their cost-based weights.

Unfortunately, some providers may find the numbers simply do not allow them to continue operations; they will need to evaluate all strategic options, including exiting the marketplace. Others will choose the less-extreme approach of abandoning selected services because the payment simply isn't there-and isn't likely to be.

A Tale of Two Payment Technicalities

Since the inception of the PPS in 1983, the Medicare payment systems have been rife with "technicalities." As a result, "technical correction" is an accepted part of the CMS lexicon.

Two of those technicalities are especially useful when dealing with managed care contracts that purport to pay "like Medicare."

Inpatient . The transaction rule of the Health Insurance Portability and Accountability Act (HIPAA) states that Current Procedural Terminology-4 (CPT-4) codes cannot be used on inpatient claims and International Classification of Diseases-9-Clinical Modification (ICD-9-CM) codes cannot be used on outpatient claims. At first, this appears to be problematic when billing for hemophilia factors dispensed to inpatients. But CPT-4 codes are not Healthcare Common Procedure Coding System (HCPCS) codes and all of the hemophilia factors are identified by HCPCS codes, which can be billed on inpatient claims. The payment for hemophilia factor is extremely high, as evidenced in Exhibit 2, which shows fourth quarter 2007 rates.

Exhibit 2

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Outpatient . A second technicality often missed by managed care companies relates to occupational, physical, and speech therapies paid under Medicare's rates. FIs generally pay these therapies correctly, but many managed care plans with contracts that "pay according to Medicare" use the "facility" rates because they often are lower. When a physician sees a patient in her or his office (nonfacility), the physician is responsible for everything necessary to provide that care, so "nonfacility" rates always are equal to or greater than "facility" rates. Exhibit 3 lists the most common therapy codes for which nonfacility is higher than facility.

Exhibit 3

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To avoid such underpayments, providers should identify every managed care contract that pays therapies from the physician fee schedule, and then audit their payments to ensure the "nonfacility" rates are being paid.

No "Bundle of Joy"

Bundling of charges for billing or payment purposes has always been confusing. On one hand, we have an implicit definition as exemplified in the following usage by the Correct Coding Initiative (CCI): "A hematocrit is 'bundled' into a complete blood count (CBC)." This definition of bundling is most often used by physician practice managers.

On the other hand, a more common usage of the term bundling refers to the packaging of disparate procedures usually billed separately into

a new package that is paid at a rate substantially lower than the rates of the individual component procedures. FIs and MACs do this type of bundling routinely with laboratory and mental health

Laboratory. In the laboratory, there are 22 clinical laboratory chemistry procedures that are always bundled if two or more appear on the same claim on the same day, and are paid under HCPCS codes ATP02-ATP22 (see Exhibit 4).

Exhibit 4

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Unfortunately, the Medicare Claims Processing Manual has contradictory statements regarding when lab bundling is invoked (Chapter 16, "Laboratory Services," revision 1221, April 18, 2007). Section 90.1.1 of the Manual states that "contractors (FIs and MACs) group together those profile tests that can be performed at the same time on the same equipment." The presumption is that one technician draws one blood specimen at one patient contact. He then makes one computer entry and loads one specimen on the chemistry analyzer, generating one report. Pricing this work at a discount makes sense.

However, Section 90.3 of the Manual states, "Therefore, any and all automated tests must be paid as a panel…," suggesting the test bundle is not restricted to those procedures "that can be performed at the same time…"

Further, Section 100.5.1 states that "modifier ... 91 [is] used to indicate that a test was performed more than once on the same day for the same patient," and to "determine the total amount payable based on the combination of all AMCC [automated multi-channel chemistry] tests billed by the same laboratory, for the same beneficiary, and for the same date of service."

These conflicting statements create an environment wherein procedures may be bundled, but the circumstances do not necessarily meet the requirement of a lab "bundle" as defined in 90.1.1.

When a patient enters the emergency department with chest pain, typical physician orders may include a comprehensive metabolic profile. Because Troponin and CPK are among the first enzymes to elevate after a myocardial infarction (MI), or heart attack, CPK is typically ordered along with the profile, establishing a baseline.

Because elevation of CPK is evidence of MI, the attending physician orders a second CPK an hour or two later to compare it with the initial result. This CPK is billed with Mod-91 because it was run on admission. But FIs and MACs typically bundle the second CPK (with Mod-91) with the profile and the first CPK rather than pay it separately, which seems inappropriate.

When a provider sees this bundling of procedures not performed at the same time, all such payments should be appealed, and FIs/MACs should be required to document their actions, considering the references listed above.

Understanding the Nuances of Billing

Generating a Uniform Billing-04 (UB-04) may be considered the last "care act" any patient receives, and hospitals can suffer when this act is not executed with precision. Consider two fine details of billing

TOB xx7 . Type of Bill xx7 (117 or 227, for example) means all previously submitted bills are replaced. Because Medicare doesn't allow late charges, an xx7 is the only way to generate a bill that includes them. But an xx7 replaces all prior bills, not just the last one submitted. So if a provider bills for a recurring outpatient with TOBs 132, 133, and 134, generating a 137 will replace them all. Similarly, a TOB xx8 voids all prior claims, not just one in a series. Providers must be diligent in confirming that an xx7 or xx8 includes all charges previously generated for that patient, not just the last charges

The 72-Hour Rule . The 72-Hour Rule states that any outpatient services provided within three days prior to an inpatient admission, when both the outpatient visit and the inpatient admission have the same principal diagnosis, may not be paid separately, but are to be included in the DRG payment. But the 72-Hour Rule applies only to acute inpatient services, and only for facilities paid under DRGs. If the facility is a CAH or subacute facility (psychiatric, rehabilitation, long-term care, or skilled nursing facility), the "window" is only one day, and services provided two or three days before admission can-and should-be billed separately.

Taking Action

It's no secret that the complex nature of the various Medicare payment systems hides many nuances while leaving others open to interpretation by FIs and MACs. Therefore, it's more important than ever for healthcare financial leaders to know what their organizations should be paid and understand how Medicare payment systems can be interpreted to the provider's detriment. Failure to anticipate adverse payer actions, and to take action to minimize their impact, will be considered a failure on the part of financial management.

Billy K. Richburg, FHFMA,is director of government programs and compliance, Accuro Healthcare Solutions, Dallas, and a member of HFMA's Lone Star Chapter (

Publication Date: Tuesday, January 01, 2008

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