Author: Monica Lelevich

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What is the Protecting Access to Medicare Act of 2014 (PAMA)?

The PAMA law brought a wide variety of changes to Medicare, including the method by which Medicare will calculate the rates it will pay under the Clinical Lab Fee Schedule (CLFS). It requires Medicare to pay according to the weighted median rate of payments made by private insurers for the same lab test. This means Medicare must collect data from laboratory providers every three years in order to calculate the appropriate rate of payment.

Medicare collected data for the first time in 2017 but required only large regional and national laboratories to report. The weighted median payment rates from that limited data pool resulted in dramatically lower reimbursement on the majority of lab tests. Laboratory providers complained that the rates were inaccurate and inappropriately low, in part because the data used was from less than 1% of laboratory providers nationwide. In response to those concerns, Medicare added hospitals and physician practices to the list of entities required to report (“applicable laboratories”), beginning with the data collection period January 1, 2019, through June 30, 2019.

Lab providers, including some physician clinics and certain hospital outreach laboratories that perform specimen-only lab testing on the 14x Type of Bill (TOB), must report rates and volumes of payments received from commercial payors for lab tests between January 1 and June 30, 2019. The reporting window was originally scheduled for the first quarter of 2020, but has been delayed two years to the first quarter of 2022. Failure to report could result in fines of more than $10,000 per day.

The new mandate marks the second time Medicare has collected private payor lab rate payment data, but it’s the first time the requirement has been extended to hospitals that bill Medicare and other payors on the 14x TOB. Their initial effort in 2016 required that only large national and regional lab testing firms, such as LabCorp and Quest, report. CMS must collect private payor data every three years for use in setting rates under the CLFS.

The 2019 Outpatient Prospective Payment System (OPPS) Final Rule expanded the reporting obligation to include hospital outreach laboratories that submit Medicare claims for non-patient services if the hospital met the threshold of $12,500 in revenues paid by Medicare for services on the 14x TOB during the first six months of 2019. The rate reporting is due to CMS by the end of the first quarter of 2022.

Which hospital laboratories will be required to report lab payment rates?

According to CMS, “applicable laboratories” are required to collect and report private-payor, non-patient service lab rates. An applicable laboratory is: [1]

1. A lab that bills Medicare Part B under its own National Provider Identifier (NPI); or, for hospital outreach laboratories, bills Medicare Part B on the Form CMS-1450 under type of bill (TOB) 14x; and
2. A lab that meets the “majority of Medicare revenues” threshold (that is, receives more than 50 percent of its Medicare revenues from one or a combination of the CLFS or the Physician Fee Schedule (PFS) in a data collection period; and
3. A lab that meets or exceeds the low expenditure threshold (that is, it receives at least $12,500 of its Medicare revenues from the CLFS in a data collection period).

Since test questions 1 through 3 are typically met by hospitals that perform non-patient lab testing, the main determinant of the obligation to report is the $12,500 threshold.

Medicare acknowledges that most hospital labs will meet the Majority of Medicare revenues test:
“Hospital outreach laboratories that bill Medicare Part B under the hospital’s NPI, and therefore determine applicable laboratory status based on its Medicare revenues from the 14x TOB, will most likely meet the majority of Medicare revenues threshold. They will most likely meet the majority of Medicare revenues threshold because their Medicare revenues are primarily, if not entirely, derived from the CLFS and or PFS. In other words, the revenues from the CLFS and or PFS services included in the numerator are essentially the same as the total Medicare revenues included in the denominator.”[2]

While the UB manual specifies that 14x TOB is for non-patient lab tests, California Medicaid (Medi-Cal) requires emergency department charges (ED) to be reported on the 14x type of bill. Hospitals in California, therefore, will need to report specimen-only testing claims and exclude claims for in-person medical services, such as ED charges, to ensure they’re only reporting non-patient lab charges.

Some physician offices that provide laboratory services will need to report if they have $12,500 or more in Medicare revenue for all clinical services, even though they bill on a CMS1500/837i claim form. Reporting for physician offices should nonetheless be relatively straightforward, since, unlike hospitals, they post by line-item in the patient accounting system.

What changes have been made in 2021 regarding PAMA?

The reporting timetable has been updated in response to the COVID-19 pandemic. Data collected from the period of Jan. 1, 2019-June 30, 2019, must be reported to Medicare between January 1 and March 31, 2022. This collection, validation and reporting cycle will repeat every three years to form the basis for an updated CLFS. The next data collection period will be January 1 through June 30 2025, with reporting due during the first quarter of 2026.

Figure 1: Table showing year for CDLT rates, data collection periods, data reporting periods and reduction cap by year [3]

Year for CDLT Rates	Based on Data   Collection Period	Based on Data   Reporting Period	Reduction Cap
2020	January 1, 2016 – June 30, 2016	January 1, 2017 – May 30, 2017	10%
2021	January 1, 2016 – June 30, 2016	January 1, 2017 – May 30, 2017	0.0%
2022	January 1, 2016 – June 30, 2016	January 1, 2017 – March 31, 2017	15%
2023	January 1, 2019 – June 30, 2019	January 1, 2022 – March 31, 2022	15%
2024	January 1, 2019 – June 30, 2019	January 1, 2022 – March 21, 2022	15%
2025	January 1, 2019 – June 30, 2019	January 1, 2022 – March 31, 2022	0.0%

Applicable laboratories are responsible for collecting three primary types of information, according to CMS:[4]

1. The specific HCPCS code associated with the test
2. The private payor rate for each test for which final payment has been made during the data collection period
3. The associated volume for each test

The period for which data is to be collected includes dates of service from January 1 through June 30, 2019, as well as claims from earlier dates of service that were not paid until the 1/1/19-6/30/19 timeframe. For additional details on reporting requirements, visit CMS Medicare Learning Network Matters SE19006.

What are the penalties for PAMA non-compliance?

Applicable organizations may face civil penalties of up to $10,017 per violation per day if reporting is not complete, accurate and timely, according to CMS. There is no exception for Critical Access Hospitals. In its final rule, CMS noted that in situations where its review revealed that the data submitted was incomplete or incorrect, the agency would work with the Office of Inspector General (OIG) to assess whether a civil monetary penalty should be applied, and if so, what the appropriate amount should be based on the specific circumstances.[5] CMS also stated that it does not intend to assess monetary penalties for minor errors.[6]

What are some of the challenges hospitals face in collecting the PAMA-required data?

Many hospitals view the requirement as onerous because most don’t retain detailed payment rate data at the line-item level. Hospitals are especially challenged in reporting private payer rate details, since they typically don’t retain that information in their accounting systems, even though they are provided those details on the remittance advice.

Another challenge impacting some hospitals resulted from misinterpretation of a Medicare directive in 2014 that briefly advised hospitals to bill in-person service to patients on the 14X TOB. However, about six months later, CMS ordered hospitals to stop billing for these services on the 14X TOB. Hospitals discontinued the process once they realized it was non-compliant with HIPAA requirements, which specify what may be billed on a 14X TOB. At the same time, a new modifier was introduced which was declared not applicable to the 14X TOB, thereby adding to the confusion. The takeaway is that if a hospital didn’t use the 14X TOB for non-patient lab testing, it needs to be corrected right away. It’s unlikely an overpayment has occurred, but it is non-compliant to use the wrong type of bill to represent those services as in-person.

It is especially important for critical access hospitals to make sure they use the correct type of bill, because they could be overpaid on the cost reimbursement rate for services billed on an outpatient claim form that’s not a 14X TOB.

Why haven’t Medicare Administrative Contractors been talking about PAMA?

The Medicare Administrative Contractors (MAC) have no role in this process because submitted data goes directly to the Medicare national website and therefore does not flow through the regional MACs.

How can hospitals achieve PAMA compliance?

Even if your organization hasn’t started test rate collection and validation, it’s not too late to achieve compliance with the March 31, 2022 reporting deadline. Hospitals can immediately pull both paper and electronic 835s claims to begin assessing the total dollar amount and volume of the tests in question.

Alternatively, ParaRev provides compliance assistance through our comprehensive Lab Payment Reporting Analytical Services. Using Medicare outpatient claims data, we’ll help new and existing clients determine the type and volume of payments made through the Medicare 14x TOB. This will help determine whether the hospital has exceeded either the $12,500 Medicare threshold for the January-June 2019 reporting period, and therefore will need to report.

The PARA Data Editor additionally provides the ability to analyze electronic remittance files to quickly generate a spreadsheet of the allowable rates paid by CPT® codes on the 14x TOB. PARA can configure this electronic data into the required format for Medicare reporting. However, some clients will likely have received payments that will require manual research if they were not paid on a submitted 835 file. ParaRev is unable to research payments submitted on paper remittances.

PARA has developed a 30-minute online presentation that can help keep you compliant with PAMA laboratory rate and reporting requirements. This presentation provides detailed examples of some of the compliance challenges, providing vital information for all clinical laboratories.

It’s critical that hospital labs push to meet the PAMA reporting requirements, not only to eliminate the risk of onerous monetary penalties, but to help ensure the highest possible lab reimbursements in the future. Contact HFRI to learn more about how our Lab Payment Reporting Analytical Services can help you.

For addition information:

To learn more about the list of test codes subject to PAMA data collection and data reporting requirements click here. For more information about the private payer rate-based CLFS, click here.

1. “Medicare Part B Clinical Laboratory Fee Schedule: Revised Information for Laboratories on Collecting and Reporting Data for the Private Payor Rate-Based Payment System,” MLM Matters, Centers for Medicare and Medicaid Services, Sept. 5, 2019.
2. “Medicare Part B Clinical Laboratory Fee Schedule: Revised Information for Laboratories on Collecting and Reporting Data for the Private Payor Rate-Based Payment System.” MLM Matters, Centers for Medicare and Medicaid Services, Jan. 8, 2020.
3. PAMA Regulations-Important Update. Medicare.gov
4. “Medicare Part B Clinical Laboratory Fee Schedule: Revised Information for Laboratories on Collecting and Reporting Data for the Private Payor Rate-Based Payment System,” MLM Matters, Centers for Medicare and Medicaid Services, Sept. 5, 2019.
5. “Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System, Final rule,” Federal Register, June 23, 2016.
6. Ibid

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Medicare recently finalized a plan that will require hospitals to obtain prior authorization before performing certain outpatient procedures. Understanding these changes will be critical to avoid unnecessary denials beginning on July 1, 2020.

The new prior authorization rules, which were outlined in the 2020 Medicare Hospital Outpatient Prospective Payment System (OOPS), are primarily for services that are sometimes performed for cosmetic purposes and have been identified by the Centers for Medicare and Medicaid Services (CMS) as being at-risk for incorrect payment due to medical necessity concerns.

The prior authorization final rule was published in the Federal Register on Nov. 12, 2019, in Section XIX under “Prior Authorization Process and Requirements for Certain Hospital Outpatient Department (OPD) Services.”

Masking cosmetic procedures

According to the rule, CMS conducted an analysis of over 1 billion claims relating to outpatient department services (OPD) dating from 2007 to 2017. The agency determined that utilization volume increased significantly during that period, from approximately 90 million to 118 million. In addition, the Medicare allowed amount for OPD more than doubled, from $31 billion in 2007 to $65 billion in 2017.

To reduce improper outpatient claims, CMS specifically targeted Medicare cosmetic surgical procedures that may be combined with, or masquerade as, therapeutic services. CMS’ analysis indicated the following outpatient procedure categories had higher-than-expected volume:

1. Blepharoplasty
2. Botulinum toxin injections
3. Panniculectomy
4. Rhinoplasty

July 2020 deadline

Prior authorization for the specified list of procedures found under these categories (see below) must be obtained for services performed on or after July 1, 2020. In theory, the authorization process should take no more than 10 days. Either the physician or the hospital may submit the request for prior authorization, but the hospital will remain ultimately responsible for ensuring that authorization is obtained prior to the surgical procedure.

To help prevent unnecessary denials, be sure your staff is fully aware of the specific procedures that now require prior authorization. Be sure to watch for news from your local Medicare Administrative Contractor (MAC) as the July 1 implementation date approaches because the MACs will be responsible for organizing the authorization request process.

Table 65: Proposed List of Outpatient Services That Would Require Prior Authorization [1]

Code	(i) Blepharoplasty, Eyelid Surgery, Brow Lift, and Related Services
15820	Removal of excessive skin of lower eyelid
15821	Removal of excessive skin of lower eyelid and fat around eye
15822	Removal of excessive skin of upper eyelid
15823	Removal of excessive skin and fat of upper eyelid
67900	Repair of brow paralysis
67901	Repair of upper eyelid muscle to correct drooping or paralysis
67902	Repair of upper eyelid muscle to correct drooping or paralysis
67903	Shortening or advancement of upper eyelid muscle to correct drooping or paralysis
67904	Repair of tendon of upper eyelid
67906	Suspension of upper eyelid muscle to correct dropping or paralysis
67908	Removal of tissue, muscle, and membrane to correct eyelid dropping or paralysis
67911	Correction of widely opened upper eyelid

Code	(ii) Botulinum Toxin Injection
64612	Injection of chemical for destruction of nerve muscles on one side of face
64615	Injection of chemical for destruction of facial and neck nerve muscles on both sides of face
J0585	Injection, onabotulinumtoxina, 1 unit
J0587	Injection, rimabotulinumtoxinb, 100 units

Code	(iii) Panniculectomy, Excision of Excess Skin and Subcutaneous Tissue (Including Lipectomy), and Related Services
15830	Excision, excessive skin and subcutaneous tissue (includes lipectomy); abdomen, infraumbilical panniculectomy
15847	Excision, excessive skin and subcutaneous tissue (includes lipectomy), abdomen (e.g. Abdominoplasty) (includes umbilical transposition and fascial plication) (list separately in addition to code for primary procedure)
15877	Suction assisted removal of fat from trunk

Code	(iv) Rhinoplasty, and Related Services
20912	Nasal cartilage graft
21210	Repair of nasal or cheek bone with bone graft
21235	Obtaining ear cartilage for grafting
30400	Reshaping of tip of nose
30410	Reshaping of bone, cartilage, or tip of nose
30420	Reshaping of bony cartilage dividing nasal passages
30430	Revision to reshape nose or tip of nose after previous repair
30435	Revision to reshape nasal bones after previous repair
30450	Revision to reshape nasal bones and tip of nose after previous repair
30460	Repair of congenital nasal defect to lengthen tip of nose
30462	Repair of congenital nasal defect with lengthening of tip of nose
30465	Widening of nasal passage
30520	Reshaping of nasal cartilage

Code	(v) Vein Ablation and Related Services
36473	Mechanochemical destruction of insufficient vein of arm or leg, accessed through the skin using imaging guidance
36474	Mechanochemical destruction of insufficient vein or arm or leg, accessed through the skin using imaging guidance
36475	Destruction of insufficient vein of arm or leg, accessed through the skin
36476	Radiofrequency desctruction of insufficient vein of arm or leg, accessed through the skin using imaging guidence
36478	Laser desctruction of incompetent vein of arm or leg, accessed through the skin
36479	Laser desctrustion of insufficient vein of arm or leg, accessed through the skin using imaging guidance
36482	Chemical destruction of incompetent vein of arm or leg, accessed through the skin using imaging guidance
36483	Chemical destruction of incompetent vein of arm or leg, accessed through the skin using imaging guidance

Your AR specialists

ParaRev specializes in accounts receivable recovery and resolution and serves as a virtual extension of your hospital central billing office to help you quickly resolve and collect more of your insurance accounts receivable.

We utilize proprietary intelligent automation and staff specialization to efficiently process all claims regardless of size or age. In addition to our resolution capabilities, ParaRev also can provide denial management assistance by conducting root cause analysis and recommend process improvements to help decrease aged and denied claims going forward.

Contact ParaRev today to learn more about how we can help you with your hospital’s accounts receivable management.

1. Federal Register / Vol. 84, No. 218 / Tuesday, November 12, 2019 / Rules and Regulations. Pages 61450-61451.

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Long a thorn in the side of hospitals nationwide, the Centers for Medicare and Medicaid Services’ (CMS) Recovery Audit Contractor (RAC) program recently underwent substantial changes which CMS say will make the audit process significantly less burdensome for providers.

The RAC program — one of several Medicare payment oversight initiatives — was launched in 2009 and relies on third-party contractors to uncover and correct improper Medicare fee-for-service payments through post-payment claims reviews.

RACs identified approximately $89 million in overpayments and recovered $73 million in FY 2018.[1] Since its inception, the RAC program has returned more than $10 billion in improper payments to the Medicare trust fund and more than $800 million in underpayments to providers.[2]

RAC audits typically involve automated claim reviews utilizing computers to detect improper payments, as well as complex reviews that incorporate human analysis of medical records and other documentation. The process has long been a target of ire for the American Hospital Association (AHA) and others in the industry due to the disruption, cost and uncertainty that can accompany a RAC audit for a target hospital.

Fewer audits, more transparency

In announcing changes to the RAC process earlier this year, CMS Administrator Seema Verma acknowledged the agency had received numerous complaints about the program in the past.[3]

“Providers found the audits time-consuming, necessitating high administrative expenses, and often requiring lengthy appeals,” Verma said. “Thanks to recent efforts by this Administration, complaints about RACs have decreased significantly. CMS listened to what providers were telling us and we made meaningful changes.”[4]

Modifications aimed at making the RAC process easier for providers include:[5]

• RACs could previously select a certain type of claim to audit. They must now audit proportionately to the types of claims a provider submits.
• Instead of treating all providers the same, RACs are conducting fewer audits of providers with low claims denial rates.
• Providers have more time to submit additional documentation before being required to repay a claim. A 30-day discussion period, after an improper payment is identified, means that providers do not have to choose between initiating a discussion and filing an appeal.
• CMS is now seeking public comment on newly proposed RAC areas for review before the reviews begin. According to the agency, this allows providers to voice concerns regarding potentially unclear policies that will be part of the review.

Among the CMS program changes designed to hold RACs more accountable:[6]

• RAC provider portals are being enhanced to make it easier for providers to understand the status of claims.
• RACs that fail to maintain a 95% accuracy score will receive a progressive reduction in the number of claims they’re allowed to review.
• RACs that fail to maintain an overturn rate of less than 10% will also see a reduction in the number of claims they can review.
• RACs will not receive a contingency fee until after the second level of appeals is exhausted. Previously, RACs were paid immediately upon denial and recoupment of the claim. This delay in payment helps assure providers that the RAC’s decision was correct before they’re paid, according to CMS.

Tracking RACs

The AHA closely monitored the RAC program between 2014 and 2016. According to the AHA’s final RAC report, 60% of claims reviewed by RACs in the third quarter of 2016 were found not to have an overpayment.[7] Hospitals appealed 45% of all denials, with 27% of hospitals reporting having a denial reversed in the discussion period.[8]

AHA also disclosed that 43% of hospitals spent over $10,000 to manage the RAC process during Q3 2016, while 24% spent more than $25,000 and 4% spent over $100,000.[9]

Driving down the denial backlog

In recent years, denials initiated due to RAC audits have contributed to a massive backlog of Medicare appeals, the number of which totaled 426,594 in November 2018.[10] In response to a lawsuit brought by AHA and others, the Department of Health and Human Services (HHS) was ordered last year to eliminate the backlog by the end of the 2022 fiscal year.[11]

As a result of the order, the backlog had been reduced by 25%, or 108,340 appeals, by the end of Q3 2019, according to AHA, bringing the total down to 318,254.[12] AHA and others sued HHS in 2012 for noncompliance with a statutory requirement that decisions on appeals at the administrative law judge level be made within 90 days.[13] According to CMS, the average processing time for appeals was 1,361 days in FY 2019, up from 1,193 days in 2018 and 94 days in 2009, the year the RACs program was launched.[14]

RAC tactics

In anticipation of an increase in RAC activity — and because CMS Administrator Verma noted that RACs will henceforth be guided by the volume of claims a provider submits — some experts are zeroing in on claims that may represent large-volume risk areas for hospitals.

Among these, according to the John Hall, MD, writing in RACmonitor publication, are observation claims. “There are two types of potential observation denials,” Hall wrote.[15] “The first is denials based on the failure to document the essential elements of observation services. The second is based on observation claims that should have been inpatient.”

Hall suggested asking a series of questions about each observation claim in preparation for a possible review:[16]

• Does the documentation indicate what is being treated, assessed and reassessed?
• Is there documentation of ongoing treatment, assessment and reassessment, or is the patient being seen once a day?
• Does the documentation indicate what parameters might trigger admission “for further treatment,” or if the patient might be discharged from the hospital?

“Implicit in observation services, for the purposes of reimbursement, is a decision related to admission or discharge,” Hall wrote. “If the record does not delineate CMS’ criteria, then observation reimbursement might be jeopardized.”[17]

According to Hall, other potential risk areas, based on the new RAC guidance, include:[18]

• Diagnostic or therapeutic services with documentation requirements
• One-midnight inpatient surgical procedures
• Observation services in the perioperative period
• Inpatient care for traditionally outpatient services
• NCD and LCD compliance

A comprehensive coding, claims and revenue cycle solution

Meeting the challenges of Medicare claims compliance and overall revenue cycle management requires systematic approaches grounded in empirical evidence and a capable staff delivering proven solutions.

ParaRev can help you significantly refine your coding, AR recovery and resolution, and denial management processes. We can also help you minimize the risk of a RAC audit, while ensuring you’re in a position to respond promptly and effectively if one occurs. Contact us today to learn more about how we can help your organization secure its financial foundation.

1. Seema Verma, “Recovery Audits: Improvements to Protect Taxpayer Dollars and put Patients over Paperwork,” CMS.gov, May 2, 2019.
2. “A History of the RAC Program,” MedicareIntegrity.org.
3. Seema Verma, “Recovery Audits: Improvements to Protect Taxpayer Dollars and put Patients over Paperwork,” CMS.gov, May 2, 2019.
4. Ibid
5. Ibid
6. Ibid
7. “Exploring the Impact of the RAC Program on Hospitals Nationwide,” American Hospital Association, Dec. 5, 2016.
8. Ibid
9. Ibid
10. Jacqueline LaPointe, “Court Orders HHS to Eliminate Medicare Appeals Backlog by 2022,” RevCycle Intelligence, Nov. 13, 2018.
11. Ibid
12. “As a result of AHA lawsuit, HHS continues to reduce appeals backlog,” press release, American Hospital Association, Sept. 30, 2019.
13. Jacqueline LaPointe, “Court Orders HHS to Eliminate Medicare Appeals Backlog by 2022,” RevCycle Intelligence, April 4, 2018.
14. “Average Processing Time By Fiscal Year,” Office of Medicare Hearings and Appeals, HHS.
15. John K. Hall, “Level of Concern Rises as RACs are Back,” RACmonitor, July 24, 2019.
16. Ibid
17. Ibid
18. John K. Hall, “Level of Concern Rises as RACs are Back: Part II,” RACmonitor, July 31, 2019.

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IMPORTANT UPDATE:

On January 2, 2020, the Centers for Medicare and Medicaid Services (CMS) announced that it has extended by one full year the reporting deadline for private payor rate data. The announcement was posted on the CMS PAMA Regulations website. For more information on the reporting requirement, which applies to many hospitals and physician clinics which operate a CLIA-certified lab, read our article below. To review the revised dates, click here.

With the clock ticking, hospitals nationwide are scrambling to comply with a new reporting mandate announced by Medicare in early 2019 within a densely written and widely misunderstood transmittal.

The reporting, which is mandated by the Protecting Access to Medicare Act of 2014 (PAMA), requires physician clinics and hospital outreach laboratories that perform specimen-only lab testing on the 14x Type of Bill (TOP) to report their commercial payor payment rates for lab services by the end of March 2020 or potentially face fines of more than $10,000 per day.

Many hospitals view the requirement as onerous, since most don’t retain detailed payment rate data at the line-item level. Instead, hospitals generally post total payment, total adjustments, and total patient liability only, without specific rates for each line on a claim. As a result, the information is not available within the hospital accounting system and other methods must be found to meet the reporting requirement.

The new mandate marks the second time Medicare has collected private payor lab rate payment data, but it’s the first time the requirement has been extended to include hospitals that bill Medicare and other payors on the 14x TOB. The Centers for Medicare and Medicaid Services (CMS) must collect private payor data every three years for use in setting rates under the Clinical Lab Fee Schedule (CLFS). Their initial effort in 2016 required that only large national and regional lab testing firms, such as LabCorp and Quest, report.

The 2019 Outpatient Prospective Payment System (OPPS) Final Rule expanded the reporting obligation to include hospital outreach laboratories that submit Medicare claims for non-patient services if the hospital meets the threshold of $12,500 in revenues paid by Medicare for services on the 014x TOB during the first six months of 2019. The rate reporting is due to CMS by the end of the first quarter of 2020.

Applicable laboratories

According to CMS, “applicable laboratories” that are required to collect and report their private-payor, non-patient service lab rates paid for dates of service from January 1 through June 30, 2019, are organizations that can answer affirmatively to the following questions:[1]

1. Is the laboratory certified under CLIA?
2. Does the CLIA-certified laboratory bill Medicare Part B for specimen-only/non-patient laboratory services on the 14x Type of Bill?
3. Were the majority of payments received from Medicare on TOB 14x claims paid under the Clinical Lab Fee Schedule or the Medicare Physician Fee Schedule? (Majority of Medicare Revenues test)
4. Did Medicare reimburse the laboratory more than $12,500 for lab services billed on the 014x type of bill between January 1 and June 30, 2019? (Minimum revenue threshold test.)

Since tests 1 through 3 are typically met by hospitals that perform non-patient lab testing, the main determinant of the obligation to report is the $12,500 threshold.

It’s important to note that Medicare Advantage plan payments made under Medicare Part C are not to be included in the total Medicare revenues component of the majority of Medicare revenue threshold calculation.

Medicare acknowledges that most hospital labs will meet this Majority of Medicare revenues test on page 8 of Medicare Learning Network Matters Number: SE19006:

“Hospital outreach laboratories that bill Medicare Part B under the hospital’s NPI, and therefore determine applicable laboratory status based on its Medicare revenues from the 14x TOB, will most likely meet the majority of Medicare revenues threshold. They will most likely meet the majority of Medicare revenues threshold because their Medicare revenues are primarily, if not entirely, derived from the CLFS and or PFS. In other words, the revenues from the CLFS and or PFS services included in the numerator are essentially the same as the total Medicare revenues included in the denominator.”

Note that while the UB manual specifies that 14x TOB is for non-patient lab tests, California Medicaid requires emergency department charges (ED) to be reported on the 14x type of bill. Hospitals in California, therefore, will need to report specimen-only testing claims and exclude claims for in-person medical services, such as ED charges, to ensure they’re only reporting non-patient lab charges.

Some physician offices that provide laboratory services will need to report if they have $12,500 or more in Medicare revenue for all clinical services, even though they bill on a CMS1500/837i claim form. Reporting for physician offices should nonetheless be relatively straightforward, since, unlike hospitals, they post by line item in the patient accounting system.

Reporting requirements and timetable

Applicable laboratories are responsible for collecting three primary types of information, according to CMS:[2]

1. The specific HCPCS code associated with the test
2. The private payor rate for each test for which final payment has been made during the data collection period
3. The associated volume for each test

For additional details on reporting requirements, visit CMS Medicare Learning Network Matters SE19006.

The period for which data is to be collected includes dates of service from January 1 through June 30, 2019, as well as claims from earlier dates of service that were not paid until the 1/1/19-6/30/19 timeframe.

The six-month period from July 1 through the end of calendar 2019 was designated by CMS as a review and validation period. The rate information can be reported to CMS starting Jan. 1, 2020, with a deadline of March 31, 2020. This collection, validation and reporting cycle will repeat every three years to form the basis for an updated CLFS.

The reporting is designed to ensure that the rates paid under Medicare’s Clinical Lab Fee Schedule fairly represent hospital rates, as well to those paid to commercial, low-charge/high-volume labs. It is therefore important for all outreach labs to provide data which can help support more equitable and appropriate Medicare reimbursement rates in the future.

Penalties

Applicable organizations may face civil penalties of up to $10,017 per violation per day if reporting is not complete, accurate and timely, according to CMS. There is no exception for Critical Access Hospitals. In its final rule, CMS noted that in situations where its review revealed that the data submitted was incomplete or incorrect, the agency would work with the Office of Inspector General (OIG) to assess whether a civil monetary penalty should be applied, and if so, what the appropriate amount should be based on the specific circumstances.[3] CMS also stated that it does not intend to assess monetary penalties for minor errors.[4]

Achieving compliance

Even if your organization hasn’t started test rate collection and validation, it’s not too late to achieve compliance with the March 31 reporting deadline. Hospitals can immediately task clerks with the task of pulling both paper and electronic 835s claims to begin assessing the total dollar amount and volume of the tests in question.

Alternatively, ParaRev provides compliance assistance through our comprehensive Lab Payment Reporting Analytical Services. Using Medicare outpatient claims data, we’ll help new and existing clients determine the type and volume of payments made through the Medicare 14x TOB. This will help determine whether the hospital has exceeded either the $12,500 Medicare threshold for the January-June 2019 reporting period, and therefore needs to report.

The PARA Data Editor additionally offers the ability to analyze electronic remittance files to quickly generate a spreadsheet of the allowable rates paid by CPT® codes on the 14x TOB. PARA can configure this electronic data into the required format for Medicare reporting. However, some clients will likely have received payments that will require manual research if they were not paid on a submitted 835 file, since ParaRev is unable to research payments submitted on paper remittances.

It’s critical that hospital outreach labs push to meet the PAMA reporting requirements, not only to eliminate the risk of onerous monetary penalties, but to help ensure the highest possible lab reimbursements in the future. Contact HFRI to learn more about how our Lab Payment Reporting Analytical Services can help you.

1. “Medicare Part B Clinical Laboratory Fee Schedule: Revised Information for Laboratories on Collecting and Reporting Data for the Private Payor Rate-Based Payment System,” MLM Matters, Centers for Medicare and Medicaid Services, Sept. 5, 2019.
2. Ibid
3. “Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System, Final rule,” Federal Register, June 23, 2016.
4. Ibid

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Difficult and sometimes treacherous for ships at sea, navigating in the dark can be equally perilous for hospitals struggling to comply with Medicare’s murky two-midnight inpatient admissions rule.

The rule was created by the Centers for Medicare and Medicaid Services (CMS) five years ago as means of assisting hospitals in determining whether patients should be admitted as in-patients or placed in observation as outpatients, if ordered by the physician. CMS’ goals were to reduce unnecessary admissions and help ensure patients received quality care at the appropriate time and place.

But despite the passage of time and multiple rule modifications, confusion continues to surround the regulation for many. This uncertainty has translated into a substantial risk of denials for inpatient admissions CMS does not consider justified. It also can lead to lost revenue on legitimate inpatient admissions down-coded as observational.

To minimize two-midnight denials and optimize collections, hospitals must ensure that both clinicians and utilization management staff have a concise understanding of how the rule works. As part of this effort, they need to be sure all relevant medical necessity documentation is provided to support the clinician’s inpatient determination.

Replaced severity and intensity of service

Developed as part of the 2014 Inpatient Prospective Payment System Final Rule, the two-midnight rule states that a hospital admission is generally considered reasonable and necessary if the physician or qualified practitioner orders the admission based on the expectation that the patient will require medically necessary hospital care that spans at least two midnights.

Patients that aren’t expected to require a stay extending through two or more midnights are classified as outpatients receiving observation services (OBS) and the hospital is reimbursed at outpatient rates. If, however, care for patients in OBS status extends toward a second midnight, they may be formally admitted as inpatients. The rule replaced previous inpatient guidelines that were based on severity of illness and intensity of service.

Since the rule was implemented, some hospitals have continued to rely primarily on severity and service intensity as the key factors in deciding whether or not to admit. Others erroneously have assumed that the shift to a time-based admission calculus means that documenting medical necessity is no longer necessary.

Knee replacement confusion

Although uncertainty surrounds the interpretation of the two-midnight rule across a range of procedures and morbidities, CMS policies regarding total knee arthroplasty (TKA) have resulted in confusion. Effective Jan. 1, 2018, CMS removed TKA from the Impatient Only List (IPO) and assigned the procedure an Ambulatory Payment Classification. But even though removal from the IPO means the procedure is paid as an outpatient service, it still must be performed in a hospital.[1]

At the same time, CMS has noted that shifting to the IPO “does not require the procedure to be performed only on an outpatient basis.” Yet the agency provided no guidance on how hospitals should determine which cases can be performed inpatient.[2]

A good first step in resolving this dilemma is to review the historical length of stay for TKA patients to determine if the two-midnight rule is met. Even with this information, however, the rules can be tricky: According to published reports, if physicians routinely have kept patients over two midnights in the past, that doesn’t mean they automatically are meeting medical necessity requirements for inpatient level of care now.[3]

Adding to the uncertainty, CMS will allow cases with less than two midnights to be paid at inpatient rates if the admitting physician indicates a need for inpatient hospital care in the documentation.[4]

To ease the confusion, experts recommend that orthopedic surgeons and health system utilization management staff create detailed protocols for designating inpatient and outpatient procedures immediately after the fact. These rules should consider pre-operative history and comorbidities, signs and symptoms severity, anesthesia risks, as well as unanticipated surgical events and any post-procedure complications.[5]

Proposed changes in the 2020 OPPS Proposed Rule

CMS has proposed the removal of total hip arthroplasty, CPT code 27130, from the IPO list and has requested public comment by September 27 on the potential removal of the following procedures from the IPO list:

Table 23: IPO List of CPT Codes to be Potentially Removed from the IPO List [6]

CPT Code	Long Descriptor
22633	Arthrodesis, combined posterior or posterolateral technique with posterior interbody technique including laminectomy and/or discectomy sufficient to prepare interspace (other than for decompression), single interspace and segment; lumbar;
22634	Arthrodesis, combined posterior or posterolateral technique with posterior interbody technique including laminectomy and/or discectomy sufficient to prepare interspace (other than for decompression), single interspace and segment; lumbar; each additional interspace and segment
22635	Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, extradural; cervical
22636	Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, extradural; thoracic
22637	Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, extradural; lumbar
22638	Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, extradural; sacral

CMS is also “proposing to establish a 1-year exemption from Beneficiary and Family-Centered Care Quality Improvement Organizations (BFCC-QIOs) referrals to Recovery Audit Contractors (RACs) and RAC reviews for “patient status” (that is, site-of-service) for procedures that are removed from the inpatient only (IPO) list under the OPPS beginning on January 1, 2020.”[7]

Utilization management must take the lead

Regardless of the illness or procedure, it’s essential that clinicians provide detailed documentation surrounding the initial assumption that the patient will likely require a minimum of 24-to-48 hours of care, depending on the time of admission.

Utilization management should take the lead in ensuring that clinicians are aware of their responsibilities with respect to appropriate documentation. They should also make it a priority to keep up with the latest interpretations of the two-midnight rule, and immediately convey this guidance to clinical staff. Additionally, all admissions should be reviewed during or after discharge to confirm that inpatient admission was justified, based on documented risks, complications, need for therapy or need for inpatient skilled nursing care.[8]

When inpatient admission cannot be justified, hospitals can attempt to change the claim to outpatient status by following the condition code 44 process. Or they can simply self-deny and rebill as an outpatient service. In these cases, the patient and physician must be notified.[9]

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1. Debbie Sconce, “Total knee arthroplasty – No longer inpatient only,” Becker’s Hospital Review, April 17, 2018.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. “Medicare Program: Proposed Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs,” ederal Register 84 FR 39398. Aug. 9, 2019.
7. Ibid
8. Ronald Hirsch, MD, “Two-midnight Rule Remains Confusing; Total Knee Replacements Frustrating to Many,” RACmonitor, May 16, 2018.
9. Ibid.

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