Knowledge Base Article

The Fourth Time’s the Charm

CMS is having a hard time getting their transmittal concerning the denial of related claims correct. Perhaps the fourth time is the charm and hopefully between the writing of this article and its subsequent publication in our weekly newsletter, CMS will not rescind and republish this change request yet again. Originally back in February, CMS published Transmittal 505 but in a little over a month, it was rescinded due to the need to “clarify CMS policy.” Then on August 8th, Transmittal 534 was released – please refer to our article Medicare Allows Denials of Related Claims. This one lasted less than a month, and four days before the effective date it was replaced with Transmittal 540. I immediately recognized a discrepancy in Transmittal 540 between the policy section and the Manual Instructions. Evidently CMS also saw the error and hence the latest revision to these instructions in Transmittal 541.

So what has changed from version 1 to 2 to 3 to 4?

Version One (Transmittal 505) gave the MAC, RAC and ZPIC the discretion to deny a part B claim related to a denied part A claim which was not considered reasonable and necessary. It included an example of a diagnostic test deemed not reasonable and necessary, allowing the denial of the professional component for that test.

In Transmittal 534, the second version, the diagnostic test example was removed and the RACs must utilize the review approval process as outlined in their scope of work when performing reviews of “related” claims. This transmittal also required CMS approval before MACs and ZPICs can initiate “related” reviews and MACs must publish notice of such reviews on their website. The example given in this transmittal included denial of physician claims if a procedure was determined to not be medically necessary and downgrading the physician’s E&M service from inpatient to outpatient if the inpatient stay was determined to not meet criteria (that is, the services could have been provided on an outpatient basis).

Version Three, Transmittal 540, replaced 534 “to adhere to CMS Inpatient recoding policy standards” and the part of the above noted example related to down-coding physician E&M services from inpatient to outpatient was removed. The only example now listed is:

“When the Part A Inpatient surgical claim is denied as not reasonable and necessary, the MAC may recoup the surgeon's Part B services. For services where the patient’s history and physical (H&P), physician progress notes or other hospital record documentation does not support the medical necessity for performing the procedure, postpayment recoupment may occur for the performing physician’s Part B service.”

Transmittal 540 corrected the above example in the Manual Instructions, but kept the “old” example in the policy section – likely an oversight. Transmittal 541, the fourth and hopefully final version, makes the example consistent in both sections.

So for now it appears the denial of related claims is limited to inpatient surgical claims where the surgical procedure itself is determined to not be medically necessary based on the documentation in the hospital record. This should be an impetus for both hospitals and physicians to make sure documentation in the hospital’s record supports the medical necessity of the procedure. This may require including documentation from the physician’s office records in the hospital medical record to provide sufficient history of the condition and previous treatments to justify the procedure. Though this step toward coordination of reviews between hospital and physician records has gotten smaller and smaller, at least it is a starting point. Maybe in the future CMS will expand its scope.