Hospital Billing From A to Z

Hospital Billing
From A to Z
Charlotte L. Kohler, RN, CPA, CVA, CRCE-I, CPC, ACS, CHBC
and Kohler HealthCare Consulting, Inc., associates

Catherine Clark, CPC, CRCE-I Robin Stover, RN, BSBA, CPC,

Hospital Billing
From A to Z
Darrin Cornwell, CRCS-I CPC-H, CMAS
Janet Ellis, RN, BSN, MS Deanna Turner, MBA, CPOC,
Dawn Doll Homer, CPC, CRCS-I, CDC CPC, CPC-I, CSSGB
Daria Malan, RN, LNHA, MBA, RAC-CT® Susan Walberg, JD, MPA, CHC
John Ninos, MS, MT(ASCP), CCS

Kohler
Hospital billing departments are known by various names, but their staff all experience
the same problems understanding and complying with Medicare’s many billing requirements.

Hospital Billing From A to Z is a comprehensive, user-friendly guide to hospital billing

requirements, with particular emphasis on Medicare. This valuable resource will help hospital billers
understand how compliance, external audits, and cost-cutting initiatives affect the billing process.

Beginning with Advance Beneficiary Notice and ending with Zone Program Integrity Contractors,
this book addresses nearly 90 topics, including the following:

»» 2-Midnight Rule and Inpatient Admission »» Local and National Coverage Determinations
Criteria »» Medically Unlikely Edits and Outpatient
»» Correct Coding Initiative Code Editor
»» CPT®, HCPCS, Condition Codes, Occurrence »» Medicare Advantage Plans
Codes, Occurrence Span Codes, Revenue »» Medicare Beneficiary Numbers and
Codes, and Value Codes National Provider Identifier
»» Critical Access Hospitals »» Medicare Part A and Part B
»» Deductibles, Copayments, and Coinsurance »» No-Pay Claims
»» Denials, Appeals, and Reconsideration »» Observation Services
Requirements
»» Outlier Payments
»» Dialysis and DME Billing in Hospitals
»» Hospital-Issued Notice of Noncoverage
»» Present on Admission Charlotte L. Kohler, RN, CPA,
»» Laboratory Billing and Fee Schedule
»» Rejected and Returned Claims CVA, CRCE-I, CPC, ACS, CHBC
»» UB-04 Form Definitions

HBFAZ

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 Hospital Billing
From A to Z
Charlotte L. Kohler, RN, CPA,
CVA, CRCE-I, CPC, ACS, CHBC
Hospital Billing from A to Z is published by HCPro, a division of BLR

Copyright © 2014 HCPro, a division of BLR

All rights reserved. Printed in the United States of America. 5 4 3 2 1

ISBN: 978-1-55645-158-4

No part of this publication may be reproduced, in any form or by any means, without prior written consent of
HCPro, or the Copyright Clearance Center (978/750-8400). Please notify us immediately if you have received an
unauthorized copy.

HCPro provides information resources for the healthcare industry.

HCPro is not affiliated in any way with The Joint Commission, which owns the JCAHO and
Joint Commission trademarks.

Charlotte L. Kohler, RN, CPA, CVA, CRCE-I, CPC, ACS, CHBC, Author
Catherine Clark, CPC, CRCE-I, Author
Darrin Cornwell, CRCS-I, Author
Janet Ellis, RN, BSN, MS, Author
Dawn Doll Homer, CPC, CRCS-I, CDC, Author
Daria Malan, RN, LNHA, MBA, RAC-CT®, Author
John Ninos, MS, MT (ASCP), CCS, Author
Robin Stover, RN, BSBA, CPC, CPC-H, CMAS, Author
Deanna Turner, MBA, CPOC, CPC, CPC-I, CSSGB, Author
Susan Walberg, JD, MPA, CHC, Author
Andrea Kraynak, Product Specialist
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Contents

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi

2-Midnight Rule: Inpatient Admission Criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

3-Day Rule: What Should Be Combined?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Advance Beneficiary Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Ambulatory Payment Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Appeals and Appeal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Appeals and Reconsideration Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Assignment of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Billing Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Birthday Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Case Management and Utilization Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Centers for Medicare & Medicaid Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Charge Description Master . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Charges: Covered and Noncovered. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Children Covered by Medicare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Clean Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Clinic Visits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Clinical Laboratory Improvement Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Clinical Trials and Billing Services to Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Codes: CPT and HCPCS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Collection Calls to Medicare Patients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

The Common Working File and HIPAA Eligibility Transaction System . . . . . . . . . . . . . . . . . . . . 40

Comprehensive Error Rate Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

© 2014 HCPro Hospital Billing From A to Z | iii

Condition Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Corrective Coding Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Deductibles, Copayments, and Coinsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Denials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Dialysis Billing in Hospitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Discounts to Medicare Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

DME Billing in Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

DRGs: 72-Hour and 24-Hour Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Electronic Filing: Billing and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Emergency Department Services and Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Emergency Medical Treatment and Active Labor Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Explanation of Medicare Benefits and Medicare Summary Notice . . . . . . . . . . . . . . . . . . . . . . 66

Fraud and Abuse: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Health Information Management and Coding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

The Health Insurance Portability and Accountability Act of 1996. . . . . . . . . . . . . . . . . . . . . . . . 73

Hospital-Acquired Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Hospital Billing: An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Hospital-Issued Notice of Noncoverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Inpatient Hospital Benefit Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Itemized Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Laboratory Billing: Modifiers 91 and 59. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Laboratory Fee Schedule and Specimen Billing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Local Coverage Determinations and National Coverage Determinations . . . . . . . . . . . . . . . . . 87

Medical Necessity and Diagnosis Codes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Medical Severity of Illness: Impact on DRGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Medically Unlikely Edits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Medicare Administrative Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Medicare Advantage Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

iv | Hospital Billing From A to Z © 2014 HCPro

Medicare Beneficiary Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Medicare Coverage: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Medicare Part A: An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Medicare Part B: An Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Medicare Secondary Payer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Medigap Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Modifiers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

National Provider Identifier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

No-Pay Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Observation Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Occurrence Codes and Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Occurrence Span Codes and Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Office of Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Outlier Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Outpatient Code Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Part B Billing After Inpatient Claim Denial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

PEPPER Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Pharmacy Units and HCPCS Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Physician Orders and Prescriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Preadmission Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Present on Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Quality Improvement Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Recovery Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Reimbursement Guidance for Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Rejected Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Respite Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Returned Claims: Unprocessed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Revenue Codes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

© 2014 HCPro Hospital Billing From A to Z | v

Skilled Nursing Facility Coverage Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Standard Code Sets and Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Therapy Billing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Timely Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

UB-04 Form Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Value Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Waiver of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Working Aged: Primary and Secondary Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

Zone Program Integrity Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

vi | Hospital Billing From A to Z © 2014 HCPro

About the Authors

Charlotte L. Kohler, RN, CPA, CVA, CRCE-I, CPC, ACS, CHBC

Charlotte L. Kohler, lead author, is the president of Kohler HealthCare Consulting, Inc. She has more
than 30 years of healthcare experience.

Kohler’s major clients include large academic centers, multisystem hospitals, insurance companies,
medical practices, radiology providers, infusion/chemotherapy providers, psychiatric providers and
hospitals, durable medical equipment suppliers, wound care providers, lithotripsy providers, oncology
and radiation therapy supporting coding services, and compliance and litigation organizations. In the
areas of consulting and litigation support, she specializes in compliance and regulatory issues, valua-
tions, and outpatient and professional services reimbursement.

Catherine Clark, CPC, CRCE-I

Catherine Clark, a vice president of Kohler HealthCare Consulting, has worked in the healthcare
industry since 1994. She has worked in all facets of the revenue cycle, with specific emphasis in
charge description master process improvements, patient accounting, and rates and reimbursement.
She has served as chairman of the board of directors and is a past president of the Maryland chapter
of the American Association of Healthcare Administrative Management. Her recent healthcare work
has focused on project management of electronic health record installations and integration and
ICD-10 project management.

Darrin Cornwell, CRCS-I

Darrin Cornwell, a manager at Kohler HealthCare Consulting, has more than 21 years of healthcare
experience in quality and compliance, revenue cycle management, patient access, claims management,
and internal audit management. Cornwell possesses in-depth knowledge of the Centers for Medicare &
Medicaid Services rules, the Health Insurance Portability and Accountability Act of 1996, Stark Law,
Emergency Medical Treatment and Active Labor Act, protected health information, fraud and abuse,
and the anti-kickback law.

© 2014 HCPro Hospital Billing From A to Z | vii

Janet Ellis, RN, BSN, MS
Janet Ellis, a director at Kohler HealthCare Consulting, has more than 40 years of clinical and manage-
ment experience in acute care hospitals. Her clinical experience includes adult critical care, telemetry,
emergency department, and post-anesthesia care. She has worked as an assistant manager and man-
ager of critical care units for 26 years. She worked with staff and physicians on The Joint Commission
standards to prepare for reviews and continued maintenance of the standards.

Dawn Doll Homer, CPC, CRCS-I, CDC

Dawn Doll Homer, a senior consultant at Kohler HealthCare Consulting, has more than 20 years of
experience in healthcare administration and finance. This includes extensive experience in long-term
care (skilled nursing facility) billing for Medicare, Medicaid, and private payers. Homer has performed
dental coding and compliance audits along with emergency department reviews for many hospitals
in Maryland. Homer has been actively involved in many aspects of healthcare research, including
compliance, human resources, billing, Medicare, and Medicaid. She has helped hospital management
complete all documentation, submissions, and monitoring to obtain Medicare provider numbers and
credential status for physician assistants to allow professional billing.

Daria Malan, RN, LNHA, MBA, RAC-CT®

Daria Malan, an associate director at Kohler HealthCare Consulting, has extensive experience in nurs-
ing administration, management, critical care, acute care, rehabilitation, long-term care, ambulatory,
and home health. Malan is proficient in critical thinking, change management, revenue cycle process
improvement, and clinical documentation to achieve financial results. Her areas of concentration with
proven outcomes include talent management and improving staff functionality to meet regulatory
requirements.

John Ninos, MS, MT (ASCP), CCS

John Ninos, a senior manager at Kohler HealthCare Consulting, has more than 35 years of healthcare
experience on the provider and payer sides. Ninos has led a wide range of projects involving charge-
master reviews, healthcare billing, coding, regulations, policy, fraud and abuse, and audits. He has
worked in all facets of the revenue cycle, with specific emphasis in charge description master, process
improvements, rates and reimbursement, and compliance.

viii | Hospital Billing From A to Z © 2014 HCPro

Robin Stover, RN, BSBA, CPC, CPC-H, CMAS
Robin Stover, a director at Kohler HealthCare Consulting, has more than 30 years of clinical, coding,
and revenue cycle experience. Stover has spent the past 16 years in utilization review and revenue
enhancement with specific interest and experience in infusion services, chemotherapy, pharmacy,
emergency department services, interventional radiology, and wound care. Stover’s clinical experience
includes intensive care and post-anesthesia care. Her coding and compliance work has included risk
assessments of various hospital programs, including physical therapy, wound care, infusion therapy,
and emergency services. She has assisted with electronic health record installation for a large health
system in Maryland. Her revenue cycle enhancement experience includes working with providers (pri-
marily hospitals) nationwide to evaluate and revise their charging practices while subsequently recov-
ering revenue.

Deanna Turner, MBA, CPOC, CPC, CPC-I, CSSGB

Deanna Turner, a director at Kohler Healthcare Consulting, specializes in regulatory compliance,
healthcare operations, and financial performance improvement. Her 20 years of experience span a
variety of providers, including physician organizations, hospitals, and integrated health systems. Turner
has assisted with regulatory compliance assessments, compliance program development and imple-
mentation, revenue cycle assessment and improvement, inpatient and outpatient process improvement,
operational assessments, and performance improvement, including clinical documentation and coding
review.

Susan Walberg, JD, MPA, CHC

Susan Walberg, vice president and national director of compliance at Kohler HealthCare Consulting,
has more than 20 years of healthcare experience on the provider and payer sides. Her experience
includes medical underwriting, contract and benefit analysis, and Medicare Part B desk and on-site
audits and investigations. Walberg served as a regulatory attorney and privacy officer for a large multi-
state health system, where she was responsible for interpretation, analysis, application, implementation
of state and federal laws (including the Health Insurance Portability and Accountability Act of 1996
and the Deficit Reduction Act), and development and implementation of policy. She also analyzed con-
tracts to ensure compliance with Stark and anti-kickback law requirements, and educated executives
and staff with respect to these topics. She led internal reviews and investigations, directed overpayment
situations, and developed the privacy and security breach response process and related policies. She
has served as the corporate compliance officer in two health systems and managed their staff and facil-
ity compliance activities. This included developing codes of conduct, conducting compliance program
assessments, and developing risk assessments, policies and procedures, board reports, education plans
and tools, and conflict of interest processes.

© 2014 HCPro Hospital Billing From A to Z | ix

Introduction

The chief responsibilities of hospital billers include managing and ensuring the accuracy of hospital
bills being submitted to Medicare. Numerous regulations, standards, and guidelines govern this func-
tion, and hospital billers are expected to maintain up-to-date knowledge of these requirements. Much
of this knowledge is acquired by on-the-job training, working through issues, and looking for resources
to support the tasks.

This book is a high-level reference guide designed to help hospital billing professionals meet these
Medicare billing requirements. Its approach is topical to help readers find the answers to their ques-
tions quickly. The 88 chapters are brief, address only one topic each, and are arranged alphabetically.
References at the end of chapters provide URLs to Medicare rules and regulations; citations are includ-
ed to assist in quickly locating the source of the rule, regulation, or guidance.

Submitting inaccurate bills to Medicare carries many potential consequences. These consequences can
be long-term or short-term, and can affect patients, hospitals, and hospital employees responsible for
Medicare billing. The federal government is systematically reviewing claims submitted to its payers to
verify that any payments made are only for services that are necessary and appropriate, and that they
are accurately billed.

For example, the U.S. Department of Health and Human Services Office of Inspector General has been
performing compliance audits in which a team of auditors evaluates the accuracy of billing and the
supporting documentation. Audited hospitals receive feedback on each claim reviewed, and a demand
is made for any amount overbilled. These reviews are broad-reaching and include both technical
billing compliance reviews and the appropriateness of the care and the setting in which that care was
provided. Thus, it is critical that hospital billing staff have a solid understanding of the range of issues
affecting claims accuracy.

This book will help hospital billing staff understand the variety of requirements that can affect the
accuracy of hospital bills to Medicare. It also provides information that can help mitigate government
audits and repayments.

© 2014 HCPro Hospital Billing From A to Z | xi

2-Midnight Rule:
Inpatient Admission Criteria

On August 19, 2013, the Centers for Medicare & Medicaid Services (CMS) issued final regulations on
inpatient admissions criteria as part of the Inpatient Prospective Payment System (IPPS) 2014 regula-
tions. The 2-midnight rule was part of these regulations and took effect October 1, 2013.

The 2-midnight rule is a condition of payment, not a condition of participation, and it includes specific
requirements relating to observation services and inpatient admissions. The rule’s basic premise is that
when hospital stays are two midnights or longer, the inpatient portion may be deemed a qualified
admission, even if the first day (midnight) was spent in observation status. Hospital stays of shorter du-
ration should be deemed outpatient or observation.

For inpatient admissions, the order for admission needs to state clearly the intent to admit to inpatient
status, such as “admit to inpatient,” rather than “admit to Tower 5” or admit to ICU.” There must also
be an expectation, written or inferred, of at least a two-midnight stay.

The certification provision includes the order, but it must also:

1. Include physician certification that services are provided in accordance with 42 CFR 412.3

2. Include the reasons for either the hospitalization for inpatient medical treatment or medically
required inpatient diagnostic study

3. Describe special or unusual services for cost outlier cases

Although no special certification document is required, the above documentation needs to be present
in the patient’s medical record prior to discharge. Recertification needs to be completed as of the 12th
day of inpatient services and no less frequently than every 30 days thereafter.

Under these regulations, there are two medical review policies pertaining to the 2-midnight standard:

1. The first is a presumption by CMS that inpatient stays of two midnights or greater, after formal
admission, are generally appropriate for payment under Medicare Part A and will typically not
be the focus of CMS medical review efforts, by either the Medicare Administrative Contractor
or Recovery Auditors.

© 2014 HCPro Hospital Billing From A to Z | 1

 2. The second is a benchmark for Medicare contractor reviews of inpatient stays of less than two
midnights after the order is written, which are not presumed to be reasonable. CMS contrac-
tors will review those cases to evaluate the physician order, as well as the other elements of
the physician’s certification and supporting documentation, to determine whether the decision
to keep the patient in the hospital was reasonable. If the order, certification, and supporting
documentation indicate that the physician reasonably expected that the patient’s care would
span two midnights and that it was reasonable for the patient to remain at the hospital, then
the payment under Part A would be considered appropriate, even if some unforeseen event
caused a shorter length of stay.

The documentation required under this rule includes the actual order for inpatient admission, the cer-
tification elements, and the supporting documentation, such as physician’s progress notes. Compliance
with the 2-midnight rule will be audited by CMS and its various contractors.

2 | Hospital Billing From A to Z © 2014 HCPro

3-Day Rule:
What Should Be Combined?

Effective June 25, 2010, the Centers for Medicare & Medicaid Services (CMS) clarified the regulations
regarding which services under the broad ownership/control of a hospital must be included in the
inpatient invoice.

Prior to the clarification, if preadmission testing, such as an EKG, was performed up to three days
before the admission at a freestanding medical practice owned by the hospital but under a separate
provider number (and was not provider-based), this testing would not have been combined with
the inpatient invoice. The EKG would be billed on a professional fee claim (CMS Form 1500) from
that freestanding physician practice. Conversely, if the EKG had been performed in an outpatient
department of the hospital, it would have been combined on the inpatient invoice. After June 25,
2010, however, the services are handled the same way. That is, both EKGs would be bundled with the
inpatient services on the UB-04 form.

The following figure illustrates the billing relationship before and after the June 25, 2010, clarification.
On the left side of the illustration, the two freestanding entities, the medical practice and the
ambulatory surgery center (ASC), are directly owned by the hospital. All services would have been
billed on their own before June 25, 2010. On or after June 25, 2010, the services performed within
the three days must be sent to the hospital and combined on the inpatient UB-04 form. Because most
health system or hospital systems do not have integrated billing and electronic medical records across
all the disparate entities, it is often a manual work around.

FIGURE 0.1

Before Clarification After Clarification

Hospital Hospital

Medical Medical
ASC ASC
Practice Practice

Source: Kohler HealthCare Consulting, Inc. Reprinted with permission.

© 2014 HCPro Hospital Billing From A to Z | 3

To clarify, if the freestanding organizations are not owned or operated directly by the hospital (as
illustrated in Figure 0.2), this consolidation of the EKG is not required. The following figure illustrates
how a foundation or other organization that owns the hospitals as well as the freestanding medical
practices or ASCs circumvents the requirement to consolidate the billing of these services within the
three-day window prior to the admission.

FIGURE 0.2

Foundation

Hospital Medical
ASC Hospital
Practice

Source: Kohler HealthCare Consulting, Inc. Reprinted with permission

Reference
The Medicare Claims Processing Manual, Chapter 3—Inpatient Hospital Billing, §40.3
www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/clm104c03.pdf

4 | Hospital Billing From A to Z © 2014 HCPro

 A
Advance Beneficiary Notice

An advance beneficiary notice (ABN) is a Centers for Medicare & Medicaid Services (CMS) form
(CMS-R-31) used before a Medicare beneficiary receives Part A (hospital) or Part B (outpatient) ser-
vice(s) or charge(s) that may not be covered by Medicare. The patient may not be under duress when
the ABN is signed.

An ABN is used to advise and inform the Medicare beneficiary that he or she may be responsible for
payment of services. This is based on expected or known denial activity by Medicare, based on the
service not meeting medical necessity or the service not being reasonable and necessary.

The ABN serves multiple purposes:

• Provides Medicare beneficiaries the option to receive services and take financial responsibility
for paying for the services/treatments if Medicare does not pay for the specific service.

• Validates when the Medicare beneficiary was informed prior to receiving services that
Medicare might not pay.

• Offers protection to the Medicare beneficiary and gives him or her the right to appeal
Medicare’s decision to not cover a service.

• Note that an ABN is not required if services are not or were never covered as a Medicare ben-
efit. Some examples of excluded items are hearing aids, eye exams, and dental services.

Billing Requirements
There are certain billing requirements when a procedure is provided that requires an ABN. Providers
must utilize the following Medicare Modifiers:

• GA—Waiver of Liability Statement Issued as Required by Payer Policy. This modifier indicates
that an ABN is on file and allows the provider to bill the patient if not covered by Medicare.

• GX—Notice of Liability Issued, Voluntary Under Payer Policy. Report this modifier only to indi-
cate that a voluntary ABN was issued for services that are not covered.

© 2014 HCPro Hospital Billing From A to Z | 5

A
• GY—Notice of Liability Not Issued, Not Required Under Payer Policy. This modifier is used to
obtain a denial on a noncovered service. Use this modifier to notify Medicare that you know
this service is excluded.

• GZ—Item or Service Expected to Be Denied as Not Reasonable and Necessary. When an ABN
may be required but was not obtained, this modifier should be applied.

References
CMS Transmittal 1587, September 5, 2008
http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R1587CP.pdf

CMS Transmittal 2782, September 65, 2013

http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R2782CP.pdf

6 | Hospital Billing From A to Z © 2014 HCPro

 Hospital Billing From A to Z
Hospital Billing
From A to Z
Charlotte L. Kohler, RN, CPA, CVA, CRCE-I, CPC, ACS, CHBC
and Kohler HealthCare Consulting, Inc., associates

Catherine Clark, CPC, CRCE-I Robin Stover, RN, BSBA, CPC,

Hospital Billing
From A to Z
Darrin Cornwell, CRCS-I CPC-H, CMAS
Janet Ellis, RN, BSN, MS Deanna Turner, MBA, CPOC,
Dawn Doll Homer, CPC, CRCS-I, CDC CPC, CPC-I, CSSGB
Daria Malan, RN, LNHA, MBA, RAC-CT® Susan Walberg, JD, MPA, CHC
John Ninos, MS, MT(ASCP), CCS

Kohler
Hospital billing departments are known by various names, but their staff all experience
the same problems understanding and complying with Medicare’s many billing requirements.

Hospital Billing From A to Z is a comprehensive, user-friendly guide to hospital billing

requirements, with particular emphasis on Medicare. This valuable resource will help hospital billers
understand how compliance, external audits, and cost-cutting initiatives affect the billing process.

Beginning with Advance Beneficiary Notice and ending with Zone Program Integrity Contractors,
this book addresses nearly 90 topics, including the following:

»» 2-Midnight Rule and Inpatient Admission »» Local and National Coverage Determinations
Criteria »» Medically Unlikely Edits and Outpatient
»» Correct Coding Initiative Code Editor
»» CPT®, HCPCS, Condition Codes, Occurrence »» Medicare Advantage Plans
Codes, Occurrence Span Codes, Revenue »» Medicare Beneficiary Numbers and
Codes, and Value Codes National Provider Identifier
»» Critical Access Hospitals »» Medicare Part A and Part B
»» Deductibles, Copayments, and Coinsurance »» No-Pay Claims
»» Denials, Appeals, and Reconsideration »» Observation Services
Requirements
»» Outlier Payments
»» Dialysis and DME Billing in Hospitals
»» Hospital-Issued Notice of Noncoverage
»» Present on Admission Charlotte L. Kohler, RN, CPA,
»» Laboratory Billing and Fee Schedule
»» Rejected and Returned Claims CVA, CRCE-I, CPC, ACS, CHBC
»» UB-04 Form Definitions

HBFAZ

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Danvers, MA 01923
www.hcmarketplace.com

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