J.1.h_Appendix_H_-_Medical_Coding_Review_Steps.pdf

EXHIBIT 3

Procedures Performed by Medical Coding Review Contractor

Worksheet K - Medical Service Costs, Coverage, and Statistics

Objectives Year:

To verify that i) claimed costs related to medical services are reported in compliance with the applicable regulations; and, ii) Hospital Provider Part B services covered under Supplementary Medical Insurance are not included in the Plan’s total claimed costs (42 CFR 407.2 – general description of program for Part B services, including outpatient and ambulatory surgical centers).

To evaluate the accuracy of Medical Coding (CPT/HCPCS codes) and related RVUs to determine if any inaccuracies identified resulted in a biased amount of physician and supplier costs being apportioned to the cost-based MCO.

To review the Plan’s reported statistics related to medical services and determine i) if the apportionment of allowable costs related to physician and other Part B services between Medicare and non-Medicare enrollees is equitable; and, ii) if they represent services that are considered “covered” per the provider reimbursement regulations.

Step Review Procedure Preparer Initials/Date

Reviewer Initials/Date

Workpaper Reference

1 Obtain the reconciled claims database and other relevant information from the Audit Contractor.

2 Determine the review approach. Determine whether the supporting documentation for the statistics and costs on Worksheet K from providers, physicians, and medical service organizations can be statistically sampled. Consult CMS if supporting documentation for the statistics and costs on Worksheet K cannot be statistically sampled.

For those medical service statistics and costs to be reviewed using a statistical sample and determined from the steps above, use a stratified random sample approach.

3 Develop a statistical sampling plan. The Sampling Plan / sampling and extrapolation procedures shall be conducted in accordance with the most recent Sampling and Extrapolation Guidance issued by CMS.

B7DV

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B7DV

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Perform the following procedures, considering:

i) prior reviewer’s sampling plan and results of review, if available;

ii) specific concerns of CMS (See Section A);

iii) information and insight from the Audit Contractor;

iv) the Medicare cost reimbursement participation of the particular medical service;

v) the accessibility of Plan records.

The sampling plan used in the selection of transactions for review should include:

a. The objective of the sample evaluation;

b. Description of the universe(s), including sampling unit. If there is more than one type of unit for cost and apportionment statistics and/or if there is more than one type of financial relationship with providers, e.g. some claims are delegated and processed by a third party or some services are provided by staff and others are FFS, more than one universe exists. Services from multiple cost centers can be included in a single universe if they are supporting the same apportionment statistic and have the same financial reimbursement method.

c. Description of the sampling frame (population from which the sample will be selected).

d. Determination if the sampling frame is consistent with the universe. The sampling frame may include items not intended to be in the universe and/or may exclude part of the universe. The reviewer must develop remedies as required by the type of mismatch and as permitted by available information.

e. Assessment whether the statistic/cost and potential resulting misstatement is binary as in an attribute appraisal, e.g. number of visits, or variable appraisal, e.g. RVUs or allowed amount, in nature.

(i). Attribute Appraisal – Select a random sample of 100 items for testing. This sample size should provide an error rate estimate with 90% confidence . This sample size should suffice in most situations requiring an attribute appraisal.

(ii). Variable Appraisal – Select a stratified random sample of a maximum of 350 items for testing. The sample and universe should be stratified on paid amount or other meaningful criteria that results in the reduced standard deviation of the difference amount measured for each strata. This sample size will produce an extrapolated estimate of the total misstatement that is less precise than the attribute appraisal of the simple financial error rate. However, this sample size should provide an error rate estimate with 90% confidence.

This sample size should suffice in most situations requiring a variable appraisal and is consistent with commercial industry practices (most administrator's auditing policies for self-insured groups). The maximum sample size is designed to balance testing precision with the Plan's and Government's cost of testing. The actual confidence 90%. If the confidence are below 90%, identify and discuss different testing options with CMS.

4 Identify the statistics/cost universe from which the sample will be generated. A statistical sampling approach should be used to select Medicare cost-based services or claims. Separate statistical samples of the different universes (statistics and costs) may be required. Design a stratification plan that groups like items of similar paid amounts. By grouping like items into strata, the variance of the findings in each stratum will be minimized, minimizing the overall variance in the sample.

If the data contains a type of service identifier (such as physician, DME, lab, etc.), the auditor may stratify the population by type of service for sampling purposes. If the type of service is not clearly marked in the data, the auditor may stratify by paid or charged amount, whichever amount best matches the method used to determine the apportionment statistic. Use professional judgment when stratifying the population. In the absence of detailed information about the transactions, include all zero-paid claims in a single stratum and divide the population of paid claims into stratum of equal total paid/charged value. If there are only a few high-dollar claims, then select all of these claims for review in one stratum.

NOTE: In order to keep sample sizes reasonable and maintain a high confidence and low precision, the contractor may decide to only extrapolate certain strata and use judgmental sampling without extrapolation for the other strata. If this approach is considered, the contractor should first consult with CMS, and gain their approval.

5 Based on information available and discussion with the Audit Contractor, identify and summarize all related organizations including the associated costs claimed for reimbursement.

Determine the nature and significance of the related organization transactions and select appropriate items for further review. If no related party relationships exist pass on procedures.

6 Submit the sampling plan to CMS for review and approval.

Once the sampling plan is approved by CMS, select the samples in accordance with the sampling plan and provide them to the Plan with a list of requested documentation (for instance: HCFA, UB-40 [institutional paper claim form (CMS- 1450)], contract, system access, and/or medical records).

Testing

7 Upon receiving documentation related to the selected sample items, verify compliance with the characteristics listed below:

a. Verify the beneficiary’s enrollment in the Medicare cost program, including Part A if processing option 2 is selected, (42 CFR 407.4) as of the date of service. Select a sub-sample from the sample used to test the Medicare statistics of the Plan to ensure that the member is a member of the cost plan. If errors exist a larger sample must be tested and extrapolated on the cost report, as appropriate.

b. Test all selected items for accuracy of coverage and pricing, etc.

c. Reconcile data reported on the sample with the documentation of the claim/charge and encounter, e.g., member name & number, date of service, date of birth, service provided, cost.

d. Verify that all applicable requirements of the regulations stated above have been complied with and that the claim/charge and encounter is coded and covered; and,

e. If payments to providers of medical services are based on fee schedules, verify amounts paid to the fee schedules (compare fee schedules for Medicare and non-Medicare enrollees and determine reasonableness). If the provider is network, verify that he/she was paid according to contract.

Also, if the Plan is an HCPP and has claimed costs for physician services under fee-for-service arrangements, verify the claimed charges do not exceed the Subpart E limits per 42 CFR 405. If the claimed charges exceed these limits, determine if the exception (annual approval required) per 42 CFR 417.802 applies. Otherwise, discuss with CMS.

Subpart E limits, if applicable, are presented on Worksheet K, of the cost report.

f. If the provider is “non-participating,” verify that the fee paid to the provider does not exceed the fee schedule used for payment to participating providers (HCPPs only).

g. If pattern errors are identified, use programming techniques to quantify the value of the misstatement due to the pattern error exactly, removing the claims/services with the pattern error from the sample and from the universe. Use the statistical sampling results to estimate the additional misstatement due to the remaining sample and population, l di k l l i h i f 8 If the Plan has utilized an RVU weighting system, determine if it has been approved by CMS and perform the following procedures (if not approved by CMS, consult COR or Assigned CMS Servicing Auditor). The Plan should provide the universe of data used to complete Worksheet K. By inserting the RVUs from the Medicare website you should be able to figure the apportionment statistic used. Never use the Plan's RVU study or RVU sample to calculate their RVU unit;

a. Obtain the Plan’s supporting workpapers and/or study related to the development and application of the claimed RVUs and develop an understanding of the approach and process. Document the workpapers accordingly;

b. Identify the general components of the RVU process, e.g., outpatient DOVs, inpatient hospital stays, and selected medical specialties. Identify which general components represent the significant portion of the total weighted encounter statistics. Note that RVU weightings of encounters related to inpatient hospital days tend to be significantly greater than encounters related to DOVs (doctor visits);

c. Obtain a sample of the Plan’s claimed RVU weightings and determine the following:

(i). Do the RVU factors or fee schedule used by the Plan correspond to the subject cost reporting year. Compare what the Plan reported and what Medicare uses. Identify any codes that are not shown in the Medicare fee

(ii). Have encounters related to physicians who are not members of the Plan’s physician group or network been excluded in the study, e.g., referred services of specialists tend to perform procedures with relatively

(iii). Has a proper classification of inpatient versus outpatient status been determined by the Plan for purposes of applying RVU weighting; e.g., encounters

(iv). Does the study assume one physician visit per day of inpatient hospital stays, or a different amount.

(v). Document the results of the judgmental sample performed above. If significant discrepancies exist, (vi). If significant discrepancies are found using the (vii). Compute and summarize all proposed adjustments to the Plan’s claimed statistics based on the procedures performed above and document findings and conclusions. Discuss results with the Plan.

9 Capitated Payments – If medical service costs are based on capitated payments, perform the following procedures:

For a sample of capitated arrangements:

a. Review capitation agreements to gain an understanding of covered services to be provided by the physician, group, etc.

b. Review utilization reports of services provided under capitation agreements to confirm services covered by capitation agreements are provided and are not also reimbursed outside of the capitation agreements (duplicate payment for the capitated service).

c. Review the calculation of the payments for reasonableness and allowability. Per 42 CFR 434.23, the contract must specify i) the actuarial basis used for computation of the capitation fee; and, ii) that the capitation fees and any other payments provided for do not exceed the limitations set forth in 42 CFR 447.361 & 447.362;

(i.) Request the competitive bids or analysis prepared/reviewed by the plan to determine the capitation rates. If the plan sought competitive bids for the capitated services, determine whether the selected bid was comparable or superior in price and value to other bids. If the arrangement was sole source, review the plan's analysis of the capitated rates to ensure that the negotiated service rates x expected utilization are comparable to the Medicare fee schedule or other regional rates for the same services.

If bid documentation or an analysis is not available, compare to published market studies or conduct an analysis relative to the Medicare fee schedule using actual utilization from the claims data, if available, or published utilization statistics.

(ii.) Discuss rationale for questionable capitation agreements with plan and CMS, i.e., situations in which services received under capitation agreements could be more economically obtained under FFS reimbursement.

d. Discuss the payment procedures with the Plan and verify that payments are made in accordance with the contract;

e. Review risk pool payments and determine if they are related to patient care and liquidated (paid) within one year after the end of the Plan’s cost reporting year per the provisions of PRM 15-1, Chapter 23; and,

f. Document the workpapers with the results of the procedures performed above.

10 Fee schedules – If medical service costs are based on fee schedule amounts, perform the following procedures:

a. Determine the reasonableness of the claimed fees by identifying its basis and compare with fees established for similar procedures in the Physician Fee Schedule published by CMS. If the plan's fees exceed the Medicare fee schedule, determine whether the plan's fees are consistent with market rates. For example, ensure that the fees paid for Medicare enrollees are not greater than fees paid for services for commercial members. If a fee schedule for a specific provider(s) exceeds the fees paid to other providers of the same specialty, discuss the rationale for the higher fees for the specific providers with the plan.;

b. If the claimed fees are materially different than fees established within the Medicare Physician Fee Schedule for similar or the same procedures, discuss with the Plan and the PO/Assigned CMS auditor;

c. If the provider of medical services is “non-participating”, verify that the fee paid to the provider does not exceed the fee schedule used for payment to participating providers, and;

d. Document the workpapers with the results of the procedures performed above.

11 Plan owned clinics (facilities). Determine and evaluate the reasonableness of how the plan accounts for and tracks the costs and statistics for self owned facilities. This may involve tracing costs and/or statistics from source documents to the cost report. For example, if a plan uses "visits" as its apportionment methodology/ statistic, compare the number of visits recorded at the clinic/facility to the number reported on the cost report.

Document the results and any applicable adjustment to the cost report.

12 Deductibles and Coinsurance – Medicare Part B does not pay for the full, reasonable costs or charges for all covered services.

The beneficiary is responsible for an annual deductible and a blood deductible and, after the annual deductible has been satisfied; the beneficiary is responsible for coinsurance amounts specified for most of the covered services. In a Medicare cost plan the Managed Care enrollee's deductibles and coinsurance are paid through the beneficiary's premium.

a. For those bills processed by the carrier for non-provider Part B covered services for which the Plan reimbursed either the provider or member the deductible and 20 percent coinsurance, the Plan is entitled to include the costs related to the members’ deductible component in total reimbursable costs. Such costs are claimed on Worksheet L, Line 18 of the cost report. Determine whether the coinsurance portion has been excluded from reimbursable costs. The exclusion is accomplished by a downward adjustment on Worksheet G.

b. For 1876 HMO/CMP plans only, verify the Plan’s claimed Part A deductible and coinsurance, if applicable.

Additionally, for 1876 plans only, verify that all Medicare services are provided by the Plan, e.g., HHA. Prior to 1/1/2005, HHA services are required to be processed directly by the Plan. Coinsurance paid by the Plan can be verified to the monthly carrier report received by the Plan.

13 When evaluating medical service costs remaining in “Allowable Costs” after all reclassifications and adjustments made by the Plan, consider the following regarding the allowability of costs per the regulations cited in Appendix 1 and any other applicable regulations.

These procedures may be performed in accordance with steps above, or independently if the following types of medical service were not selected for review by means of a statistical sample. Determine if:

a. Coverage for physician services performed by nurse practitioners extend to services, which the practitioner is not legally authorized (by the State) to perform. Such services are not reimbursable. In addition, for HCPP plans only, practitioner’s services must be supervised by a physician (42 CFR 405.2414 and 410.75);

b. The allowance for anesthesia services performed by Certified Registered Nurse Anesthetists (CRNA) is based on a fixed percentage of the allowance recognized for the anesthesia service personally performed by the physician alone, as specified in 414.46(d)(3);

c. Services provided by residents/interns include only those services that are not part of the teaching program (42 CFR 415, Subpart D & E). Also, physicians are required to be fully qualified if a Plan claims reimbursement under processing option 1 (effective 1999);

d. Physicians use ICD-9-CM diagnostic codes for each item or service billed under Part B. Failure to use these required codes may result in nonpayment;

e. Drugs included in reimbursable costs are generally limited to those drugs that cannot be self-administered, or are part of the diagnostic process or incident to the physician’s services.

Immunosuppressive drugs are covered when furnished to an individual who receives a covered organ transplant. These immunosuppressive drugs are only covered in the first year after the transplant. (42 CFR 410.26, 410.29, 410.30,

410.57 and 414.36);

f. Blood is not included as reimbursable costs. Whole blood is covered when provided incident to a physician’s services.

These costs should be billed to the carrier (42 CFR 410.161);

g. Determine if physical therapy services are included as reimbursable costs. If services are contracted with independent physicians, the applicable costs are to be disallowed. These costs should be billed to the carrier;

h. Speech pathology is included as reimbursable costs.

Speech pathology is subject to the same requirements as physical and occupational therapy services;

i. Ambulatory Surgical Centers are included as reimbursable costs (42 CFR 416)

(i). Determine if the center is independent or hospital affiliated, (ii). Determine if the center is certified;

j. Comprehensive Outpatient Rehabilitation Facility (CORF) are included as reimbursable costs. Part B benefits for CORF services do not include maintenance therapy as a covered charge. CORF charges are reimbursed on a reasonable cost basis except that the lower-of-cost or charges limitations do not apply. However, these costs should be billed to the carrier or intermediary (42 CFR 410, Subpart D);

k. Diagnostic lab services are included as reimbursable costs. Diagnostic lab services are covered under Part B when the services are furnished to an outpatient by an approved independent clinical laboratory. “Other” diagnostic services may also be covered if provided incident to a physician’s services. These “other” diagnostic services include electroencephalograms, electrocardiograms, respiratory function tests, cardiac evaluations, allergy tests, (42 CFR 410.32, 410.33, 410.37, 410.56). In addition, lab services performed as part of routine physicals or wellness exams are not reimbursable under the Medicare Part B program (42

CFR 411.15);

l. X-ray services are included as reimbursable costs. X-ray, radium and radioactive isotope therapy services are covered under Part A for inpatients, under Part B for outpatients, or as Part B Ancillary services for inpatients whose Part A benefits are exhausted or otherwise unavailable (42 CFR 410.32, 410.34 & 415.120). In addition, x-rays performed as part of routine physicals or wellness exams are not reimbursable under the Medicare Part B program (42 CFR 411.15);

m. Durable medical equipment (DME) includes the following:

(i). Effective January 1, 1990, certain items such as intraocular lenses and medical supplies have been excluded from coverage as DME. Oxygen services are covered but require the continued use of oxygen be recertified by the physician at least every 90 days;

(ii). In order for durable medical equipment to be covered, it must be used in the patient’s home and be medically necessary. Hospitals and skilled nursing facilities do not qualify as “home” dwellings for purposes of this regulation;

n. Ambulance charges are included as reimbursable costs.

Ambulance services are an allowable cost if the service is medically necessary and reasonable. Generally, only local transportation to an institution is covered. Ambulance services between institutions are only covered if the initial institution does not have adequate facilities to care for the patient. Determine whether ambulance charges included in reimbursable costs are allowable (42 CFR 410.40);

o. Part B ancillary services are included as reimbursable costs. Part B ancillary services are those services that would normally be covered under Part A except that the individual’s Part A benefits may be exhausted or otherwise unavailable (PRM 15-1, Chapter 22); and,

p. An annual routine physical or wellness exam is included as reimbursable cost as of 2011. While Medicare fee-for-service requires specific coding to identify the well visit, it is unlikely that the same coding will be required by MCOs.

Therefore the auditor should use their judgment, evaluating the reason for the visit (not the findings from the visit) to determine whether the visit is a well visit or for treatment of an illness or condition. If the examination is performed without relationship to treatment or diagnosis for specific illness, symptom, complaint, or injury, the visit is a well visit.

q. Home health agencies (HHA) are included as reimbursable costs received before January 1, 2004. CMS will require most Plans to implement home health claims billing to Home Health Intermediaries on a prospective basis.

Prospective implementation was permissible any time between August 1, 2004 and January 1, 2005. If this implementation on a retroactive basis had been done prior to July 7, 2004 no further action is needed to verify HHAs have refunded payments made by the Plan and the Home Health Intermediary has been billed on a retroactive basis. If the implementation was completed after July 7, 2004 the Plan should follow the revised instructions (from 07/07/04) which states CMS will require Plans to implement home health claims billing to Home Health Intermediaries on a prospective basis and request refunds from HHAs to the extent that they have paid for services that are to be reimbursed under PPS.

Conclusion of Review 14 Compile results of review of medical records. If sample variable being tested is RVU weight, compile overall sample results (sample results should consider under- and over-coding) and determine significance of sample results relative to apportionment method used by the Plan. (Note: ESRD patients cannot be included in a Medicare RVU study.) If the statistics used are not paid claims, ensure that the statistic was tested in addition to the cost (for example, billed charges).

15 Based on the results of the testing, calculate appropriate error extrapolation for each stratum.

16 Based on the results of the procedures performed in steps above, compute proposed adjustments as applicable.

Coordinate with the Audit Contractor to modify the apportionment statistics on Worksheet K and adjust claims costs on Worksheet G based on extrapolated results. Calculate adjusted apportionment of costs to Medicare. Discuss results with the Plan.

17 Provide the testing work papers, proposed adjustments, and results report to the Audit Contractor for inclusion in their report to CMS.

18 Prepare a completion memorandum summarizing procedures performed, findings/conclusions including the revised statistics and revised amount due to sample error extrapolation, and proposed adjustments.

Appendix 1 - Background & Regulations

Plan: Year:

Preliminary Review

Objectives Referenced Authority

To gain an understanding of the Plan’s cost finding and reporting methodologies.

N/A

Medical Service Costs, Coverage, and Statistics

Objectives Referenced Authority To verify that i) claimed costs related to medical services are reported in compliance with the applicable regulations cited below; and, ii) Hospital Provider Part B services are not included in the Plan’s total claimed costs (42 CFR 407.2 – general description of program for Part B services, including outpatient and ambulatory surgical centers).

CMS IOM 100-16 MMCM, Chapter 17, Subchapter C & 18, Subchapter C Provider Reimbursement Manual, Chapter 21 42 CFR 405 - Federal Health Insurance for the Aged and Disabled 42 CFR 410 - Supplementary Medical Insurance (SMI) and Benefits 42 CFR 413 - Principles of Reasonable Cost Reimbursement 42 CFR 414 - Payment for Part B Medical and Other Health Benefits, Subpart A 42 CFR 415 - Services Furnished by Physicians

To evaluate the accuracy of Medical Coding (CPT/HCPCS codes) and related RVUs to determine if any inaccuracies identified resulted in a biased amount of physician and supplier costs being apportioned to the cost-based MCO.

To review the Plan’s reported statistics related to medical services and determine i) if the apportionment of allowable costs related to physician and other Part B services between Medicare and non-Medicare enrollees is equitable; and, ii) if they represent services that are considered “covered” per the provider reimbursement regulations.

42 CFR 417 - HMOs, CMPs, and HCPPs Medicare Carriers Manual (Pub 14) Chapter II, Covered Medical and Other Health Services Medicare Carriers Manual (Pub 14) Chapter XV, Fee Schedule For Physicians Services

Definitions

1. Visit – a face-to-face encounter between a patient and a physician or non-physician. The guidelines as written in the Current Procedural Terminology manual for the year being audited is followed in regards to the Evaluation & Management (Visit) codes.

2. Encounter – a face-to-face encounter with medical care personnel (physician or non-physician).

3. Capitation – a set dollar payment per patient per unit of time (usually per month) that an organization pays a physician or physician group to cover a specified set of services and administrative costs without regard to the actual number of services provided. The services covered may include the physician’s own services, referral services, or any or all medical services as specified in the capitation agreement.

4. Covered Charges – services or benefits for which the charge is eligible towards satisfying a patient deductible or out of pocket maximum and/or results in the health plan making either partial or full payment.

5. CPT – Current Procedural Terminology is a listing of descriptive terms and identifying codes for reporting medical services and procedures performed by physicians. CPT codes are developed and published by the American Medical Association. CPT codes are five digit numbers, e.g., 99213: Office or Other Outpatient Visit for the evaluation and management of an established patient. A 2-digit modifier can be added to certain codes, providing additional information about the service and proper reimbursement. For instance, the addition of an "80" modifier to a surgical code indicates the service was provided by an assistant to the primary surgeon and payment to the assistant will be made at a lesser rate than to the primary surgeon.

6. HCPCS – Health Care Financing Administration Common Procedure Coding System – a listing of codes and descriptive terminology used for reporting the provision of supplies, materials, injections, and certain services and procedures to Medicare. Level I codes refer to CPT codes established by AMA (five digit numbers).

Level II codes are developed by CMS to address supplies, materials, injections and other services and procedures not covered by the AMA CPT codes. Level II codes are alpha-numeric, e.g., A0300 – Ambulance Service, basic life support (BLS), emergency transport.

7. RVU – Relative Value Units – A weighting scale developed by CMS to recognize the difference in the level of intensity required for various medical procedures and services. An RVU is comprised of three elements; 1) physicians' work; ii) practice expense; and, iii) malpractice insurance. The weighing factors are updated annually. (42 CFR 414, Subpart A) Medicare pays physicians for services based on CPT codes. Each CPT code has a RVU assigned to it which, when multiplied by the conversion factor (CF) and a geographical adjustment (GPCI), creates the compensation level for a particular service. The first component of the RVU is the physician work which is the relative level of time, skill, training and intensity to provide a given service.

The second is practice expense which addresses the costs of maintaining a practice including rent, equipment, supplies, and nonphysician staff costs. The final component is malpractice which is the smallest and represents payment for the professional liability expenses. RVUs can be found on the Medicare provider fee schedule.

8. Capitation – a set dollar payment per patient per unit of time (usually per month) that an organization pays a physician or physician group to cover a specified set of services and administrative costs without regard to the actual number of services provided. The services covered may include the physician’s own services, referral services, or any or all medical services as specified in the capitation agreement.

9. Physician Group – a partnership, association, corporation, individual practice association or other group that distributes income from the practice among members.

10. Services/Procedures – something done to treat a health problem or to learn more about it. Surgery, tests, administration of an IV, and provision of supplies/equipment/prescriptions/medications are examples of services/procedures. Services/procedures should be correctly coded utilizing applicable CMS approved code sets and according to CMS Correct Coding Initiatives (CCI) to ensure proper consideration under CMS program coverage provisions.

Medical Service Costs The Medicare Part A and B program provides benefits for enrollees who elect coverage under the program, and supplements and extends the benefits provided by Medicare Part A program. The Supplementary Medical Insurance program (Part B) provides coverage for a variety of medical services and supplies furnished by physicians or others in connection with physicians' services, outpatient hospital services and a number of other specific items and services. Individuals participate voluntarily in the Part B program and pay a monthly premium.

Medicare payment for Part B services is generally made on the basis of Medicare's determination of the reasonable cost for the service or according to fee schedules. Additionally, beneficiaries generally pay coinsurance of 20 percent of the Medicare payment amount for the Part B services under the traditional, fee-for-service Medicare program. Part B services provided under plans offered by cost-based MCOs may have a traditional 20% coinsurance or may have no coinsurance or other coinsurance provisions, such as a per-visit copay.

Medical services and benefits provided under the Part B program are:

42 CFR §410.3, Scope of benefits.

(a) Covered services The SMI program helps pay for the following:

(1) Medical and other health services such as physicians' services, outpatient services furnished by a hospital or a CAH, diagnostic tests, outpatient physical therapy and speech pathology services, rural health clinic services, Federally qualified health center services, IHS, Indian tribe, or tribal organization facility services, and outpatient renal dialysis services.

(2) Services furnished by ambulatory surgical centers (ASCs), home health agencies (HHAs), comprehensive outpatient rehabilitation facilities (CORFs), and partial hospitalization services provided by community mental health centers (CMHCs).

(3) Other medical services, equipment, and supplies that are not covered under Medicare Part A hospital insurance.

42 CFR §410.10, Medical and other health services: Included services.

Subject to the conditions and limitations specified in this subpart, “medical and other health services” includes the following services:

(a) Physicians' services.

(b) Services and supplies furnished incident to a physician's professional services, of kinds that are commonly furnished in physicians' offices and are commonly either furnished without charge or included in the physicians' bills.

(c) Services and supplies, including partial hospitalization services, that are incident to physician services and are furnished to outpatients by or under arrangements made by a hospital or an CAH.

(d) Diagnostic services furnished to outpatients by or under arrangements made by a hospital or CAH if the services are services that the hospital or CAH ordinarily furnishes to its outpatients for diagnostic study.

(e) Diagnostic laboratory and X-ray tests (including diagnostic mammography that meets the conditions for coverage specified in §410.34(b) of this subpart) and other diagnostic tests.

(f) X-ray therapy and other radiation therapy services.

(g) Medical supplies, appliances, and devices.

(h) Durable medical equipment.

(i) Ambulance services.

(j) Rural health clinic services.

(k) Home dialysis supplies and equipment; on or after July 1, 1991, epoetin (EPO) for home dialysis patients, and, on or after January 1, 1994, for dialysis patients competent to use the drug; self-care home dialysis support services; and institutional dialysis services and supplies.

(l) Pneumococcal vaccinations.

(m) Outpatient physical therapy and speech pathology services.

(n) Cardiac pacemaker and pacemaker leads.

(o) Additional services furnished to enrollees of HMOs or CMPs, as described in §410.58.

(p) Hepatitis B vaccine.

(q) Blood clotting factors for hemophilia patients competent to use these factors without medical or other supervision.

(r) Screening mammography services.

(s) Federally qualified health center services.

(t) Services of a certified registered nurse anesthetist or an anesthesiologist's assistant.

(u) Prescription drugs used in immunosuppressive therapy.

(v) Clinical psychologist services and services and supplies furnished as an incident to the services of a clinical psychologist, as provided in §410.71.

(w) Clinical social worker services, as provided in §410.73.

(x) Services of physicians and other practitioners furnished in or at the direction of an IHS or Indian tribal hospital or clinic.

(y) Intravenous immune globulin administered in the home for the treatment of primary immune deficiency diseases.

42 CFR §405.2449, Preventive Services.

Beginning in January 1, 2011, certain preventive services, including an annual wellness exam, are covered under Medicare Part B.

Physicians’ and other suppliers’ services are identified by a five-digit HCPCS or CPT code. Not all services provided by physicians and other suppliers are reimbursable. An excerpt from the Physician Fee Schedule showing various procedures performed that are not reimbursable under Medicare is attached as Exhibit 1.

Exhibit 2 is a listing of status codes associated with individual procedure codes that can help determine the allowability of other procedure codes. This section is intended to provide general guidance related to determining whether Medical Service costs are allowable or reimbursable. However, the auditor should verify the allowability of each service per Medicare reimbursement rules, including resources such as Correct Coding Initiative (CCI) edits and Local Medical Review Policies (LMRP). Section D addresses the apportionment of Medical Service costs based on other surrogate statistics, e.g., RVU’s, encounters, numbers of tests, or member months.

Medical Coverage Review :

Medical Review – Plans should have policies and procedures in place to review the medical necessity of medical services provided; monitor utilization of medical services for timeliness, appropriateness and cost (Utilization Management [UM]); and to ensure compliance with Medicare and contractual requirements.

Pertinent sections of 42 CFR Part 417 Health Maintenance Organizations (HMOs) and Competitive Medical Plans (CMPs) are:

Section 417.103(b): HMOs must have effective procedures to monitor utilization and to control cost of basic and supplemental health services and to achieve utilization goals, which may include mechanisms such as risk sharing, financial incentives, or other provisions agreed to by providers.

Section 417.103(e): Each HMO must:

(1) Pay the provider, or reimburse its enrollees for the payment of reasonable charges for basic health services (or supplemental health services which the HMO agreed to provide on a prepayment basis) for which its enrollees have contracted, which were medically necessary and immediately required to be obtained other than through the HMO because of an unforeseen illness, injury, or condition, as determined by the HMO;

(2) Adopt procedures to review promptly all claims from enrollees for reimbursement for the provision of health services described in paragraph (e)(1) of this section, including a procedure for the determination of the medical necessity for obtaining the services other than through the HMO.

Section 417.106(a) Quality Assurance Program: Each HMO or CMP must have an ongoing quality assurance program for its health services that meets the following conditions:

(1) Stresses health outcomes to the extent consistent with the state of the art.

(2) Provides review by physicians and other health professionals of the process followed in the provision of health services.

(3) Uses systematic data collection of performance and patient results, provides interpretation of these data to its practitioners, and institutes needed change.

(4) Includes written procedures for taking appropriate remedial action whenever, as determined under the quality assurance program, inappropriate or substandard services have been provided or services that ought to have been furnished have not been provided.

1876 cost-based MCOs face special challenges in managing the medical services provided to enrollees because cost-based plans do not have “lock-in”. Enrollees in a cost-based MCO may receive Part B services outside the cost-based plan’s network. The Part B carrier will process these services under normal FFS rules. In addition, claims processing of Part A services are usually delegated to the Part A Fiscal Intermediary (FI). The cost-based MCO will be responsible for related deductibles and coinsurance. The cost-based MCO is also responsible for reviewing payments made by the Part B carrier to ensure that the plan has not also paid for services reimbursed by the carrier (Duplicate Payments).

2. Medicare Secondary Payer (MSP) – Plans should have policies and procedures in place to detect those situations when the Cost-based MCO is not the primary payer for a medical service (Coordination of Benefits

[COB]).

Pertinent sections of 42 CFR Part 417 Health Maintenance Organizations (HMOs) and Competitive Medical Plans (CMPs) are:

Section 417.534(b) Basic rules

(3) Costs for covered services for which Medicare is not the primary payer, as described in §417.528, are not allowable.

Section 417.528(a) Limits on payments and charges (1) CMS may not pay for services to the extent that Medicare is not the primary payer under section 1862(b) of the Act and part 411 of this chapter.

(2) The circumstances under which an HMO or CMP may charge, or authorize a provider to charge, for covered Medicare services for which Medicare is not the primary payer are stated in paragraphs (b) and (c) of this section.

Section 417.528(b) Charge to other insurers or the enrollee If a Medicare enrollee receives from an HMO or CMP covered services that are also covered under State or Federal worker's compensation, automobile medical, or any no-fault insurance, or any liability insurance policy or plan, including a self-insured plan, the HMO or CMP may charge, or authorize a provider that furnished the service to charge —

(1) The insurance carrier, employer, or other entity that is liable to pay for these services; or

(2) The Medicare enrollee, to the extent that he or she has been paid by the carrier, employer, or other entity.

Section 417.528(c) Charge to group health plans (GHPs) or large group health plans (LGHPs) An HMO or CMP may charge a GHP or LGHP for covered services it furnished to a Medicare enrollee and may charge the Medicare enrollee to the extent that he or she has been paid by the GHP or LGHP for these covered services if

(1) The Medicare enrollee is covered under the plan; and

(2) Under section 1862(b) of the Act, CMS is precluded from paying for the covered services.

Section 417.528(d) Responsibilities of HMO or CMP.

(1) Identify payers that are primary to Medicare under section 1862(b) of the Act;

(2) Determine the amounts payable by these payers; and

(3) Coordinate the benefits of its Medicare enrollees with these payers.

Medical Coding Review

When physicians are reimbursed based on salaries or capitation payments, there may or may not be data available supporting the services provided, i.e., CPT codes associated with the services provided. In these cases, the plan may sample the encounters performed by the physicians, review the medical records supporting the encounters, and assign CPT codes and related RVUs to the sampled encounters. When data identifying CPT codes associated with encounters performed by physicians and services provided by suppliers are available, the CPT codes can be used to determine the associated RVU weights. When physicians and suppliers are reimbursed based on FFS billings, the claims data will identify the CPT codes associated with the billed services as well as the amount billed (charges), amount allowed (negotiated contractual price) and amount paid.

The use of RVUs or allowed amounts to weight apportionment statistics usually results in higher costs being apportioned to the cost-based MCO than other apportionment methodologies because Medicare beneficiaries usually have higher utilization patterns than non-Medicare beneficiaries. Miscoding of CPT codes can result in significantly higher costs being apportioned to Medicare. For example, the 2006 Non-Facility RVU values associated with “Established Patient – Office or Other Outpatient Visit” are:

99211 0.57 99212 1.02 99213 1.39 99214 2.18 99215 3.17

If the Medical Coding review disclosed that Outpatient Visits by Medicare Beneficiaries were, on average, assigned a higher CPT code, i.e. a code for a longer and more complex office visit, than that supported by the medical records, costs apportioned to the cost-base MCO would increase.

The Medical Coding review should cover services and supplies provided to Medicare and non-Medicare beneficiaries. Coding errors (such as upcoding) will likely align with the type of service. Similarly, errors in adjudication will often align with type of service because the payment rules align with the type of service, e.g.

use of modifiers and proper clinical edits, reimbursement method.

Stratifying by paid amount typically has the effect of grouping claims by similar types of service. For example, the lower cost strata will tend to be lab charges, slightly higher costs will relate to transportation and office visits, etc.

When grouping claims by paid amount, the stratum might look something like the table below:

Paid Amount Stratum May Include x=$0 $0<x<=$500 labs, vaccinations, office visits $500<x<=$1,500 DME, transport, tests $1,500<x<=$5,000 surgeries, anesthesia $5,000+ chemotherapy

Particular attention should be paid to Evaluation and Management (E&M) procedure codes (99201 – 99456).

By their definition, there is more interpretation/judgment involved in determining appropriate E&M procedure codes than for other procedure codes, resulting in a greater possibility of mis-coding. The universe can be further separated into two strata: E&M procedure codes and non-E&M procedure codes and separate samples can be drawn from the two strata. Depending on the Plan’s methodology, samples may also be stratified by inpatient and outpatient procedures

Physician Fee Schedules, containing CPT codes and related RVUs, for the years subject to review, are available on the CMS web site at http://www.cms.hhs.gov/PhysicianFeeSched/PFSRVF/list.asp

Statistics The apportionment of medical services costs, based on a utilization ratio, to the Medicare cost based membership represents the majority of the Plan’s total reimbursable costs. Medical services subject to apportionment and reimbursement under Part B include, e.g., physicians, clinics, ambulance, DME, labs.

The majority of the plan’s reimbursement is derived from the covered medical services rendered to the enrolled Medicare beneficiaries. The plan’s statistical data base is critical; the apportionment methodology is based on a ratio of total Medicare enrolled statistics to total plan statistics. This utilization ratio, the ratio on Worksheet K, is the “base” for apportioning most of Part B costs which include physicians, clinic, ambulance, DME, labs, etc.

The term apportionment, as used in this section, refers to the process of determining the percentage/utilization ratio of covered medical services incurred by the enrolled Medicare beneficiaries to the total covered medical services incurred by the plan. Once these medical services costs are apportioned to the Medicare cost based membership, they are subject to reimbursement by the Plan. The overall objective of the cost apportionment process is to assure that:

(i). The costs of covered care to Medicare cost based enrollees will not be borne by non-Medicare cost based enrollees and non-enrolled patients of the Plan; and, (ii). The cost of services to non-Medicare cost based enrollees and non-enrolled patients will not be borne by the Medicare cost based enrollees.

Generally, physician and other Part B services are furnished through the Plan’s medical services facilities or arrangements with a medical group and/or outside providers. Medical services furnished directly by the Plan are those physicians and other Part B activities provided by personnel employed by the Plan. Provider Part A and Part B services may be furnished through contracting arrangements.

The reimbursable cost of medical services furnished directly or otherwise to the Plan’s Medicare cost based enrollees is determined by utilizing a ratio representative of the proportion of covered services furnished to the Medicare cost based enrollees to the total services furnished all beneficiaries of the Plan. Generally, the method of apportionment related to medical services furnished under arrangements will depend upon the financial terms established between the Plan and the medical service provider. If the Plan pays for medical services on a capitation or basis other than fee-for-service, usage of the ratio method discussed above is employed, to the extent it is reasonable.

The statistics utilized to compute the ratio referred to above must represent services actually furnished.

Common statistics used to apportion medical services costs include encounters, visits, services/procedures, relative value units, capitation, physician group, charges, allowed amounts and minutes. The Plan’s claimed statistics are summarized on Worksheets D & K of the cost report.

A common apportionment method utilized as related to physician services in non-FFS arrangements is a relative value unit (RVU) system. Such a system applies weights or factors to various procedures performed by a physician (defined by and described using Common Procedural Terminology (CPT) codes) in recognition of the level of time and complexity of services required to provide the subject procedures. Apportionment methods must be approved by CMS prior to their use by the Plan, and requests for changes to existing apportionment methodologies being used by the plan must be approved prior to implementing them (Medicare Managed Care Manual, Chapter 17, Subchapter C 120).

Adjustments & Completion

Objectives Referenced Authority To summarize proposed adjustments based on the procedures performed. Proposed adjustments should be identified and incorporated within the revised cost report in a manner that enables CMS and Plan representatives to understand their nature and purpose as well as their flow through the adjusted cost report.

To i) document the completion of the review including adherence to internal quality control procedures;

ii) prepare final contract deliverables; and,

iii) communicate final proposed adjustments with the Plan and CMS.

N/A

General Proposed adjustments to the Plan’s submitted cost report must be…