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Note from Hugh

Medicare Weekly Update, April 8, 2008

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How does a hospital bill for services furnished in a provider-based outpatient clinic when Medicare is the secondary payer? This turns out to be a fairly interesting question because most commercial payers do not recognize a distinction between freestanding clinics (such as a physician office practice) and provider-based clinics. Consequently, when a commercial patient is seen in a provider-based clinic, most commercial payers will only accept a professional services claim (i.e., CMS-1500 format). Commercial payers typically will not accept a facility services (i.e., UB-04 format) claim in addition to the professional services claim, even if the hospital considers the clinic to be provider-based. On the other hand, when a Medicare beneficiary receives services in provider-based clinic, there are typically two claims submitted to Medicare--one for the physician services and one for the facility services. Medicare typically pays both claims.

Noridian addressed the issue of Medicare as the secondary payer for provider-based clinic services in a recent article on "MSP in Provider-Based Entities" (posted January 2, 2008). In that article, which was based on CMS Program Memo A-03-030, Noridian stated:

"Per Program Memorandum A-03-030: 'Hospital outpatient departments (other than RHCs) must treat all Medicare patients, for billing purposes, as hospital outpatients.  The department must not treat some Medicare patients as hospital outpatients and others as physician office patients.' 

Accordingly, even though a provider-based clinic may submit a clinic service as a physician claim to the primary payer, the secondary claim to Medicare is required to be billed using the same billing procedures that would have been followed had Medicare been the primary payer."

Although not entirely clear, Noridian seems to say that where a patient with Medicare as the secondary payer is seen in a provider-based clinic, the hospital will need to submit a facility services claim to Medicare in addition to submitting the physician services claim to the primary commercial payer (which, presumably, the primary payer will automatically cross over to Medicare).¹

This may present a challenge for many hospitals because hospital billing systems often do not have the ability to send a physician claim to a primary commercial payer and a facility claim relating to the same encounter to Medicare as the secondary payer.

What are the hospital's options? One option might be for the hospital to work with their systems vendor to implement split billing capability. However, that could be expensive and time-consuming. Another option might be to handle these claims manually. However, that option might also be expensive and time-consuming.

I suspect that some hospitals are simply not billing the facility claim for these encounters. However, that option seems risky from a compliance standpoint, given Noridian's interpretation of the Program Memo A-03-033 requirement that provider-based clinics "must treat all Medicare patients, for billing purposes, as hospital outpatients." Hospitals that do not bill the facility claims for these encounters should, at a minimum, consult with their legal counsel for guidance on this issue.

¹You might ask why not just submit both claims to the commercial payer. At first blush, that seems like a great solution; however, most commercial insurers will not accept a facility claim (i.e., UB-04 format) in addition to the physician claim for services furnished in a provider-based clinic.

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