Health Information Management

Bill and charge for supplies correctly to reduce risk and minimize lost revenue

JustCoding News: Outpatient, January 13, 2010

Want to receive articles like this one in your inbox? Subscribe to JustCoding News: Outpatient!

Hospitals may be missing revenue for supplies because they don’t understand the difference between billing and payment rules.

CMS, Fiscal Intermediaries (FI), and Medicare Administrative Contractors (MAC) provide coding, billing, and payment guidance, but it’s not always clear which guidance they are talking about, said Keith Siddel, MBA, PhD(c), founder, president, and CEO of HRM, a national healthcare financial service organization in Creede, CO. Siddel and Valerie A. Rinkle, MPA, revenue cycle director at Asante Health System in Medford, OR, spoke during HCPro’s September 16 audio conference, “Billing for Hospital Supplies: Minimize Compliance Risks and Revenue Loss.”

For example, consider the guidance provided in the 2003 OPPS final rule. CMS states:

Hospitals will not receive separate payment from Medicare for packaged items and supplies, and hospitals may not bill beneficiaries separately for any such packaged items and supplies whose costs are recognized and paid for within the national OPPS payment rate for the associated procedure or service (67 Federal Register 52122).

“In [this] one statement, CMS went from a payment rule, to a billing rule, back to a payment rule,” Siddel said. CMS’ statement also discusses billing rules for providers billing CMS and billing beneficiaries. Although facilities often focus on CMS’ rules, commercial payers have their own payment rules.

Is the item routine or integral?
Physicians use some items every time they perform certain procedures. CMS considers these items integral to the procedure, meaning the physician could not perform the procedure without them. Such items usually are not separately payable. When a physician uses a supply item 100% of the time for a procedure, the best practice is to bundle the supply charge into the charge for the procedure, Rinkle said. Bundling the supply cost into the procedure cost helps facilities more consistently capture those expenses and reduce errors.

If the supply used for a procedure can vary with the circumstances (e.g., age or size of the patient) the best practice is to charge separately for that item.

For an item to be separately chargeable, it must be:

  • Directly identifiable to the individual patient with specific documentation or easily inferred documentation
  • Furnished at the direction of a physician because of specific medical needs
  • Not reusable or representative of a cost for each preparation

In a perfect world, coders would have physician orders for everything. However, the physician order must often be inferred, Siddel said. “Do I have a specific order that I can tie this item back to, or do I have a specific procedure with sufficient documentation that I can infer the use of that item?” he said.

Floor stock items are nonchargeable because they can’t be tied back to a specific physician order. Hospitals cannot bill floor stock items to patients.

Patient comfort items, such as slippers, are also nonchargeable because they do not contribute meaningfully to treatment. Facilities cannot bill these items to Medicare, but they can bill the patient.

Facilities also need to be careful when creating and billing for supply kits or packs. For example, a facility may create a kit containing IV tubing, irrigation solutions, gauze, and syringes. These items are all nonbillable, meaning that the hospital cannot bill for a kit containing just these items.

“Just because you take a whole bunch of routine nonbillable items, put them in a package, and wrap it in a bow does not make it billable,” Siddel said. “When you look at a kit or pack, you have to look at what’s inside.”

When is coding required?
Facilities must report HCPCS codes for all outpatient hospital supplies, including:

  • Some medical-surgical supplies 
  • Implants
  • Nonimplantable orthotics and prosthetics
  • Some devices
  • Take-home surgical dressings

When reporting procedure codes that require the use of medical devices, hospitals should also report the applicable HCPCS codes and charges for all devices used to perform the procedure. That doesn’t necessarily mean the hospital will receive separate payment for the devices, but Siddel stressed that hospitals should report the codes.

“All the line items that end up on the bill are taken into account when [CMS is] doing the calculations for costs,” Siddel explained. “It may not go into account when they are paying you, but it will go into account when [CMS is] calculating future costs and reimbursement.”

When CMS began building APC payments, it found that hospitals did not consistently bill integral devices as separate line items because CMS did not separately pay for them, Rinkle said. CMS observed similar results when it introduced DRG payments.

This is an example of hospitals confusing a billing requirement with a payment rule. Facilities should consistently bill devices to all patients and payers. Some payers will separately pay for the device; other payers, such as Medicare, will pay for the device with a combined procedure/device payment rate. However, not billing for the device negatively affects future payment rates because CMS will not receive the cost data on the claims—a consequence the agency has sought to prevent:

We encourage hospitals to report all charges for all services on claims for Medicare payment so that the data on which relative weights are set will fully reflect the relative costs of all services (68 Federal Register 63425).

“That’s why it’s critical that we report or bill all appropriate supplies and that we charge properly, so CMS has the cost information on our claims to set our future payment rates,” Rinkle said.

What are device-dependent edits?
Obtaining the correct cost information is so important that CMS introduced device-dependent edits in 2005 that require hospitals to report procedure codes and device line items with C codes. “That has significantly improved payment rates associated with those procedures,” Rinkle said. “However, it hasn’t improved them completely because of how hospitals may or may not be pricing those devices.”

Hospitals can only use modifiers to bypass the edits in special circumstances. If a procedure that normally requires a device is interrupted and the device goes unused, hospitals should report modifier -52, -73, or -74 as applicable, and the device edits will not apply.

Because hospitals must bill all patients the same, they should use the device-dependent edits for all payers, not just when billing CMS, Rinkle said.

What about equipment?
Facilities cannot charge patients for the use of equipment because equipment depreciates and is included in the procedure charge or room rate. These items are typically expected to last at least five years.

The equipment sometimes requires sterilized instruments for each use. In that case, a facility may bill a supply charge to represent the cost of resterilizing the instruments, but many of those items are depreciated because they are expected to last at least five years.

“If you do have a charge for the reprocessing, the charge needs to represent the cost of the reprocessing but not the actual cost of the instrument,” Rinkle said.

How do we get the right reimbursement?
To make sure your facility is billing and charging for supplies correctly, you first need to establish the context for the billing or charging rule. Make sure you distinguish between chargeable, billable, and separately billable items. After you determine that, you can assign a revenue code.

You need to report the cost somewhere regardless of how you charge for it. Facilities can charge for an item by doing any of the following:

  • Bundling the charge into the general overhead
  • Bundling the charge into an associated service or item
  • Separately charging a code or line item without a CPT/HCPCS code
  • Separately charging a code or line item with a CPT/HCPCS code

“[Because of] the way CMS compiles costs and drives our reimbursement, they need to know everything,” said Siddel. “That includes things that aren’t necessarily paid for separately.”

Editor’s note: This article was originally published in the November issue of Briefings on APCs. E-mail your questions to Managing Editor Michelle Leppert at

Interested in learning more about integral versus separately billable supplies and device-dependent edits? Purchase HCPro’s September 16 audio conference, “Billing for Hospital Supplies: Minimize Compliance Risks and Revenue Loss.”

Want to receive articles like this one in your inbox? Subscribe to JustCoding News: Outpatient!

    Billing Alert for Long-Term Care
  • Billing Alert for Long-Term Care

    It's essential to know how to correctly submit your Medicare claims in order to get the reimbursement your facility...

  • Briefings on APCs

    Worried about the complexities of the new rules under OPPS and APCs? Briefings on APCs helps you understand the new rules...

  • HIM Briefings

    Guiding Health Information Management professionals through the continuously changing field of medical records and toward a...

  • Briefings on Coding Compliance Strategies

    Submitting improper Medicare documentation can lead to denial of fees, payback, fines, and increased diligence from payers...

  • Briefings on HIPAA

    How can you minimize the impact of HIPAA? Subscribe to Briefings on HIPAA, your health information management resource for...

Most Popular