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December 08, 2004

Medicare Secondary Pay considering Lower of Costs or Charges

For inpatient hospital services, when Medicare is the secondary payer, if primary payer doesn't pay billed charges less any applicable deductible and coinsurance, then Medicare will pay up to the lesser of billed charges or the DRG gross reimbursement amount plus any applicable add-ons (i.e. disproportionate share -- DSH, indirect medical education -- IME, direct graduate medical education -- GME) after considering any appropriate Medicare beneficiary deductibles and coinsurance. If Medicare pays in a situation where billed charges are less than the gross DRG reimbursement (including applicable add-ons) then the claims are routed to the MSP-LCC paid claims report (PS&R). These claims should not be included with the cost report Medicare days, charges, gross reimbursement, deductibles, coinsurance, secondary pay and interim payments. If the hospital is paid Periodic Interim Payments (PIP) these claims are not considered in the PIP. To include MSP-LCC claims in the cost report could potentially cause a situation where Medicare would pay more than the hospital’s billed charges because of the retroactive adjustments to add-ons, such as, DSH, IME and GME that are determined through the cost report.

If a hospital is paid PIP, then cash is not received from Medicare on an individual claim basis and the difference between the claims amounts and the PIP is reconciled and payment settled through the annual cost report. In a PIP situation, MSP-LLC claims are generally not paid by the Medicare fiscal intermediary (FI) on a claim specific basis. The FI may pay an amount periodically based on updated MSP-LCC PS&Rs or alternatively by allowing the PIP reported in the cost report to be reduced by the Medicare liability for the MSP-LLC claims as reported on the annual MSP-LLC PS&R. PIP hospital’s should have procedures in place to audit and verify periodic payments for MSP-LCC claims and reconcile the amounts to the PS&R. As the PS&R is an external document it should also be validated with internal records.

Posted by Michael McKibben at December 8, 2004 12:09 PM

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