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Medicare Myths
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There are several Medicare Myths that have hampered hospitals in their ability to charge as they want. While there may be various competitive constraints, there are few Medicare constraints with regards to charging for goods and services provided in ancillary departments.

Listed belo
w are four common Medicare Myths.

MYTH #1  Restrictions on charging for various items included in “Routine Services” seems to have morphed into alleged restrictions on charging “routinely used” items.
Various people have informed hospitals that routinely used equipment and supplies may not be charged separately. Like every heresy, there is a thread of truth that lends credibility to the portion of the statement that is false. “Routine Services” as defined in §2202.6 of the Medicare Provider Reimbursement Manual (PRM) 1(VIEW PDF ) mentions that it is “…sometimes referred to as the ‘room and board’ charge”. The “room and board” charge is the one that has limitations on what may be charged separately. Items that are routinely included in a hospital’s “room and board” charge may not be charged separately, as they are deemed to be included in that “room and board” charge. Ancillary departments do not have these charging restrictions. “…It is within the purview of the provider to establish its own charge structure … CMS does not dictate or regulate what is included on the hospital’s itemized statement.” 2 (VIEW PDF) Hospitals are free to establish charges at a very detailed level, or bundle a few or many items, into a larger charge.

2 From a letter to Financial Review Services, Inc. from Paula Hammond-McNatt of the Dallas Regional Office of CMS

MYTH #2 
Routine supplies and equipment may not be charged separately in ancillary departments. 
We first addressed what is used in surgery and the endoscopy lab, because those are the two departments in which we specialize. Our question to CMS was – for the mythical St. Mary’s hospital which has a time charge for the OR and endo lab, which only includes the use of the room and minimal staff, may it also charge for monitors, instruments, supplies, anesthesia machine, laparoscope, video system, surgery packs, colonoscope, et cetera? 3(VIEW PDF) Medicare said the hospital could charge for the various items separately if it wished. The Dallas Regional Office of CMS said: “As in the example we discussed, operating room (OR) instruments and equipment could be detailed on the itemized statement but should be aggregated into the total for ‘OR Services’ under revenue code 360 on the UB-92. Items such as surgery packs and other supplies could be listed on the itemized statement but would have to be rolled up into the total for ‘Medical/Surgical Supplies’ under revenue code 270.” 4(VIEW PDF)

When we forwarded a copy of this letter to AdminaStar Federal, a fiscal intermediary in the mid-west, it reversed its position and agreed that the various items were separately chargeable.

Because some of our clients wanted confirmation from “their” regional CMS office, we obtained that confirmation from three other CMS regional offices – Chicago, Kansas City and Atlanta. 5 (VIEW PDF) In an effort to deliver an acceptable authoritative confirmation to hospitals in other areas, but not pester every CMS regional office in the country, we asked the national office of CMS for additional confirmation of what the regional offices had told us. Mr. Herb Kuhn, Director-Center for Medicare Management, was kind enough to do so. In his letter Mr. Kuhn said: “…The PRM sections 2202.6 and 2202.8 address routine and ancillary services. … They also encompass the concept of routine versus ancillary charges in ancillary departments; i.e., a basic ‘routine’ charge for a department plus additional charges for items and services to specific patients. … However, for ancillary departments, section 2202.8 6 (VIEW PDF) does not specifically address which items and services are part of the basic ‘routine’ charge and which are charged in addition to the basic charge. Therefore, we do not see an issue in your examples of a hospital’s having a basic ancillary department charge for the room with additional charges for other items and services furnished to patients depending on the procedure, as long as the various charges are reasonably and consistently related to the cost of the services to which they apply and are uniformly applied (sections 2202.4 and 2203). This applies to any ancillary department, including the departments you cited.” 7(VIEW PDF)

In the last sentence above, where it says: “This applies to any ancillary department…” it is clear that every ancillary department may charge for various items regardless of whether they are “routinely used”, if the hospital has developed its charges to delineate them.

4 From letter to Michael Lewis, Financial Review Services, Inc. from Paula Hammond-McNatt, CMS/Dallas 
7 Letter to Michael Lewis, Financial Review Services, Inc. from Herb B. Kuhn, Director-Center for Medicare Management

MYTH #3 
Some supplies are non-chargeable in ancillary departments. 
You may have seen the following spreadsheet. It has been offered by various consultants as an authoritative method of determining if supplies are separately chargeable in hospitals. The purveyors of this will tell you that these are the rules that have to be met in order to charge for various supply items separately. However, if you read the citation they refer to, §2203.2 of the PRM, you will see that this portion of the PRM is for SNF’s not hospitals. 8 (VIEW PDF)

Remember what the national office of CMS said regarding being able to charge for whatever you want: “This applies to any ancillary department…”.7 So there appears to be no “non-chargeable supplies” in ancillary departments unless your hospital has decided that it does not want to charge for them.

MYTH #4 
All patients have to be charged the same.
“PRM Section 2204, Medicare Charges, which states, in part, that the ‘Medicare charge for a specific service must be the same as the charge made to non-Medicare patients….’ It needs to be read in the light of section 2203 which makes clear that consistent charging is required for a proper determination of Medicare cost-based payment but that Medicare can’t mandate consistent charging. … If a provider has a different charge structure for certain services provided in the inpatient setting than in the outpatient setting or for different classes of patients, e.g., Medicare patients v. other classes of patients, Medicare expects the provider to adjust the charges for Medicare reporting purposes to reflect the same consistent charge for all patients in all settings. … The adjustments are often referred to as ‘grossing-up’ the charges, i.e., raising/adjusting certain charges to reflect a consistent charge level for Medicare purposes.” 9 (VIEW PDF)

All of the above is to set the stage for the proposition that detailed charging in surgery, and probably some other ancillary departments, is better than bundled charging because: 
1) operating income often goes up several percentage points – in order to implement detailed charging you have to  know what the details are and acquiring that knowledge often results in charging for items and services that  previously were inadvertently given away; 
2) the decision support system is much more credible when the detail charges are captured; 
3) detailed charges are more defensible than bundled charges because the details are presented rather than hidden in  a “bundle”, i.e. prepare for the coming wave of transparency.