Procedures for Coding and Payment Determinations for Clinical Laboratory Tests and for Durable Medical Equipment

MEDICARE PROGRAM; PROCEDURES FOR CODING AND PAYMENT DETERMINATIONS FOR CLINICAL LABORATORY TESTS AND FOR DURABLE MEDICAL EQUIPMENT

This information provides a description of the procedures CMS follows in making coding and payment decisions for clinical laboratory tests and durable medical equipment.

FOR FURTHER INFORMATION CONTACT:

Anita Greenberg, (410) 786-4601 for clinical laboratory payment issues; Cindy Hake (410) 786-3404, Felicia Eggleston (410) 786-9287, or Trish Brooks (410) 786-4561 for HCPCS level II coding issues.

HCPCS Background Information
Coding and Payment for Clinical Laboratory Tests
Coding and Payment for DME

HCPCS BACKGROUND INFORMATION

Each year, in the United States, health care insurers process over 5 billion claims for payment. For Medicare and other health insurance programs to ensure that these claims are processed in an orderly and consistent manner, standardized coding systems are essential. The HCPCS was developed for this purpose. The HCPCS is divided into two principal subsystems, referred to as level I and level II of the HCPCS. Level I of the HCPCS is comprised of CPT-4, a numeric coding system maintained by the AMA. The CPT-4 is a uniform coding system consisting of descriptive terms and identifying codes that are used primarily to identify medical services and procedures furnished by physicians and other health care professionals. These health care professionals use the CPT-4 to identify services and procedures for which they bill public or private health insurance programs. Decisions regarding the addition, deletion, or modification of CPT-4 codes are made by the AMA. The CPT-4 codes are republished and updated annually by the AMA. Level I of the HCPCS, the CPT-4 codes, does not include codes needed to report medical items or services that are regularly billed by suppliers other than physicians.

Level II of the HCPCS is a standardized coding system that is used primarily to identify products, supplies, and services not included in the CPT-4 codes, for example, ambulance services and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) when used outside a physician's office. Because Medicare and other insurers cover a variety of services, supplies, and equipment that are not identified by CPT-4 codes, the level II HCPCS codes were established for submitting claims for these items. The development and use of level II of the HCPCS began in the 1980's. Level II codes are also referred to as alpha-numeric codes because they consist of a single alphabetical letter followed by 4 numeric digits, while CPT-4 codes are identified using 5 numeric digits.

HCPCS level II permanent codes are maintained jointly by America's Health Insurance Plans (AHIP), the Blue Cross and Blue Shield Association (BCBSA), and the Centers for Medicare and Medicaid Services (CMS). Prior to December 31, 2003, Level III HCPCS were developed and used by Medicaid State agencies, Medicare contractors, and private insurers in their specific programs or local areas of jurisdiction. For purposes of Medicare, level III codes were also referred to as local codes. Local codes were established when an insurer preferred that suppliers use a local code to identify a service, for which there is no level I or level II code, rather than use a "miscellaneous or not otherwise classified code." The Health Insurance Portability and Accountability Act of 1996 (HIPAA) required us to adopt standards for coding systems that are used for reporting health care transactions. We published, in the Federal Register on August 17, 2000 (65 FR 50312), regulations to implement this part of the HIPAA legislation. These regulations provided for the elimination of level III local codes by October 2002, at which time, the regulations provided, only the level I and level II code sets could be used. We decided to eliminate local codes because local codes do not support the objectives of the HIPAA legislation, which calls for an efficient coding system that meets uniform standards and requirements. The elimination of local codes was postponed, as a result of section 532(a) of BIPA, which directed us to maintain and continue the use of local codes through December 31, 2003.

A. HCPCS Level II Codes

The regulations that we published on August 17, 2000 to implement the HIPAA requirement for standardized coding systems established the HCPCS level II codes as the standardized coding system for describing and identifying health care equipment and supplies in health care transactions that are not identified by the HCPCS level I, CPT-4 codes. The HCPCS level II coding system was selected as the standardized coding system because of its wide acceptance among both public and private insurers. Public and private insurers are required to be in compliance with the provision of the August 2000 regulation by October 1, 2002. The purpose of this part of this notice is to provide a description of level II of the HCPCS.

The HCPCS level II is a comprehensive and standardized coding system that describes classifications of like products that are medical in nature by category for the purpose of efficient claims processing. For each HCPCS code, there is a descriptive terminology that identifies a category of like items. These codes are used primarily for billing purposes. For example, suppliers use HCPCS level II codes to identify on claim forms the items for which they are billing a private or public health insurer.

HCPCS is a system for identifying items and services. It is not a methodology or system for making coverage or payment determinations, and the existence of a code does not, of itself, determine coverage or noncoverage for an item or service. While these codes are used for billing purposes, decisions regarding the addition, deletion, or modification of HCPCS codes are made independent of the process for making determinations regarding coverage and payment.

Currently, there are national HCPCS codes representing over 4,000 separate categories of like items or services that encompass millions of products from different manufacturers. In submitting claims, suppliers are required to use one of these codes to identify the items they are billing. The descriptor that is assigned to a code represents the official definition of the items and services that can be billed using that code. To avoid any appearance of endorsement of a particular product through HCPCS, the descriptors that are used to identify codes do not refer to specific products. For this reason, brand or trade names are not used to describe the products represented by a code.

In summary, the HCPCS level II coding system has the following characteristics:

This system ensures uniform reporting on claims forms of items or services that are medical in nature. Such a standardized coding system is needed by public and private insurance programs to ensure the uniform reporting of services on claims forms by suppliers and for meaningful data collection.
The descriptors of the codes identify like items or services rather than specific products or brand/trade names.
The coding system is not a methodology for making coverage or payment determinations. Each payer makes determinations on coverage and payment outside this coding process.

B. Types of HCPCS Level II Codes

There are several types of HCPCS level II codes depending on the purpose for the codes and who is responsible for establishing and maintaining them.

Permanent National Codes

National permanent HCPCS level II codes are maintained by the HCPCS National Panel. The National Panel is comprised of representatives from AHIP, BCBSA, and CMS. The Panel is responsible for making decisions about additions, revisions, and deletions to the permanent national alpha-numeric codes. Decisions regarding changes to the national permanent codes are only made by unanimous consent of all three parties. Since HCPCS is a national coding system, none of the parties, including CMS, can make unilateral decisions regarding permanent level II national codes. These codes are for the use of all private and public health insurers.

The permanent national codes serve the important function of providing a standardized coding system that is managed jointly by private and public insurers. It supplies a predictable set of uniform codes that provides a stable environment for claims submission and processing.

Dental Codes

The dental codes are a separate category of national codes. The Current Dental Terminology (CDT4) is a publication copyrighted by the American Dental Association (ADA) that lists codes for billing for dental procedures and supplies. The CDT4 is included in HCPCS level II. Decisions regarding the modification, deletion, or addition of CDT4 codes are made by the ADA and not the National Panel.

As the Department of Health and Human Services has an agreement with the AMA pertaining to the use of the Current Procedural Terminology (CPT-4) codes for physician services, it also has an agreement with the ADA to include CDT4 as a set of HCPCS level II codes for use in billing for dental services.

Miscellaneous Codes

National codes also include "miscellaneous/not otherwise classified" codes. These codes are used when a supplier is submitting a bill for an item or service and there is no existing national code that adequately describes the item or service being billed. The importance of miscellaneous codes is that they allow suppliers to begin billing immediately for a service or item as soon as it is allowed to be marketed by the Food and Drug Administration (FDA) even though there is no distinct code that describes the service or item. A miscellaneous code can be used during the period of time a request for a new code is being considered under the HCPCS review process. The use of miscellaneous codes also helps us to avoid the inefficiency of assigning distinct codes for items or services that are rarely furnished or for which we expect to receive few claims.

Because of miscellaneous codes, the absence of a specific code for a distinct category of products does not affect a supplier's ability to submit claims to private or public insurers. Claims with miscellaneous codes are manually reviewed, the item or service being billed must be clearly described, and pricing information must be provided along with documentation to explain why the item or service is needed by the beneficiary.

Ordinarily, before using a miscellaneous code on a claim form, a supplier should check with the contractor that will receive the payment claim to determine whether there is a specific code that should be used rather than a miscellaneous code. However, in the case of claims that are to be submitted to one of the four durable medical equipment regional carriers (DMERCs), suppliers that have coding questions should check with the statistical analysis durable medical equipment carrier (SADMERC). The SADMERC is responsible for providing suppliers and manufacturers with assistance in determining which HCPCS code should be used because it best describes a given DMEPOS item. The SADMERC has a toll free helpline for this purpose, (877) 735-1326.

If no current code exists that describes the product category to which the item belongs, the SADMERC will instruct the supplier to submit claims using a "miscellaneous/not otherwise classified" code. In those cases in which a supplier or manufacturer has been advised to use a miscellaneous code because there is no existing code that describes a given product, and the supplier or manufacturer believes that the code is needed, it should submit a request to modify the HCPCS in accordance with the established process. The process for requesting a modification to the HCPCS level II codes is explained below.

Temporary National Codes

The CMS and the other members of the National Panel maintain their own series of codes that are independent of the permanent national codes. These codes are called temporary codes. Permanent national codes are only updated once a year on January 1. Temporary codes allow insurers the flexibility to establish codes that are needed before the next January 1 annual update for permanent national codes or until consensus can be achieved on a permanent national code. Approximately 35 percent of the level II HCPCS codes are temporary codes.

The National Panel has set aside certain sections of the HCPCS to allow National Panel members to develop temporary codes. However, decisions regarding the number and type of temporary codes and how they are used are not made by the National Panel but are made independently by each National Panel member. Temporary codes are for the purpose of meeting, within a short time frame, the operational needs of a particular insurer that are not addressed by an already existing national code. This means that if, before the next scheduled annual update for permanent codes, a member of the National Panel needs a code in order to meet specific operating needs that pertain to its particular programs, it may establish a national temporary code. In the case of Medicare, decisions regarding temporary codes are made by the HCPCS workgroup, which is an internal CMS workgroup. For example, Medicare may need additional codes before the next scheduled annual HCPCS update to implement newly issued coverage policies or legislative requirements. Although we establish temporary codes to meet our specific operational needs, the temporary codes we establish can be used by other insurers.

The National Panel may decide to replace temporary codes with permanent codes. However, if permanent codes are not established, temporary codes could remain as "temporary" codes indefinitely. Whenever a permanent code is established by the National Panel to replace a temporary code, the temporary code is deleted and cross-referenced to the new permanent code.

Types of temporary HCPCS codes:

The C codes were established to permit implementation of section 201 of the Balanced Budget Refinement Act of 1999. The C codes identify items that may qualify for "pass through" payments under the hospital outpatient prospective payment system (HOPPS). These codes are used exclusively for the HOPPS purposes and are only valid for Medicare on claims submitted by hospital outpatient departments.
The G codes are used to identify professional health care procedures and services that would otherwise be coded in CPT-4 but for which there are no CPT-4 codes.
The Q codes are used to identify services that would not be given a CPT-4 code, such as drugs, biologicals, and other types of medical equipment or services, and which are not identified by national level II codes but for which codes are needed for claims processing purposes.
The K codes were established for use by the DMERCs. The K codes are established for use by the DMERCs when the currently existing permanent national codes do not include the codes needed to implement a DMERC medical review policy. For example, codes other than the permanent national codes may be needed by the DMERCs to identify certain product categories and supplies necessary for establishing appropriate regional medical review coverage policies.
The S codes are used by the BCBSA and the AHIP to report drugs, services, and supplies for which there are no national codes but for which codes are needed by the private sector to implement policies, programs, or claims processing. They are for the purpose of meeting the particular needs of the private sector. These codes are also used by the Medicaid program, but they are not payable by Medicare.
The H codes are used by those State Medicaid agencies that are mandated by State law to establish separate codes for identifying mental health services such as alcohol and drug treatment services.
The T codes are designated for use by Medicaid State agencies to establish codes for items for which there are no permanent national codes and for which codes are necessary to administer the Medicaid program (T codes are not used by Medicare but can be used by private insurers).

Code Modifiers

In some instances, insurers instruct suppliers that a HCPCS code must be accompanied by code modifier to provide additional information regarding the service or item identified by the HCPCS code. Modifiers are used when the information provided by a HCPCS code descriptor needs to be supplemented to identify specific circumstances that may apply to an item or service. For example, a UE modifier is used when the item identified by a HCPCS code is "used equipment," a NU modifier is used for "new equipment." The level II HCPCS modifiers are either alpha-numeric or two letters.

Requesting a Modification to the HCPCS Level II Codes

Any supplier or manufacturer can submit a request for coding modification to the HCPCS level II national codes. A document explaining the HCPCS modification process, as well as a detailed format for submitting a recommendation for a modification to HCPCS level II codes, is available on our HCPCS website at http://cms.hhs.gov/medicare/hcpcs/default.asp. Besides the information requested in this format, a requestor should also submit any additional descriptive material, including the manufacturer's product literature and information, that it thinks would be helpful in furthering our understanding of the medical features of the item for which a coding modification is being recommended. The HCPCS coding review process is an ongoing continuous process. The review cycle runs from April 2nd through the following April 1st. Requests may be submitted at any time throughout the year. Requests that are received and complete by April 1st of the current year will be considered for inclusion in the next annual update (January 1st of the following year). Requests received on or after April 2nd, and requests received earlier that require additional evaluation, will be included in a later HCPCS update. There are three types of coding modifications to the HCPCS that can be requested:

That a code be added

When there is not a distinct code that describes a product, a code may be requested (1) if the FDA allows the product to be marketed in the United States, (2) the product has been on the market for at least 6 months, and (3) the product represents 3 percent or more of the outpatient use for that type of product in the national market.

If a request for a new code is approved, the addition of a new HCPCS codes does not mean that the item is necessarily covered by Medicare. Whether an item identified by a new code is covered is determined by the Medicare law, regulations, and medical review policies and not by the assignment of a code.

That the language used to describe an existing code be changed

When there is an existing code, a recommendation to modify the code can be made when an interested party believes that the descriptor for the code needs to be modified to provide a better description of the category of products represented by the code.

That an existing code be deleted

When an existing code becomes obsolete or is duplicative of another code, a request can be made to delete the code.

During any time in which there is no currently existing code to describe a product, a miscellaneous code/not otherwise classified code can be used. The use of a miscellaneous code permits a claims history to be established for an item that can be used to support the need for a national permanent code.

Requests for coding modifications should be sent to the following:

HCPCS Workgroup

The CMS/HCPCS Workgroup reviews recommendations for coding modifications that are submitted to CMS using the process described above. The HCPCS Workgroup is an internal workgroup that is comprised of representatives of the major components of CMS, the Veterans Administration, the Medicaid State agencies, and the SADMERC. The SADMERC participates on the workgroup as a representative for the four DMERCs.

When a recommendation for a modification to the HCPCS is received, it is reviewed at a regularly scheduled meeting of the HCPCS Workgroup. Ordinarily, the HCPCS Workgroup meets monthly. After considering a coding request, the HCPCS Workgroup decides what recommendation CMS will make to the HCPCS National Panel regarding whether the coding request warrants a change to the national permanent codes. It may also establish a temporary Medicare national code pending National Panel action. The Workgroup's recommendations to the National Panel ordinarily fall into one of the following categories:

1. Add a Code

There is no existing code that matches the item or service described in the coding request and data indicate that there will be sufficient claims activity to warrant the need for a new code. This recommendation is not made when there is already an existing code that describes an item or service that is essentially equivalent to the item or service for which a new code has been requested. In addition, this recommendation is not made if the item or service is not primarily diagnostic or therapeutic in nature or if it represents a professional health care service that would fall under level I of the HCPCS.

In those cases in which the HCPCS Workgroup decides to recommend to the National Panel that a new code be established, the Workgroup also considers whether the coding request warrants the establishment of a temporary code. A temporary code would be assigned when it is necessary for the efficient operation of the Medicare/Medicaid programs that an item be assigned a separate code without waiting for the next annual update for national permanent codes.

2. Use an Existing Code that Describes the Item or Service

There is an existing code that matches the item described in the coding request. For the efficiency of the HCPCS, the workgroup does not recommend separate codes for like products, that is, like products should fit within the same code.

3. Use an Existing Code for Miscellaneous Items or Services

A miscellaneous code should be used to describe the item identified in the coding request. This recommendation is made when there is no existing code that matches the item described in the coding request but the HCPCS workgroup expects that so few claims will be submitted for the item that a separate code is not warranted. For example, the request may be for a code for an item that is not covered by Medicare.

4. Revise an Existing Code

An existing code descriptor should be revised to better describe the category of items or services it represents.

5. Delete an Existing Code

An existing code should be deleted because it no longer serves a useful purpose.

Based on the nature of the coding request, any one or a combination of the above recommendations could be made in response to a request for a change in the HCPCS.

Evaluating HCPCS Coding Requests

The HCPCS workgroup applies the following criteria to determine whether there is a demonstrated need for a new or modified code or the need to remove a code:

When an existing code adequately describes the item in a coding request, then no new or modified code is established. An existing code adequately describes an item in a coding request when the existing code describes products with the following:

Functions similar to the item in the coding request.
No significant therapeutic distinctions from the item in the coding request.

When an existing code describes products that are almost the same in function with only minor distinctions from the item in the coding request, the item in the coding request may be grouped with that code and the code descriptor modified to reflect the distinctions.
A code is not established for an item that is used only in the inpatient setting or for an item that is not diagnostic or therapeutic in nature.
A new or modified code is not established for an item unless the FDA allows the item to be marketed.
There must be sufficient claims activity or volume, as evidenced by 6 months of marketing activity, so that the adding of a new or modified code enhances the efficiency of the system and justifies the administrative burden of adding or modifying a code.
An item must be used at least 3 percent of the time or more in outpatient settings as opposed to inpatient settings.
The determination to remove a code is based on the consideration of whether a code is obsolete (for example, products no longer are used, other more specific codes have been added) or duplicative and no longer useful (for example, new codes are established that better describe items identified by existing codes). In developing its recommendations for the National Panel, the HCPCS Workgroup uses the criteria mentioned above. In deciding upon a recommendation, the workgroup does not include cost as a factor.

National Panel

The National Panel has been in existence since the 1980's, and is responsible for managing the standardized, national HCPCS level II permanent codes. Temporary codes are managed by CMS or other insurers to meet their particular program needs. While we are only one member of the National Panel, our staff manages the administrative process for maintaining HCPCS level II codes. We receive all of the requests for modifications to the coding system, we make these requests available to the other Panel members, and chair the National Panel meetings that are held to discuss and make decisions regarding these requests.

The National Panel is responsible for making the final decisions pertaining to additions, deletions, and modifications to the HCPCS codes. The National Panel jointly reviews all requests for coding changes and makes final decisions regarding the annual update to the national codes. Changes to the permanent codes are not approved unless there is a unanimous vote in favor of the change by all three members of the Panel. The Panel sends letters to those who requested coding modifications to inform them of the Panel's decision regarding their coding requests. The decision letters include the following types of responses:

As indicated by the enclosure to this letter, a change to the national codes has been approved that reflects, completely or in part, your coding request. (Approximately 65 percent of the requesters receive this type of response.)
Your request for a coding modification to this year's update has not been approved because the scope of your request necessitates that additional consideration be given to your request before the Panel reaches a final decision.
Your reported sales volume was insufficient to support your request for a modification to the national codes. To determine whether there is sufficient sales volume to warrant a permanent code, we ask requestors to submit 6 months of the most recent sales volume.
Your request for a new national code has not been approved because there already is an existing permanent or temporary code that describes your product.
Your request for a code has not been approved because your product is not used by health care providers for diagnostic or therapeutic purposes.
Your request for a code has not been approved because the code you requested is for capital equipment.
Your request for a code has not been approved because your product is an integral part of another service and payment for that service includes payment for your product; therefore, your product may not be billed separately to Medicare.
Your request for a modification to the language that describes the current code has not been approved because it does not improve the code descriptor.
Your request for a new code has not been approved because your product is not primarily medical in nature (for example, generally not useful in the absence of an illness or injury).
Your request for a code has not been approved because your product is used exclusively in the inpatient hospital setting.

Decision letters also inform the requestors that they may contact their Medicare contractor for assistance in answering any coding questions pertaining to Medicare. A requestor who is dissatisfied with the Panel's decision may submit a new request asking the Panel to reconsider and re-evaluate the code request. At that time, the requestor should include new information or additional explanations to support the request. This is not an appeal process per se, but an entirely new submission asking for a coding change, which we believe is an even more complete avenue of appeal.

HCPCS Updates

A. Permanent National Codes

The national codes are updated annually, every

January 1, according to the following schedule:

1. Coding requests have to be received by April 1 of the current year to be considered for the next January 1 update. This means that completed requests must be received by no later than April 1 of the current year to be considered for inclusion in the January update of the following year unless April 1 falls on a weekend; then the due date is extended to the following Monday.

2. Updated computer tapes and instructions, that include an updated list of codes and identify which codes have been changed or deleted, are sent to our contractors and Medicaid State agencies at least 60 days in advance of the January 1 implementation date for the annual update. In addition, decision letters from the National Panel are sent out each November before the January 1 update to those who have requested coding modifications.

B. Temporary Codes

Temporary codes can be added, changed, or deleted on a quarterly basis. Once established, temporary codes are usually implemented within 120 to 180 days, the time needed to prepare and issue implementation instructions and to enter the new code into CMS's and the contractors' computer systems and initiate user education. This time is needed to allow for instructions such as bulletins and newsletters to be sent out to suppliers to provide them with information and assistance regarding the implementation of temporary CMS codes.

HCPCS/Medicare Website

To provide information to suppliers and manufacturers regarding the HCPCS coding system, CMS has a Medicare HCPCS website. Our website, http://cms.hhs.gov/medicare/hcpcs/default.asp lists all of the current HCPCS codes, an alphabetical index of HCPCS codes by type of service or product, and an alphabetical table of drugs for which there are level II codes. The website also includes a copy of the agenda for the upcoming National Panel meetings. Interested parties can submit comments regarding the agenda items to the National Panel by sending an e-mail to CMS through this website. These comments are included as part of the National Panel's review as it considers the coding requests.

The newly established temporary codes and effective dates for their use are also posted on the Medicare HCPCS website. This website enables us to quickly disseminate information on coding requests and decisions.

Opportunity for Public Input/Public Meeting Process for HCPCS

On December 21, 2000, the Congress passed the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), Pub. L. 106-554. Section 531(b) of BIPA mandated that we establish procedures that permit public consultation for coding and payment determinations for new DME under Medicare Part B of title XVIII of the Social Security Act (the Act). Accordingly, CMS hosts annual public meetings that provide a forum for interested parties to make oral presentations and/or to submit written comments in response to preliminary coding and pricing recommendations for new durable medical equipment that have been submitted using the Healthcare Common Procedure Coding System coding modification process.

The HCPCS coordinator schedules meetings with interested parties, at their request, to discuss their recommendations regarding possible changes to the HCPCS level II codes. These meetings are held at the Central Office of CMS. In addition to representatives from the HCPCS Workgroup, staff also from Medicaid and Medicare coverage, payment and operations are invited to attend these meetings. These meetings are not related to the meetings mandated by section 531(b) of BIPA.

The Medicare HCPCS website includes a listing of items that will be discussed at upcoming meetings of the HCPCS National Panel. These lists are posted at www.cms.hhs.gov/medicare/hcpcs to give the public sufficient time to submit comments for the National Panel's consideration at its upcoming meeting.

CODING AND PAYMENT FOR CLINICAL LABORATORY TESTS

A. Procedures for Coding Determinations

The codes for clinical laboratory tests used on the Clinical Laboratory Fee Schedule are largely from the Current Procedural Terminology, Fourth Edition (CPT-4) developed and published by the American Medical Association (AMA). The codes are a listing of descriptive terms for reporting clinical laboratory tests. The AMA publishes the updated codes (through books and magnetic tape) every year in October for use by payers and providers for the upcoming calendar year. Approximately 1,000 separate clinical laboratory codes are currently listed in the 80000-89399 CPT-4 code series. In addition, the Clinical Laboratory Fee Schedule contains a small number (less than 50) of level II HCPCS codes. These HCPCS codes for laboratory services were created to describe clinical laboratory services that had to be uniquely identified for Medicare purposes. An example of this type of code is G0103, prostate cancer screening; prostate specific antigen blood test. This level II code was introduced effective January 1, 2000, to implement section 4103 of the Balanced Budget Act of 1997 that mandates additional coverage and tracking of expenditures for this type of test for Medicare beneficiaries.

The AMA's CPT-4 Editorial Panel has procedures for receiving requests to change codes and conducts meetings to review the requests. The CPT-4 codes are updated annually to reflect changes in the practice of medicine and provision of health care. A request for a code change may be submitted by any interested entity. The CPT-4 meetings occur several times a year and result in annual additions, deletions, and modifications of codes. By June of each year, the CPT-4 Editorial Panel has largely completed its coding decisions for the upcoming calendar year. For more information on the AMA's CPT-4 coding process, please see the AMA website at: http://www.ama-assn.org/cpt or call 1-800-634-6922.

In the past, in accordance with the AMA CPT-4 publication schedule, we have not been able to make the new codes publicly available until October. This constraint did not permit us sufficient time to seek public input on the determination of pricing of new codes before we had to transmit the new fee schedule to our contractors. However, the AMA has agreed to make the codes available in draft during the summer so that we can proceed with public meetings to obtain public input on payment rates.

B. Procedures for Payment Determinations

The Deficit Reduction Act of 1984 established prospectively set local fee schedules for outpatient clinical diagnostic laboratory services to be paid under the Medicare Part B benefit under section 1833(h) of the Act. According to section 1833 of the Act, payment for those services is the lower of the submitted charge, the national limitation amount, or the local fee schedule amount for a laboratory service. Each local fee schedule is developed by the carrier, that is, the local contractor that processes Medicare Part B claims for a designated geographic area. Carriers continue to pay laboratory claims primarily from independent laboratories and physician office laboratories. Intermediaries use the same fee schedules as carriers when paying for outpatient laboratory tests performed by hospitals, nursing homes, and end-stage renal disease centers. Payment is only made to laboratories that comply with the provisions of the Clinical Laboratory Improvement Amendments of 1988, section 353 of the Public Health Service Act.

To set payment rates, we gather the carriers' local fee schedules into one data set, referred to as the Clinical Laboratory Fee Schedule. By November 1 of each year, we update payments as appropriate, and incorporate new codes into the data set, assign a payment rate to the new codes, and distribute the data set to the carriers and intermediaries electronically. In addition, we issue a corresponding Program Memorandum announcing the new codes and payment rates. The Program Memorandum lists an address for the public to send comments for the development of the following year's Clinical Laboratory Fee Schedule. We also make the data set and Program Memorandum available to the public through our website at http://cms.hhs.gov/. During November and December carriers, intermediaries, and laboratories upload the new data set, educate their customers, and test their claims systems in order to be ready for the new calendar year Clinical Laboratory Fee Schedule that will be effective on January 1 of each year.

Medicare pays the lesser of actual charges, the local carrier fee schedule amount, or a national limitation amount (which is based on the local fee schedule amounts). For calendar year 2003, section 1833(h) of the Act provides that the national limitation amount for each test be established at 74 percent of the median of all local fee schedule amounts established for each setting in which the test is performed, or 100 percent of the median in the case of a clinical diagnostic laboratory test performed on or after January 1, 2001, that is a new test for which no limitation amount has previously been established.

The following are the two methods available for determining the payment rates for new CPT codes:

In the first method, called "cross walking," we determine a new test to be similar to an existing test, multiple existing test codes, or a portion of an existing test code. The new test code is then assigned the related existing local fee schedule amounts and resulting national limitation amount.

The second method, called "gap-filling," is used when no comparable, existing test is available. We then instruct each Medicare carrier to determine a payment amount for its area for use in the first year. Then, we use the carrier-specific amounts to establish a national limitation amount for the following year.

For each new CPT code, we must determine whether it is appropriate to cross walk or to gap-fill, and, if cross walking is appropriate, we need to know which tests to cross walk.

CODING AND PAYMENT FOR DURABLE MEDICAL EQUIPMENT

A. Procedures for Coding Determinations

Each HCPCS code describes a category of similar items. For DME items, we make one of the following determinations:

The item should be billed using an existing code as it currently reads.
An existing code should be modified to include the DME item.
An additional code should be added to describe a category of items that includes the item.
The item should be billed using a miscellaneous code.

B. Procedures for Payment Determinations

Section 1834(a) of the Act requires that payment for DME be made on the basis of fee schedules. This section provides that the fees for DME be the lower of the actual charge or the amount calculated under formulas that use as a basis the average reasonable charges for the items during a base period from 1986 to 1987. These fee schedule amounts are updated on an annual basis by a factor legislated by the Congress.

Because reasonable charge data from 1986 to 1987 do not generally exist for new items, the carriers gap-fill the base fee schedule amounts for these items using a methodology provided in section 5101.2.A of the Medicare Carriers Manual. This section instructs the carriers to gap-fill DME fee schedule amounts using the fee schedule amounts for comparable equipment, calculated fee schedule amounts from a neighboring carrier, or supplier price lists.

The DME gap-filling methodology is used to approximate historic reasonable charges when the historic data needed to calculate the fee schedules are not available. If price lists from 1986 to 1987 are not available and more current prices are used, the carriers are instructed to decrease the more current prices by a "deflation" factor in order to approximate the base year price for gap-filling purposes. We have instructed the carriers over the years to use the "oldest" price they could find to create a price for the 1986 to 1987 base period to gap-fill the base DME fee. The deflation factors are based on the percentage change in the consumer price index for all urban consumers (CPI-U). This gap-filling methodology has been in use since 1989, the initial year of the DME fee schedules.

C. Code Assignment Following Medicare National Coverage Determination

Pursuant to Sec. 1862 (l) (3) (C) (iv) of the Social Security Act (added by Section 731 (a) of the Medicare Modernization Act), the Centers for Medicare and Medicaid Services (CMS), has developed a process by which the CMS HCPCS Workgroup will identify an appropriate existing code category and/or establish a new code category to describe the item that is the subject of a National Coverage Determination (NCD). If the item is considered Durable Medical Equipment, Prosthetic, Orthotic or Supply (DMEPOS), the CMS will defer to the Statistical Analysis Durable Medical Equipment Regional Carrier (SADMERC) to determine the appropriate code category. Under contract to the CMS, the SADMERC assigns individual DMEPOS products to HCPCS code categories for the purpose of billing Medicare.

As a matter of meeting on-going Medicare program operating needs, processes have existed for some time by which items and services that are newly covered by Medicare are assigned to a new or existing code category. Effective July 1, 2004, the process outlined below will be used by CMS to comply with the requirements of Sec. 1862 (l).

Assignment of an Existing "Temporary" or "Permanent" Code: When the CMS determines that an item is already identified by an existing "temporary" or "permanent" (as described in A and B above) HCPCS code category, but was previously not covered, the CMS will assign the item to the existing code category, and ensure that the coverage indicator assigned to the code category accurately reflects Medicare policy regarding payment for the item. Sec. 731 of the MMA does not require that a new code category or a product?specific code be created for an item simply because a new coverage determination was made, without regard to codes available in the existing code set.
Assignment of a New "Temporary" or "Permanent" Code: When the CMS determines that a new code category is appropriate, CMS will make every effort to establish, publish, and implement the new code at the time the final coverage determination is made.
Assignment of an Unclassified Code: Under certain circumstances, the assignment of an item to an unclassified code may be necessary. A number of unclassified codes already exist under various headings throughout the HCPCS Level II code set. When an item is newly covered, but usage is narrow and the item would be billed infrequently, it may be more of an administrative burden to revise the code set than to use an unclassified code along with other, existing processing methods. When a new "temporary" or "permanent" code is appropriate, but the change cannot be implemented and incorporated into billing and claims processing systems at the time the final NCD decision memorandum is released, an unclassified code may be assigned in the interim, until a new code can be implemented, in order to ensure that claims can be processed for the item. The timing of implementation of new "temporary" or "permanent" codes relative to the date of the coverage determination depends on a variety of factors, some of which are not within the direct control of the code set maintainers, for example:

coding alternatives may require extensive research;
the timing of the coverage determination may be such that the publication deadline for the next Quarterly Update is missed
there is insufficient time between NCD and Quarterly Update to incorporate new codes into new policy and accompanying billing instructions, and into claims processing systems along with any edits needed to operationalize the new code.

Revised: July 16, 2004

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Last Modified on Thursday, September 16, 2004

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MEDICARE PROGRAM; PROCEDURES FOR CODING AND PAYMENT DETERMINATIONS FOR CLINICAL LABORATORY TESTS AND FOR DURABLE MEDICAL EQUIPMENT