Transmittal 541 Comes Alive

by Webmaster, PhoenixMed
Published on Sep 09, 2016

The denial of "related" claims is limited to inpatient surgical claims where the surgical procedure itself is determined to not be medically necessary based on the documentation in the hospital record. This should be an impetus for both hospitals and physicians to make sure documentation in the hospital’s record supports the medical necessity of the procedure. This may require including documentation from the physician’s office records in the hospital medical record to provide sufficient history of the condition and previous treatments to justify the procedure. Though Noridian began with an outpatient procedure, it confirms that CMS is narrowing the coordination of reviews between hospital and physician records. It's a starting point but we predict that CMS will expand its scope and other MACs and surgical procedures will get involved.


Back in Feb 2014, CMS issued Transmittal 505 which gave the MAC, RAC and ZPIC the discretion to deny any part B claim related to a denied part A claim which was not considered reasonable and necessary. Within a month, CMS quickly rescinded the directive as a result of what many believed to be pressure from AMA. But in fact, it was too vaguely written.

Then on August 8 2014, they published Transmittal 534 which gave just the MAC and ZPIC the discretion to deny related part B claims. CMS went on to say that if upon review they find that the part A payment was not appropriate (because H&P, progress notes or other hospital record documentation does not support the medical necessity for the procedure), they will recoup part B payments. But if services were ‘reasonable and necessary,’ they will recode the surgeon's Part B claim to a more appropriate outpatient E&M service.

But wait, there’s more!

Just days before the effective date of Transmittal 534, CMS rescinds it and replaces it with Transmittal 540 with the same effective date of Sept 8 2014. This transmittal appears to clarify the language of 534 and also removes the reviewers’ previous option of recoding the part B claims for outpatient services. Now, CMS says that if Part A surgical claim is denied, the MAC may recoup the surgeon's Part B payment.

Don't stop reading yet!

On Sept 14, 2014, CMS rescinded Transmittal 540 and replaced it with Transmittal 541. They had to make changes in the language to ensure consistency with the Medicare Program Integrity Manual. So that's it. Transmittal 541 is on the books and allows for denial of a surgeon's claim if any inpatient surgery claim is denied because documentation does not support medical necessity. However, it has never been set in motion ..... till now.

Earlier this summer, Noridian A/B MAC for JE & JF announced it will start performing cross recovery for "related" claims (Cross-Recovery is Noridian's jargon for "related" claims). According to a RAC Monitor aticle by Dr Ronald Hirsch"The first issue approved by CMS for Noridian cross recovery is facet injection services, or CPT codes 64493 – 64495; 64635 – 64636. Determining medical necessity for these injections among providers in the Noridian jurisdiction should be relatively easy, as they have an active local coverage determination, L34995, which lists indications, procedure requirements, and provider qualifications, along with appropriate CPT and ICD-10 codes."   

MACs must seek CMS approval for related claim denials and post notice one month prior to initiating audits and denials.  While they started with an outpatient procedure (facet procedure mentioned above), time.will tell whether Noridian or another MAC will begin cross recovery for inpatient surgical claims. And if it does, you can bet that the other MACs will jump on the wagon and do the same.

Implications:  If activated, under T541, medical necessity documentation will affect surgeon fees as well as hospital payment.  Case management directors and physician advisors might want to prepare the medical staff now for what may be coming down the pike in the very near future. 'It's all in the documentation' may now have even broader economic impact.