With Healthcare Providers facing a never-ending onslaught of denials, this particular denial is likely to cost you millions in unnecessary losses. It revolves around payers and their Third Party Administrators “grossly” misinterpreting CMS Rule 2202.6 in their favor. Not only is this a misinterpretation but it flies in the face of long-standing billing, appropriation, and claims review as it has been historically achieved.


 Medical audits typically start when a payor or their third-party representative/administrator requests an audit using a Letter of Intent to Audit (LOI). This initiates the audit firms, individuals, or schedulers to reach out for scheduling the review. The review is scheduled as an “exit.“ This refers to the finalization of findings between the two auditors (Payer and Provider). The auditors will “compare notes“ literally from their review of the medical record. This comparison may be by department, revenue center, or other methodologies agreed upon by the auditors.

Payers and their Third Party Administrators have mostly opted OUT of this process and have reverted to requesting records, doing a one-sided audit, with no facility knowledge, (except for the request of records), and then submitting their findings for appeal by the facility. Their Appeal Requirements include a 30–45-day turnaround with proof of documentation for each item. This sounds fair but contains audit steps that lean heavily in the payer’s favor. This is primarily because using their failed methodology, the payer’s auditor assigns most, if not all, floor stock, surgical supplies, RT treatments, and supplies by Revenue Code, leaving an extensive list of required proof of delivery by the facility. The payer lists entire groupings of revenue codes as denied and then asks for the facility to appeal these items individually, a Payer Auditor may spend 30 minutes creating a denial that could take a Provider Auditor 8 or more hours to respond to. Considering this impossible workload many facilities simply take the financial hit.

This process of two-sided reviews could (and has been for decades) be simply managed by scheduling and exiting as described in paragraph one but has been abandoned by Payers and their Third-Party Administrators because doing “veiled audits” is just simpler. What we have here is a thread of corruption that has run through the Medical Auditor Community and it’s simply Fraud, Waste, and Abuse (FWA) in the reverse. This is not facilities charging incorrectly, its Payers and their Third-Party Administrators chasing profit at the cost of the facility and the Healthcare System as a whole.

• Auditing or reviewing claims in a fair or balanced fashion should meet the standards of National Audit Guidelines as defined by CMS, AAMAS, AHA, and the industry as a whole. This means the two auditors are meeting to assure that the provider has submitted a claim that matches the medical record and that’s it. Black and white review without interpretation.

CMS rule 2202.6:

 2202.6 Routine Services. — Inpatient routine services in a hospital or skilled nursing facility generally are those services included in by the provider in a daily service charge– sometimes referred to as the “room and board” charge. Routine services are composed of two board components: (l) general routine services, and (2) special care units (SCUs), including coronary care units (CCUs) and intensive care Units (ICUs). Included in routine services are the regular room, dietary and nursing services, minor medical and surgical supplies, medical social services, psychiatric social services, and the use of certain equipment and facilities for which a separate charge is not customarily made. Rev. 245 22

Taking this paragraph above, the auditor can then “target” Revenue Center items (mostly supplies) and other items/services declaring them to be “routine, or an expected component, inherent to procedure/service charge previously allowed, or unbundled, and etcetera.”

 While CMS Rule 2202.6 and room and board are mentioned in these results, the implications of this ideology do also exist in the “denial comments” as listed as “inherent to…expected component of…duplicate charge… and so on.

This would also include several other CMS rules regarding radiology charges, lab charges, and others that appear to have similar incorrect extrapolation and interpretation, and to be clear it’s mostly just a money grab.

As with many CMS rules the final determination of the rule is open for interpretation and in this rule, we have highlighted the key adjective here, which is “minor.” The word “minor” includes supply item on a bill and the denials clearly show that the “ideology for denials is based on a sweep of the revenue centers 250, 270, 272, 636,450,761 and others and their subcategories.”

To include most or all supplies, both surgical (when these are often used in an OR and/or procedure room setting) and medical is a gross misinterpretation of the word, “minor” and the intention of the rule.

Minor means minor, like band-aids, small dressings, personal items, and such. To even include IV supplies is incorrect in that it infers that all patients routinely receive IVs which is not the case. While Payers and their Third Party Administrators have the right to interpret the rule or misinterpret the rule for profit, the Facility/Hospital/Provider further has the right to interpret the rule and it is our strong contention that this sweeping interpretation by Payers is a cost-saving measure rather than an objective look at the rule.

In his letter posted online at Herb Kuhn, Director Center for Medicare Management responding to a similar issue says the following:

“Medicare does not dictate a provider’s charge structure or how it itemizes charges but does determine whether charges are acceptable for Medicare purposes. A hospital’s fiscal intermediary is the first recourse to discuss specific issues of routinely furnished items and services versus separate charges for additional items and services, both for inpatient general routine room and board services and for services in ancillary departments. However, for ancillary departments, section 2202.8 does not specifically address which items or 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 hospitals having a basic ancillary department charge for the room with additional charges for other items and services furnished to patients depending upon 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.”

In response, the hospital has and does apply charges uniformly and consistently related to the cost of the services, and the supplies needed to deliver those services. There is no delineation between Medicare and any other Payers in the delivery of services and supplies and how those items are billed.

Further, weigh in from experts on the subject at state the following:

 Determine What is in the Room Rate

 “So how should a facility’s staff initiate the discussion about what to bill separately? Start by determining and defining what is included in the room rate, Williams says. Generally, the room rate includes:

>                   Housekeeping and maintenance services

>                   Electricity

>                   Water

>                   Trash and biohazard disposal

>                   Administrative services

What CMS Actually Says About Billing Ancillary Procedures?

 “When considering what guidance CMS provides regarding billing ancillary procedures, hospitals must understand how CMS defines charges. In §2202.4 of the Provider Reimbursement Manual, CMS states: Charges refer to the regular rates established by the provider for services rendered to both beneficiaries and to other paying patients. Charges should be related consistently to the cost of the services and uniformly applied to all patients whether inpatient or outpatient. All patients’ charges used in the development of apportionment ratios should be recorded at the gross value, i.e., charges before the application of allowances and discount deductions. CMS makes it clear in §2203 that although it cannot dictate a facility’s charges or charge structure, it can determine whether the charges are allowable for use in apportioning costs, says Kimberly Anderwood Hoy, JD, CPC, director of Medicare and compliance for HCPro, Inc., in Danvers, MA. Apportioning refers to how a facility allocates costs between Medicare and non-Medicare patients. Apportioning can be traced back to when CMS reimbursed hospitals based on costs, Hoy says. Even though this is no longer the case, CMS still relies on this guidance to build rates, among other things. “So, they are still concerned about what costs are appropriate to Medicare and what costs are appropriate to other payers,” Hoy says. To qualify for apportioning, facilities should establish a charge structure and apply it uniformly to all patients. The charge structure should be reasonably and consistently related to the costs of the services, Hoy says. “If you have a cost for a service, it should be represented in some reasonable and consistent way somewhere on your claim.” A facility must follow the same method of charge setting regardless of the setting in which the services take place (e.g., inpatient, outpatient, distinct part units, or skilled nursing facility). A facility must also follow that charging practice for Medicare and non-Medicare patients. The consistent application is what makes the costs apportionable, which is the ultimate goal, Hoy says. In some instances, facilities may choose to incorporate the cost as part of a routine rate and consider other costs as ancillary. Either way, those charges should relate to costs. If a payer denies the charges, it is not allowing certain costs, Hoy says. As a result, facilities will have an imbalance between costs and charges. That’s because the payer has taken away the charge even though the facility still incurs the costs.”


While the findings have been incorrectly interpreted and incorrectly tabulated by Payers and their Third-Party Administrators, it is clear to experienced auditors that the steps taken in these reviews are not line-item reviews solely, but a mix of audit practices to establish presumably higher “findings” from the audit results.

Our “Provider Clients” have made every provision uniformly across all payors to bill all equally using CMS guidelines. They have entire teams DEDICATED to getting their claims right. Payers have absolutely no way of defining the hospital’s “reasonable costs” associated with the care given and with CMS apportionment. THIS IS ESPECIALLY IMPORTANT in the middle of a worldwide pandemic and skyrocketing prices amid supply shortages.

Payers’ standard claim is that they are directed by their understanding CMS guidelines to define these take away’s, but this Audit Findings review is an extremely unfair, incorrect interpretation, and sloppy form of audit which has little validity when compared to the CMS statutes that they cite as examples. In conclusion on this matter of CMS guidelines, it should be noted, that CMS never does line-item denials in their audit practices as is being attempted here, so perhaps both sides could abide by CMS guidelines.

 It is our opinion that the CMS rules described above are associated with apportionment and not primarily associated with the correct application of billing of services. These charges have been uniformly applied to payors for decades and they are being applied across the spectrum of healthcare today, including to CMS without objection. These findings above by any audit firm are a gross misinterpretation of not only CMS rules but their relationship to billable versus payable and further represent a blind pursuit of profits. Payers and their Third Party Administrators should take note as providers are taking these matters to legal and having big wins when their faulty practice is put to the legal test.

 Medlinks Cost Containment, Inc. has been providing Hospitals, Providers, Payers, Legal Firms, and other Denial Management Solutions since 1997. Using our Salesforce Application, Claim WRX, Medlinks can defend your hard-earned dollars in DRG/APC Validation, Clinical Appeals, Audits, or Claim Reviews. It’s always about the “root cause.”

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