Medicare Pass Through Billing is Permitted or Not?

Touseef Riaz

August 26, 2022

Medicare Pass-through billing

Medicare pass through billing is basically an arrangement between a physician/provider and a reference laboratory. This arrangement enables the healthcare physician/provider to collect the specimens of the patients and send them to the laboratory for tests and pay the lab directly. And then billing the patient and the insurance payer a higher amount for the test than usual. Note that this entire thing is allowed by the laboratory. However, a practice involving the physician profiting from services performed by the other entity is prohibited by Medicare and Medicaid.

Healthcare physicians or providers tend to increase their revenues by charging this extra fee. One of the essential things to note here is that pass-through billing is illegal & unethical. Any mistakes, errors, or fraudulent medical billing practices can lead to serious complications, denied or rejected claims, and possible audits. Moreover, practices like Medicare pass through billing can impact the credibility of the healthcare practice.

Medicare Pass-through billing - UCB

 What is Medicare Pass through Billing?

Pass-through billing is straight-up illegal as the healthcare provider is 1) charging a higher price and 2) billing for services not provided by them. By doing so, healthcare physicians are breaking at least three primary federal laws; FCA, Stark law & Anti-Kickback Statute (AKS).

1. Federal Civil False Claims Act (FCA):

The civil FCA protects the Federal Government from being overcharged or sold substandard goods or services. It imposes civil liability on any person who “knowingly” submits or causes the submission of a false or fraudulent claim to the Federal Government.

Example:

A healthcare physician knowingly submits a claim to Medicare for services not provided or charges a higher price.

       Civil penalties for violating the civil FCA:

  • Up to three times the amount of damages sustained by the Government as a result of the false claims
  • Plus financial penalties per false claim filed

2. Physician Self-Referral Law (Stark Law):

Physician Self-Referral Law is also known as Stark Law. This law prohibits a physician from referring patients to receive “designated health services” payable by Medicare or Medicaid to:

  • An entity with which the following have a financial relationship. (Unless an exception applies).

Physician

Physician’s immediate family member(s)

Example:

A physician refers a beneficiary for a designated health service to a clinic where the physician has an investment interest.

Penalties for physicians who violate the Stark Law:

  • Fines
  • CMPs for each service
  • Repayment of claims
  • Potential exclusion from participation in the Federal health care programs.

 

3. Anti-Kickback Statute (AKS):

It is a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to:

Induce patient referrals

Reward patient referrals

  The generation of business involving any item or service reimbursable by a Federal Health Care Program.

The provider violates the AKS when it offers, pays, solicits, or receives unlawful remuneration. 

What is considered remuneration?

It includes anything of value, such as 

  • Cash
  • Free rent
  • Expensive hotel stays 
  • Meals
  • Excessive compensation for medical directorships or consultancies.

Example:

A provider receives cash or below-fair-market-value rent for medical office space in exchange for referrals.

Criminal penalties and administrative sanctions for violating the AKS:

  • Fines
  • Imprisonment
  • Exclusion from participation in the Federal health care program.
  • Under the CMPL, penalties for violating the AKS may include three times the amount of the kickback.

Reasons why Pass-through Billing is illegal:

Following are some of the reasons why medicare pass through billing is illegal:

  • Because the service/lab test is actually performed by the laboratory and not the healthcare practice. So, the healthcare provider billing the insurance payers for the service performed is illegal and prohibited by Medicare.
  • Pass-through billing is fraudulent as the patient is billed for a higher price/cost than the actual one.
  • As mentioned earlier, pass-through billing violates at least three primary federal laws.

Beware of the pass-through billing schemes:

It might seem easier to handle the billing on your end, pay the lab directly and let them (outside the healthcare practice) do the tests. Some unethical labs may even put up an offer on the table to make more money. However, going through with it is actually pass-through billing, therefore, a fraudulent practice.

One of the simplest reasons behind it is that only the entity performing the service is allowed to bill for it. Fraudulent practices in medical billing can lead to several complications and repercussions. They ultimately affect the credibility and financials of the healthcare practice.

CMS Pass-through Payment:

As of January 1, 2020, devices that have received FDA marketing authorization and a Breakthrough Device designation from the FDA have:

  • An alternative pathway to qualify for device pass-through payment status, under which:
    • Devices would not be evaluated in terms of the current substantial clinical improvement criterion for the purposes of determining device pass-through payment status.

Following are some guidelines for pass-through payment Medicaid in Medicare Claims Processing Manual:

  • Transitional pass-through payments for new and current medical devices, drugs, and biologicals for at least two years but not more than three years.
  • Hospitals must bill for multiple units of items that qualify for transitional pass-through payments when such items are used with a single procedure by entering the number of units used on the bill. 

CMS Pass-through Codes:

Centers for Medicare and Medicaid Services (CMS) have provided various codes for device pass-through billing. Explanations of certain terms/definitions related to device pass-through category codes are listed below:

Explanations of Certain Terms/Definitions Related to Device Pass-Through Category Codes

3D mapping catheter (C1732) – 

Refers to a catheter used for mapping the electrophysiologic properties of the heart. Signals are identified by a specialized catheter and changed into a 3-dimensional map of a specific region of the heart.

Coated stent (C1874, C1875)

Refers to a stent bonded with drugs (e.g., heparin), layered with biocompatible substances (e.g., phosphorylcholine), or with silicone or a silicone derivative (e.g., PTFE, polyurethane).

Balloon tissue dissector catheter (C1727)

Balloon-tipped catheter used to separate tissue planes, used in procedures such as hernia repairs.

Cool-tip electrophysiology catheter (C2630)

Ablation catheter that contains a cooling mechanism and has temperature sensing capability.

Catheter, ablation, non-cardiac, endovascular (implantable) (C1888) 

A radiofrequency or laser catheter is designed to occlude or obliterate blood vessels (e.g., veins).

Covered stent (C1874, C1875) –

Refers to a stent layered with silicone or a silicone derivative (e.g., PTFE, polyurethane).

Drainage catheter (C1729) – 

Intended to be used for percutaneous drainage of fluids. (NOTE: This category does NOT include Foley catheters or suprapubic catheters. Refer to category C2627 to report suprapubic catheters.)

Embolization protective system (C1884)

A system designed and marketed for use to trap, pulverize, and remove atheromatous or thrombotic debris from the vascular system during an angioplasty, atherectomy, or stenting procedure.

Extension for a neurostimulator lead (C1883)

Conducts electrical pulses from the power source (generator or neurostimulator) to the lead. The terms neurostimulator and generator are used interchangeably.

Joint device (C1776)

An artificial joint is implanted in a patient. Typically, a joint device functions as a substitute to its natural counterpart and is not used (as are anchors) to oppose soft tissue-to-bone, tendon-to-bone, or bone-to-bone.

Material for vocal cord medialization, synthetic (C1878)

Synthetic material that is composed of a non-absorbable substance such as silicone and can be injected or implanted to result in vocal cord medialization

Temporary non-coronary stent (C2617, C2625)

Usually composed of a substance, such as plastic or other non-absorbable material, designed to permit removal. Typically, this type of stent is placed for a period of less than one year.

Transvenous VDD single pass pacemaker lead (C1779)

A transvenous pacemaker leads that paces and senses in the ventricle and senses in the atrium.

How is Medicare Pass-through Payment Calculation done?

Below is how the calculation of device payment using a pass-through code is done. In order to do so, the hospital charge for the device is determined by multiplying the cost of the device by the hospital mark-up. The hospital charge multiplied by the hospital cost-to-charge ratio is the Medicare cost for the device.

Following are the steps for calculating the final payment:

  • Step 1: (cost of device) x (hospital mark-up) = hospital charge for the device 
  • Step 2: (hospital charge) x (hospital cost-to-charge ratio) = cost for pass-through device 
  • Step 3: (pass-through payment) + APC Payment= final payment.

How to avoid pass-through billing traps?

The healthcare practices with lesser revenue generation are the ones involved in fraudulent practices like pass-through billing. These are more common among rural healthcare facilities to increase revenues. Healthcare provider billing for services/tests performed by the referring laboratory is illegal and therefore breaks various federal laws.

Pass-through billing traps are a growing issue; however, they can be easily avoided by developing a compliance program. Implementing the compliance program helps prevent/reduce the fraudulent or illegal practices to be conducted. Following are some of the best ways to avoid any pass-through billing traps:

  • Implement a compliance program:

 Implementing a compliance program can prevent errors/healthcare frauds in medical coding, decreasing penalties. 

  • Proper medical billing and coding:

Medical billing and coding is the backbone of any healthcare practice’s revenue cycle management (RCM). A proper infrastructure increases your medical billing process’s overall efficiency, accuracy, and reliability.

  • Follow the proper CMS Laboratory billing guidelines (NCCI edits), rules and regulations:

 Being familiar with proper rules and regulations of medical coding is essential for lesser claim denials, rejections, and penalties. 

Other common medical billing errors:

Medical billing is a complex process but ensures proper reimbursements and revenues for the provider/physician. It ensures that the physicians are appropriately reimbursed for the services/procedures they rendered. Even a slight mistake in medical billing can lead to claims being denied or rejected. 

When it comes to medical billing errors, they are pretty common. Healthcare/Medicare fraud is:

  • Knowingly submitting, or causing to be submitted, false claims to obtain a Federal health care payment for which no entitlement would otherwise exist. 
  • Knowingly soliciting, receiving, offering, or paying remuneration to induce or reward referrals for items or services reimbursed by Federal health care programs. 
    • For example, kickbacks, bribes, or rebates.
  • Making prohibited referrals for certain designated health services

Some other medical errors include:

  • Unbundling
  • Upcoding
  • Billing for services not provided
  • Overusing the modifier 22

Frequently Asked Questions (FAQs)

1. How do you avoid passing through billing traps?

The healthcare practices with lesser revenue generation are the ones involved in fraudulent practices like pass-through billing. However, it can be easily avoided by developing a compliance program. Implementing the compliance program helps prevent/reduce fraudulent or illegal practices to be conducted.

2. What is a Medicare pass-through code?

CMS has provided a complete list of the device category HCPCS codes used presently or previously for device pass-through payment. This list also comes with the codes’ respective definitions. All the devices’ codes reportable under OPPS are not included in this list. There are additional HCPCS codes for devices that were not eligible for pass-through payment.

3. What is pass-through with CMS?

Pass-through billing is straight-up illegal as the healthcare provider is 1) charging a higher price and 2) billing for services not provided by them. By doing so, healthcare physicians are breaking at least three primary federal laws.

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