Correction Issued for Erroneous PEP Adjustments

HHAs Must Request Correction of Erroneous
PEPs Made Prior to April 1, 2103

Partial Episode Payment (PEP) adjustments are made to home health claims when readmissions or transfers occur within 60 days of the start of care. At the start of the prospective payment system (PPS) the Centers for Medicare & Medicaid Services (CMS) applied claim edits that would PEP any episode where a subsequent episode overlapped the 60 days. However, CMS recently learned that the edit was incorrectly applied to Third Party Liability (TPL) demand bill situations, causing episodes to PEP in error.

Transmittal 2583 (CR 7865) was issued, instructing its contractors to revise Medicare systems to ensure that payment episode adjustments for overlapping home health care episodes are not incorrectly applied by creating adjustments to restore full payment when the fully denied demand bill is processed. CMS contractors are required to implement the change requirements effective April 1, 2013. CMS also issued a MedLearn Mattersarticle informing home health agencies of the correction and action required by them.

This error occurred because, when the Request for Anticipated Payment (RAP) for the demand billed episode is processed, it will cause a PEP adjustment to apply to the prior episode since Medicare cannot presume that the demand billed episode will or will not be covered based on the RAP. When the final claim for the demand billed episode is received and reviewed, it is often found to be entirely non-covered. Therefore, in order to correct this error and ensure that Medicare systems restore the full episode payment, CR7865 requires Medicare contractors to:

  • Auto-adjust any claim paid as a Partial Episode Payment (PEP) adjustment to restore full episode payment, if the final claim for the overlapping episode is a fully denied demand bill (condition code 20 [the demand billing indicator] and all charges are non-covered);
  • Replace the patient status code ‘06’ (discharged/transferred to home under care of organized home health service organization in anticipation of covered skilled care) that was created by the earlier PEP adjustment with patient status code ‘01’ (discharge to home or self-care);
  • Return the adjustment to the HH Pricer to restore full payment for the episode; and
  • Adjust any timely claims that received PEP adjustments in error when brought to their attention by the HHA.

Effective April 1, 2013, any TPL demand bill PEP adjustments will be automatically restored. However, in order for home health agencies to receive full episode payment for previously submitted demand bill episodes that were PEP’d in error, they must notify the CMS contractor. CMS contractors are required to adjust any claims that received PEP adjustment in error after the April 1, 2013 effective date.

Further Guidelines for Submitting TPL Demand Bills

If the State requesting a demand bill for the services within the original Medicare 60-day episode does not require a new OASIS assessment, home health agencies should submit an adjustment to the previously paid Medicare claim, using Type of Bill (TOB) 3×7. In addition:

  • Add condition code 20 to the adjustment claim;
  • Change the statement “Through” date to reflect the full 60-day period; and
  • Add the services provided during the demand bill request period as non-covered line items.

If the State requesting a demand bill for the services within the original Medicare 60-day episode requires a new OASIS assessment, home health agencies should submit a RAP and submit the claim with condition code 20 as for any other demand bill situation. When Medicare receives the RAP for the demand billed episode it will cause a Partial Episode Payment (PEP) adjustment to apply to the prior episode. If the final claim for the demand billed episode is later reviewed and found to be entirely non-covered, Medicare systems will automatically adjust the prior episode to restore the appropriate full episode payment.

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