CMS Pub. 100-05, ch. 5, § 40.7.3.1

Services Received on ASC X12 837 Professional Electronic Claims

(Rev. 11550; Issued: 08-12-22; Effective: 10-13-22; Implementation:10-13-22)

Medicare’s secondary payment is based on provider charges, or the amount the

physician or other supplier is obligated to accept as payment in full (OTAF), whichever

is lower; the primary payers allowed amount for Part B services; what Medicare would

have paid as the primary payer; and the primary payer(s) payment. MSP policy also

dictates what the shared systems and A/B MACs (Part B) and DME MACs must take

into consideration in processing MSP claims. This includes adjustments made by the

primary payer, whic h, for example, explains why the claim’s billed amount was not

fully paid. Adjustments made by the payer are reported in the Claims Adjustment

(CAS) segments on the ASC X12 835 electronic remittance advice (ERA). The

provider must take the CAS segment adjustments found on the remittance advice and

report these adjustments on the ASC X12 837 professional claim format when sending

the claim to Medicare for secondary payment. The physician and other supplier also

identify its charges and the other payer payment amounts which are found in other

loops and segments in the ASC X12 837 professional claim transaction. ASC X12 837

claim transaction examples are cited below.

Example 1: A Medicare beneficiary visits her physician for an exam where the provider

charges $1,000 for the services. The beneficiary is a working aged beneficiary with

employer group plan insurance that is primary to Medicare. The beneficiary’s deductible

had already been met. The physician is a participating physician under the primary payer

group health plan. The contract amount, a.k.a. obligated to accept as payment in full

amount, is the same as Medicare’s fee schedule amount of $800. The primary payer also

allowed $800. The primary payer ultimately pays $720 for the services. The service

amounts are broken down:

Medicare Fee Schedule Procedure $800

Submitted Charges $1,000

Payer 1 Allowed Amount $800

Payer 1 Contracted Agreement (OTAF) $800

Payer 1 Patient Co-Insurance @ 10% $ 80

Payer 1 Payment Amount $720

Medicare payment is calculated as follows:

1) The contractual agreement amount (since this amount is lower than the

charges) minus the third party payment: $800 - $720 = $80

2) Determine the Medicare payment in the usual manner: $800 - $160 = $640

3) The allowable charge minus the primary payer payment: $800 - $720 = $80

4) Medicare Pays $ 80 (lowest of amounts in steps 1, 2, or 3) Primary Payer

Abbreviated 835 containing the MSP amounts for MSP calculation:

CLP*200725638901*1*1000*720*80*12*07256000236520**1~

CAS*CO*45*200~

CAS*PR*2*80~

Physician Abbreviated Secondary Claim to Medicare:

SBR*P*18*ABCGROUP******CI

CAS*CO*45*200~

CAS*PR*2*80~

AMT*D*720~

Shared System MSP calculation:

Allowed amount equals submitted charge minus CARC 45 adjustments – 1000-200=800

OTAF amount equals submitted charge minus CO group code adjustments – 1000-

200=800

Medicare Abbreviated 835 to Physician

CLP*200725638901*2*1000*80**MB*0725600110236520**1~

CAS*OA*23*920~

Example 2: The same patient receives the same service from the physician. However, in

this case the physician fails to follow plan procedures and is assessed a $50 penalty under

the contract for not following plan procedures.

Medicare Fee schedule $800

Submitted Charges $1000

Payer 1 Contracted $800

Agreement (OTAF)

Payer 1 CO Plan $50

Procedures not followed

Payer 1 Patient Co $75

insurance @ 10%

Payer 1 Payment Amount $675

Medicare’s Payment is calculated in the usual manner:

1. The contractual agreement amount (since this amount is lower than the

charges) minus the third party payment: $800 - $725 = $75

2. Determine the Medicare payment in the usual manner: $800 - $160 = $640

3. The Medicare’s allowable charge minus the primary payer payment: $800

- $725 = $75

4. Medicare pays $75 (lowest of amounts in steps 1, 2, or 3)

Due to the physician not following the primary health plan procedures Medicare uses the

payment amount that the primary payer would have paid if the primary payer claim was

filed properly.

Primary Payer Abbreviated 835 containing the MSP amounts for MSP calculation:

CLP*200725638901*1*1000*675*75*12*07256000236520**1~

CAS*CO*45*200**95*50~

CAS*PR*2*75~

Physician Abbreviated Secondary Claim to Medicare

SBR*P*18*ABCGROUP******CI

CAS*CO*45*200**95*50~

CAS*PR*2*75~

AMT*D*675~

Shared System MSP calculation:

Allowed amount equals submitted charge minus CARC 45 adjustments – 1000-200

- 50=750

OTAF amount equals submitted charge minus CO group code adjustments – 1000-

200=800

Medicare Abbreviated 835 to Physician

CLP*200725638901*2*1000*75**MB*0725600110236520**1~

CAS*OA*23*925~

Note: One of the problems of looking at adjustments other than patient responsibility is

how accurately payers code 835’s. In the above example the $50 adjustment could just as

easily have been reported out as OA - Other Adjustment with the same Claim Adjustment

Reason Code. That would necessitate examining not only group codes, but individual

Claim Adjustment Reason Codes and possibly Remarks Codes in the Medicare edit logic.

Example 3: A patient receives services from a participating Medicare physician who is

not a participating provider in the Primary Payer’s network. The patient in this case is

responsible for up to the provider’s charges, but as a Medicare participating physician,

the physician accepts the Medicare fee (Allowed Amount) as payment in full and thus

cannot accept payment in excess of the Medicare Allowed Amount, a.k.a. Medicare fee

schedule. Medicare would indicate a $200 contractual obligation in its 835 remittance

statement to the physician.

Medicare Fee schedule $800

Submitted Charges $1000

Payer 1 Fee Schedule $700

Payer 1 Patient Co-insurance @ 10% $70

Payer 1 Payment Amount $630

Note that the charges and the OTAF are the same due to physician not participating in

the primary payer’s network. For this reason, no CO appears on the inbound 837 to

Medicare.

Medicare’s Payment is calculated in the usual manner:

1. The charges/OTAF minus the third party payment: $1000 - $630 = $370

2. Determine the Medicare payment in the usual manner: $800 - $160 = $640

3. The Medicare’s allowable charge minus the primary payer payment: $800

- $630 = $170

4. Medicare pays $170 (lowest of amounts in steps 1, 2, or 3)

Shared System MSP calculation:

Primary payer allowed amount equals submitted charge minus CARC 45 adjustments –

1000-300=700

OTAF amount equals submitted charge minus CO group code adjustments – 1000-

0=1000

Primary Payer Abbreviated 835 containing amounts for MSP calculation

CLP*200725638901*1*1000*630*370*12*07256000236520**1~

CAS*PR*45*300**2*70~

Physician Abbreviated Secondary Claim to Medicare

SBR*P*18*ABCGROUP******CI

CAS*PR*45*300**2*70~

AMT*D*630~

Medicare Abbreviated 835 to Physician

CLP*200725638901*2*1000*170**MB*0725600110236520**1~

CAS*CO*45*200~

CAS*OA*23*630~