CMS Pub. 100-05, ch. 5, § 40.7.3.2

for Services Received on ASC X12 837 Institutional Electronic or

Hardcopy Claims Format

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

Medicare’s secondary payment for A/B MAC (Part A) MSP claims is based on:

1) Medicare covered charges, or the amount the provider is obligated to

accept as payment in full (OTAF), whichever is lower (in the case where there

are multiple prior payers to Medicare the lowest OTAF is used unless the

Medicare covered charges are lower);

2) what Medicare would have paid as the primary payer; and

3) the primary payer(s) payment.

MSP policy also dictates what the shared systems and A/B MACs (Part A) must take into

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

payer(s), which, for example, explains why the claim’s billed amount was not fully paid.

Adjustments made by the payer(s) are reported in the Claims Adjustment (CAS)

segments on the 835 electronic remittance advice (ERA). The provider must take the

CAS segment adjustments found on the primary payer(s) remittance advice and report

these adjustments on the 837 when sending the claim to Medicare for secondary

payment. 837 claims transaction examples are cited below.

Example 1: A Medicare beneficiary visits a hospital that charges $10,000 for the

services. The beneficiary is a working aged beneficiary with employer group plan

insurance that is primary to Medicare. The beneficiary’s Medicare deductible had already

been met. The provider participates under the primary payer’s employer group health

plan. The contract amount (the OTAF amount) is the same as Medicare’s fee schedule

amount of $8,000. The primary payer (Payer 1) ultimately pays $7,200 for the services.

The service amounts are broken down:

Medicare Fee schedule Procedure $8,000

Charges $10,000

Payer 1 Allowed Amount $8,000 (not sent to MSPPAY)

Payer 1 Contractual Amount (OTAF) $8,000

Payer 1 Patient Co-Insurance @ 10% $800

Payer 1 Payment Amount $7,200

The Value Code(s) 44 OTAF amount is found in the HI segment (BE qualifier) on the

837 Institutional Claim (837-I) and this amount is sent to MSPPAY. If the OTAF is not

found in the HI segment (BE qualifier), but there is a group code CO (Contractual

Obligation) in the CAS, take the charge minus the CO amount and send this amount as

the OTAF to MSPPAY. In the case where there are multiple prior payers to Medicare,

perform the calculation (the charge minus the CO amount) for each prior payer

contractual amount and send the lowest calculated contractual amount as the OTAF

amount to MSPPAY, if the OTAF amount is lower than the charges.

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

CLP*200725638901*1*10000*7200*800*12*07256000236520**1~

CAS*CO*45*2000~

CAS*PR*2*800~

Provider Abbreviated Secondary Claim to Medicare

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

CAS*CO*45*2000~

CAS*PR*2*800~

AMT*D*7200~

Shared System MSP calculation:

Allowed amount equals submitted charge minus CARC CO 45 adjustments – $10,000 -

$2,000 = $8,000.

(NOTE: The allowed amount is shown here and is used for purposes of balancing the

remittance advice.)

Since the HI segment (BE qualifier) did not contain OTAF, the CO adjusted amount in

the CAS is used to determine the OTAF. OTAF amount equals charges minus CO group

code adjustments – $10,000 - $2,000 = $8,000

Medicare Abbreviated 835 to Provider

CLP*200725638901*2*10000*800**MB*0725600110236520**1~

CAS*OA*23*9200~

Example 2: A Medicare beneficiary visits a hospital that charges $10,000 for the

services. The beneficiary is a working aged beneficiary with employer group plan

insurance that is prior to Medicare. The beneficiary’s spouse is also working with

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

deductible had already been met. The provider participates under both prior payers’

employer group health plans. The contract amount (the OTAF amount) for one of the

prior payers, is the same as Medicare’s fee schedule amount of $8,000. You must

combine both prior payers’ payment amounts and send the total payment amount to

MSPPAY. The prior payers ultimately pay $7,200 for the services. The service amounts

are broken down:

Medicare Fee schedule Procedure $8,000

Charges $10,000

Payer 1 Allowed Amount $9,000 (not sent to MSPPAY)

Payer 1 Contractual Amount (OTAF) $9,000

Payer 1 Patient Co-Insurance @ 30% $3,000

Payer 1 Payment Amount $6,000

Payer 2 Allowed Amount $8,000 (not sent to MSPPAY)

Payer 2 Contractual Amount (OTAF) $8,000

Payer 2 Patient Co-Insurance @ 10% $800

Payer 2 Payment Amount $1,200

The Value Code(s) 44 OTAF amount is found in the HI segment (BE qualifier) on the

837-I and this amount is sent to MSPPAY. If the OTAF is not found in the HI segment

(BE qualifier), but there is a group code CO in the CAS, take the charge minus the CO

amount and send this amount as the OTAF to MSPPAY. In the case where there are

multiple prior payers to Medicare, perform the calculation (the charge minus the CO

amount) for each prior payer and send the lowest calculated contractual amount as the

OTAF amount to MSPPAY if lower than the charges. The Medicare covered charges or

the OTAF amounts are never combined.

Medicare payment is calculated as follows:

1) The gross amount payable by Medicare minus applicable Medicare deductible

and coinsurance: $8,000 - $0 = $8,000

2) The gross amount payable by Medicare minus the primary payments: $8,000 -

$7,200 = $800

3) The lowest obligated to accept payment in full minus the primary payment:

$8,000 - $7,200 = $800

4) The obligated to accept payment in full minus the Medicare deductible: $8,000 –

$0 = $8,000

5) Pay $800 (lowest of amounts in steps 1, 2, 3, or 4)

First Prior Payer’s Abbreviated 835 containing the MSP amounts for MSP calculation:

CLP*200725638901*1*10000*6000*3000*12*07256000236520**1~

CAS*CO*45*1000~

CAS*PR*2*3000~

Second Prior Payer’s Abbreviated 835 containing the MSP amounts for MSP calculation:

CLP*200725638901*1*10000*7200*800*12*07256000236520**1~

CAS*CO*45*2000~

CAS*PR*2*800~

Provider Abbreviated Secondary Claim to Medicare

SBR*P*19*CBAGROUP******CI~

CAS*CO*45*1000~

CAS*PR*2*3000~

AMT*D*6000~

SBR*S*18*ABCGROUP******CI~

CAS*CO*45*2000~

CAS*PR*2*800~

AMT*D*7200~

Shared System MSP calculation:

Allowed amount equals submitted charge minus highest CARC 45 adjustments – $10,000

- $2,000 = $8,000.

(NOTE: The allowed amount is shown here and is used for purposes of balancing the

remittance advice.)

Since the HI segment (BE qualifier) did not contain OTAF, the CO adjusted amount in

the CAS is used to determine the OTAF. The lowest OTAF amount from all the prior

payers equals charges minus CO group code adjustments – $10,000-$2,000=$8,000

Medicare Abbreviated 835 to Provider

CLP*200725638901*2*10000*800**MB*0725600110236520**1~

CAS*OA*23*9200~

Example 3: The patient receives the same service from the provider. However, in this

case the provider fails to follow plan procedures and is assessed a $500 penalty under the

contract for not following plan procedures. Medicare bases its payment on the amount the

primary payer would have paid if the provider followed plan procedures.

Medicare Fee schedule $8,000

Charges $10,000

Payer 1 Contractual Amount (OTAF) $8,000

Payer 1 CO Plan Procedures not followed $500

Payer 1 Patient Responsibility @ 10% $750

Payer 1 Payment Amount $6,750

The Value Code(s) 44 OTAF amount is found in the HI segment (BE qualifier) on the

837-I and this amount is sent to MSPPAY. If the OTAF is not found in the HI segment

(BE qualifier), but there is a group code CO in the CAS, take the charge minus the CO

amount and send this amount as the OTAF to MSPPAY. In the case where there are

multiple prior payers to Medicare, perform the calculation (the charge minus the CO

amount) for each prior payer and send the lowest calculated contractual amount as the

OTAF amount to MSPPAY if lower than the charges. The Medicare covered charges or

the OTAF amounts are never combined.

Medicare’s Payment is calculated in the usual manner:

1) The gross amount payable by Medicare minus applicable Medicare deductible

and coinsurance: $8,000 - $0 = $8,000

2) The gross amount payable by Medicare minus the primary payment: $8,000 -

$7,250 = $750

3) The obligated to accept payment in full minus the primary payment: $8,000 -

$7,250 = $750

4) The obligated to accept payment in full minus the Medicare deductible: $8,000 –

0 = $8,000

5) Pay $750 (lowest of amounts in steps 1, 2, 3, or 4)

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

CLP*200725638901*1*10000*6750*750*12*07256000236520**1~

CAS*CO*45*2000**95*500~

CAS*PR*2*750~

Physician Abbreviated Secondary Claim to Medicare

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

CAS*CO*45*2000**95*500~

CAS*PR*2*750~

AMT*D*6750~

Shared System MSP calculation:

Allowed amount equals submitted charge minus CARC 45 adjustments – $10,000 -

$2,000 - $500 = $7500

OTAF amount equals submitted charge minus CO group code adjustments – $10,000 -

$2,000 = $8,000

Medicare Abbreviated 835 to Provider

CLP*200725638901*2*10000*750**MB*0725600110236520**1~

CAS*OA*23*9250~