CMS Pub. 100-05, ch. 5, § 40.8.9

Payer for Reasonable Cost Providers

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

If Medicare has secondary liability for an inpatient stay, services that would otherwise

not be covered because the beneficiary had exhausted benefits may be covered after the

impact of the primary payment on utilization is determined. Since the primary payment

extends the covered portion of the beneficiary's stay, it affects Medicare covered charges

in situations where benefits are exhausted. At the same time, the ratio of Medicare

covered charges to total charges determines the portion of the primary payment that is

allocated to Medicare covered services. The A/B MAC (Part A) considers the primary

payment's effect upon Medicare covered services before allocating the primary payment.

To determine Medicare covered charges in benefits exhausted situations in other than a

PPS hospital, the A/B MAC (Part A) proceeds as in the example below, in which

Medicare benefits were exhausted after the seventh hospital day. For PPS hospitals, see

§40.8.8.

EXAMPLE:

Total Charges $5,000

Medicare Covered Charges (without regard to benefits exhausted) $4,500

Medicare Covered Charges for Day 1-7 $3,000

Primary Payment (unallocated) $3,000

Remaining Benefit Days 3

Covered Medicare Days (without regard to benefits exhausted) 10

Current Medicare Payment Rate $ 480

Step 1. The A/B MAC (Part A) determines what the current Medicare payment would

be if benefits were not exhausted (and no primary payments were involved).

EXAMPLE:

$480 X 10 days = $4,800

Step 2. The A/B MAC (Part A) determines the amount of the primary payment that

would apply to Medicare services if benefits were not exhausted.

• If the primary payer's allocation can be determined, the A/B MAC (Part A) uses

it.

EXAMPLE:

The primary payer's explanation of benefits indicates that the $3,000 primary payment

was for the first 5 days of the stay. Medicare, in the absence of a primary payer would

have paid $3,000 for 7 days. Since the primary payer paid for 5 of the 10 days of the

stay, Medicare has responsibility for the 5 remaining days. Medicare would have

covered $3,000 for 7 days. It covers 5/7 of $3,000, or $2,143 for the 5 days for which it

is responsible.

• If the primary payer's allocation cannot be determined, the A/B MAC

(Part A) applies a ratio of Medicare covered charges (without regard to benefits

exhausted) to total charges for the stay to the total primary payment to determine

the portion that would be attributable to Medicare.

EXAMPLE:

$4,500 / $5,000 X $3,000 = $2,700

Step 3. The A/B MAC (Part A) determines the Medicare secondary payment that would

be made in the absence of benefits exhausted (without regard to deductible or

coinsurance) by subtracting Step 2 from Step 1.

EXAMPLE:

$4,800 - $2,700 = $2,100

Step 4: The A/B MAC (Part A) determines the benefit days that would be chargeable

absent benefits exhausted by applying a ratio of Step 3 to Step 1 to the number of

Medicare covered days without regard to benefits exhausted.

EXAMPLE:

$2,100 / $4,800 X 10 = 4.375

Step 5: The A/B MAC (Part A) determines the number of days for which benefits are

actually available.

EXAMPLE: 3 days

Step 6: If the number of days in Step 5 is greater than the number of days in Step 4, the

primary payment extends Medicare coverage over the entire stay. The case no longer

involves benefits exhaustion. All otherwise covered days and charges are reported as

covered for statistical and payment purposes. The amount in Step 3 is the Medicare

secondary payment (without regard to the deductible or coinsurance) and the number of

days determined in Step 4 are charged to the beneficiary's utilization record.

Step 7: If the number of days in Step 5 is less than the number of days in Step 4, the

beneficiary does not have sufficient benefit days available to cover the entire stay. The

A/B MAC (Part A) proceeds as follows:

• It charges the days in Step 5 to the beneficiary's utilization record.

EXAMPLE: 3 days

• It multiplies the number of Medicare covered days without regard to

benefits exhausted by the ratio of the number of days in Step 5 to the number

of days in Step 4 to determine the days recorded as covered for statistical

purposes.

EXAMPLE:

3 / 4.375 X 10 = 6.86 = 7 days

Charges for days 1-7 are shown as covered on the bill. Charges for days 8- 10 are

reported as noncovered.

• The A/B MAC (Part A) re-determines the allocation of the

primary payer's payment for covered services based upon the revised

Medicare covered charges.

EXAMPLE:

$3,000 / $5,000 X $3,000 = $1,800

• The A/B MAC (Part A) determines Medicare current interim

payment for days recorded as covered for statistical purposes.

EXAMPLE:

$480 X 7 days = $3,360

• The A/B MAC (Part A) determines Medicare's secondary payment.

EXAMPLE:

$3,360 - $1,800 = $1,560