Labs get a PECOS reprieve

Oct. 1, 2010

Q Please explain the Provider Enrollment, Chain and Ownership System (PECOS) and how it may affect laboratory services.

A Centers for Medicare and Medicaid Services (CMS) has been rigorous in its efforts to combat fraud and abuse by tightening the Medicare enrollment rules. Fueling the efforts is the agency's concern that providers and suppliers with questionable qualifications have been allowed to enroll in Medicare. CMS determined it is necessary to ensure that physicians and other eligible non-physician practitioners who order, refer, or furnish certain items or services have an approved enrollment record in PECOS. Understanding the effect of this CMS initiative is important, as are the implications for laboratories that perform tests in response to an order or referral from a physician or non-physician practitioner who fails to comply.

On April 24, 2009, CMS announced its plan to limit payment when items and services were not ordered or referred by an approved physician or non-physician practitioner via Transmittal 470.1 Rather than framing the initiative as a provider enrollment rule, CMS characterized the change as a two-phase claims-editing expansion. The modifications made to the claims system would allow 1) a determination regarding whether the service billed is one that requires an ordering/referring provider and, if so, whether the ordering/referring provider is on the claim; 2) a determination if the ordering/referring provider is in the PECOS database or in the enrollment contractor's master provider file; and 3) a determination whether the ordering/referring provider is or is not of the specialties eligible to order or refer the item billed.

CMS instructed that during Phase 1, any claim that failed these edits would be processed but the billing provider would receive a message on its remittance advice that such “claims may not be paid in the future if the ordering/referring provider is not enrolled in Medicare or if the ordering/referring provider is not of the specialty eligible to order or refer.” During Phase 2, however, claims failing the edits would be unpaid. Phase 1 was implemented as planned in October 2009; however, Phase 2 was initially postponed by CMS until Jan. 3, 2011.

CMS was well underway in implementing this initiative when it became law as part of the healthcare reform legislation. Although Section 6405 of the Patient Protection and Affordable Care Act (PPACA) expressly refers to home health and durable medical equipment, Congress authorized CMS to expand the list to include other items or services. CMS published an Interim Final Rule on May 5, 2010, to implement Section 6405 of PPACA.2 In the Interim Final Rule, CMS noted this claim-edit requirement would apply to orders and referrals for laboratory, imaging, DMEPOS, specialist, and home-health services. CMS reiterated the requirement for physicians and non-physician practitioners who order these items or services to have an approved enrollment record in PECOS, even if only for the purpose of ordering Medicare-covered items and services. The Interim Final Rule, however, provides an exception for those who validly opt out of the Medicare program.

Although Section 6405 of PPACA was to become effective July 1 and the Interim Final Rule was to be effective July 6, providers sought a delay. CMS agreed to delay implementation and intends to announce the revised implementation date when the Final Rule is published.

In addition to flagging claims that do not pass the expanded claims edits, CMS maintains a national “Ordering Referring Report”3 which contains the National Provider Identifiers, or NPIs, and names of physicians and non-physician practitioners who have current enrollment records in PECOS. This particular report is periodically updated by CMS, so a recently enrolled physician may have a current PECOS record but not be on the report. It is a searchable document, but searching is time-consuming due to the size of the report. There is no national opt-out list; however, each Medicare enrollment contractor maintains opt-out lists.

The American Clinical Laboratory Association (ACLA) provided comments to the Interim Final Rule questioning CMS' authority to expand the designated list to include laboratory services.4 Although PPACA provided CMS discretion to expand the list, ACLA argued that CMS exercised its discretion to do so without proper notice and without any compelling reason. ACLA urged CMS to consider the fragility of laboratory specimens and the volume of tests processed on a daily basis, which make it virtually impossible for labs to manually check enrollment status via the lengthy PECOS file. Problems with the PECOS data integrity were also brought into question by ACLA.

Despite the temporary reprieve in the implementation date and ACLA's efforts to get CMS to reconsider its decision to include laboratory services in the rule, labs need to be prepared to determine if ordering physicians or non-physician practitioners are listed on the PECOS report or have validly opted out of Medicare participation. Begin by reviewing remittance advices for informational messages identifying claims that did not clear the edits, with a follow-up contact to the referring provider to identify if steps have been taken to comply with obtaining a current PECOS record or completing the opt-out process.

Further reading

  1. Transmittal 510:
  2. Interim Final Rule:
  3. Ordering Referring Report:
  4. ACLA comments:

Donna J. Senft is a principal in Ober|Kaler's Health Law Group in Baltimore where she focuses on healthcare transactions and regulatory matters. She also covers Medicare enrollment and PECOS developments on the Internet blog

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