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The rules say that plans must pay for a medical service or item if regular Medicare would pay for it in this case. 
You can find this rule at 42 Code of Federal Regulations (CFR) Section 422.101. 
 
Medicare guidance says Industry standard billing rules for end stage renal disease (ESRD) services are 
established by the Centers for Medicare and Medicaid Services (CMS) since Medicare provides coverage for 
all ESRD patient after an initial eligibility period (normally 36 months). Medicare ESRD rules (Section 20.2 in 
Chapter 11 of the Medicare Benefit Policy Manual) indicate that laboratory services related to the treatment of 
ESRD are the responsibility of the patient's dialysis center, even if the tests are not directly related to dialysis. 
Laboratories and other providers who perform the ESRD-related laboratory tests should submit their claims to 
the dialysis centers. The tests are then bundled into the dialysis services. Providers may indicate that laboratory 
services are not related to ESRD treatment by appending modify AY to the laboratory services or modifier ET 
if the services are provided in an emergency manner when relationship of the laboratory test to ESRD is 
uncertain. A diagnosis of ESRD on the claim may indicate that modifier AY was not appropriate unless a non-
ESRD diagnosis is also reported that separately supports the AY modifier. Routine laboratory services related 
to the treatment of end stage renal disease (ESRD) are the responsibility of the patient's dialysis center. Claims 
for these laboratory services should be submitted to the dialysis center. The claim under review includes 
laboratory services related to ESRD that were incorrectly submitted to the health plan. Modifiers AY and ET, 
which may be used to indicate that the laboratory tests are not related to ESRD, were not reported on the 
laboratory service. The Centers for Medicare and Medicaid Services (CMS) has an established policy for 
patients with ESRD indicating that the dialysis center is responsible for laboratory services related to the 
treatment of ESRD. Section 20.2 in Chapter 11 of the Medicare Benefit Policy Manual entitled "End Stage 
Renal Disease (ESRD)" states: "All laboratory services furnished to individuals for the treatment of ESRD are 
included in the ESRD PPS as Part B services and are not paid separately as of January 1, 2011. The laboratory 
services include but are not limited to: -Laboratory tests included under the composite rate as of December 31, 
2010 (discussed below); and - Former separately billable Part B laboratory tests that were billed by ESRD 
facilities and independent laboratories for ESRD patients." Further clarification of the CMS policy is found 
later in Section 20.2: "The distinction of what is considered to be a renal dialysis laboratory test is a clinical 
decision determined by the ESRD patient's ordering practitioner. If a laboratory test is ordered for the treatment 
of ESRD, then the laboratory test is not paid separately.  
 "To allow for separate reporting of laboratory tests that are not related to ESRD treatment, CMS instructs 
provider to report modifier AY as specified in Section 20.2.B of the same policy manual. CMS notes that "The 
AY modifier serves as an attestation that the item or service is medically necessary for the patient but is not 
being used for the treatment of ESRD." 
 
If you want to read these Medicare rules, you can go to this website www.medicareappeal.com.