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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. 
 
The rules say that providers/suppliers must report services correctly. Procedures should be reported with the 
Current Procedural Terminology (CPT) code that describes the services performed. You can find this rule in 
the Centers for Medicare and Medicaid Services, Medicare National Correct Coding Initiative Policy Manual 
for Medicare Services, Chapter I(A). 
 
The Medicare guidelines say "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 patients 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. RESEARCH DETAIL Routine 
laboratory services related to the treatment of end stage renal disease (ESRD) are the responsibility of the 
patients 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 patients 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." You can find this guidance in the Centers for Medicare & Medicaid Services 
Medicare Processing Manual, Chapter 11 End Stage Renal Disease (ESRD), Section 20.2. 
 
If you want to read these Medicare rules, you can go to this website www.medicareappeal.com.