Medicare General Information, Eligibility, and 
Entitlement 
Chapter 1 - General Overview 
 
Table of Contents 
(Rev. 94, 10-16-15) 
 
 
Transmittals for Chapter 1 
 
10 - General Program Benefits 
10.1 - Hospital Insurance (Part A) for Inpatient Hospital, Hospice, Home Health, and 
Skilled  Nursing Facility  (SNF) Services - A Brief Description 
10.2 - Home Health Services 
10.3 - Supplementary Medical Insurance (Part B) - A Brief Description 
10.4 - Basis for Payment 
20 - Administration  of the Medicare Program - Introduction 
20.1 - Financing the Program 
20.2 - Discrimination  Prohibited 
20.3 - Fraud and Abuse - General 
20.3.1 - Definition  and Examples of Fraud 
20.3.2 - Definition  and Examples of Abuse 
30 - Federal Government Administration  of the Health Insurance Program 
30.1 - CMS Responsibilities 
30.2 - Public Health Service Responsibilities 
30.3 - State Agencies 
30.3.1 - Certification  by State Agencies 
30.3.2 - Consultation  by State Agencies 
30.3.3 - Coordination  by State Agencies  
40 - Role of A/B MACs (A) and (HHH) 
40.1 - Assignment of A/B MAC (A) and (HHH) 
40.2 - A/B MAC (A) and (HHH) Service to Home Health Agencies (HHAs) 
50 - Role of A/B MACs (B) 
60 - Background and Responsibilities  of the Peer Review Organization  (PROs) 
60.1 - Purpose of PRO Review for the Individual  Medicare Beneficiaries 
60.2 - PRO Responsibility  for the Overall Approach to Health Care 
60.3 - Other PRO Responsibilities 
60.4 - Statutory Obligations  of Practitioners and Other Persons  60.5 - Responsibilities  of Designated Agents Working With PROs; Organizations 
Subcontracted for Review 
70 - Institutional  Planning and Budgeting 
80 - CMS Managed Modules for Software Programs and Pricing/Coding  Files 
    10 - General Program Benefits 
(Rev. 1, 09-11-02) 
 
The Health Insurance for the Aged and Disabled Act (title XVIII of the Social Security Act), 
known as "Medicare," has made available to nearly every American 65 years of age and older a 
broad program of health insurance designed to assist the nation's elderly to meet hospital, 
medical, and other health costs.  Health insurance coverage has also been extended to persons 
under age 65 qualifying  as disabled and those having end stage renal disease (ESRD) or Lou 
Gehrig's disease.  The program includes two related health insurance programs--hospital 
insurance (HI) (Part A) and supplementary medical insurance (SMI) (Part B). 
 
10.1 - Hospital Insurance (Part A) for Inpatient Hospital, Hospice, Home 
Health and Skilled Nursing Facility (SNF) Services - A Brief Description 
(Rev. 94, Issued: 10-16-15, Effective: 11-16-15, Implementation: 11-16-15) 
 
Hospital insurance is designed to help patients defray the expenses incurred by hospitalization 
and related care.  In addition  to inpatient hospital benefits, hospital insurance covers posthospital 
extended care in SNFs and posthospital  care furnished by a home health agency in the patient's 
home.  Blood clotting  factors, for hemophilia  patients competent to use such factors to control 
bleeding without medical or other supervision,  and items related to the administration  of such 
factors, are also a Part A benefit for beneficiaries in a covered Part A stay.  The purpose of these 
additional  benefits is to provide continued treatment after hospitalization  and to encourage the 
appropriate use of more economical alternatives to inpatient hospital care.  Program payments 
for services rendered to beneficiaries by providers (i.e., hospitals,  SNFs, and home health 
agencies) are generally made to the provider.  In each benefit period, payment may be made for 
up to 90 inpatient hospital days, and 100 days of posthospital  extended care services. 
 
Hospices also provide Part A hospital insurance services such as short-term inpatient care.  In 
order to be eligible  to elect hospice care under Medicare, an individual  must be entitled to Part A 
of Medicare and be certified as being terminally  ill.  An individual  is considered to be terminally 
ill if the individual  has a medical prognosis that his or her life expectancy is 6 months or less if 
the illness runs its normal course. 
 
The Part A benefit categories of inpatient hospital services and SNF services are each subject to 
separate and mutually  exclusive day limits,  so that the use of benefit days under one of these 
benefits does not affect the number of benefit days that remain available under the other.  
Accordingly, the 90 days of inpatient hospital  benefits (plus 60 nonrenewable lifetime  reserve 
days -- see Pub. 100-02, Medicare Benefit Policy Manual, chapter 5) that are available to a 
beneficiary in a hospital do not count against the 100 days of posthospital  extended care benefits 
that are available in a SNF, and vice-versa. 
 
10.2 - Home Health Services 
(Rev. 28; Issued:  08-12-05; Effective/Implementation:  09-12-05) 
 
To qualify  for home health benefits under either Part A or Part B of the program, a beneficiary 
must be confined to his/her home, under the care of a physician,  and in need of skilled  nursing 
services on an intermittent basis, physical therapy, or speech-language pathology  services.  
Being "confined to the home" does not mean a beneficiary can never leave the home.  See  chapter 7 of the Benefit Policy publication  for the definition  of homebound.   A beneficiary who 
requires one or more of these services in the treatment of his/her illness or injury  and otherwise 
qualifies for home health benefits is eligible  to have payment made on his/her behalf for the 
skilled  nursing, physical therapy or speech-language pathology services he needs, as well as for 
any of the other home health services specified in the law.  These services include occupational 
therapy, medical social services, the use of medical supplies and medical appliances, and the 
part-time or intermittent  services of home health aides.  Conversely, a patient who does not 
require intermittent  skilled  nursing or physical therapy or speech-language pathology  services 
cannot qualify to have payment made under the program for any home health services furnished 
him.  Excluded as home health services are the costs of housekeepers, food service 
arrangements, and transportation to outpatient facilities. 
 
To be covered, the home health services must be needed for a condition  for which the patient 
required inpatient hospital services or extended care services.  See the chapter 7 of the Benefit 
Policy publication  for a description of services covered.  Discharge from the hospital must have 
occurred in a month in which the patient has attained age 65 or was entitled to health insurance 
benefits under the disability  or chronic renal disease provisions  of the law. 
 
Home health services are services provided by a home health agency or by others under 
arrangements with such an agency.  A home health agency is a public  agency or private 
organization  which is primarily  engaged in providing  skilled nursing and other therapeutic 
services.  Where applicable  the agency must be licensed under State or local law, or be approved 
by the State or local licensing  agency as meeting the licensing  standards.  Examples of home 
health agencies are visiting  nurse associations, official health agencies, and hospital-based home 
care programs.  To participate in the health insurance program, a home health agency must meet 
certain other requirements included  in the law as well as health and safety conditions  prescribed 
by the Secretary of the Department of Health and Human Services.  It may not qualify under 
hospital insurance, however, if it is primarily  engaged in the treatment of mental diseases; such 
an agency may qualify only under supplementary medical insurance. 
 
Home health services are usually furnished on a visiting  basis in a place of residence used as the 
individual's  home.  However, outpatient services in a hospital,  SNF, or rehabilitation  center are 
covered home health services, if arranged for by a home health agency, when equipment is 
required that cannot be made available in the patient's home. 
 
The services of an intern or resident-in-training  are covered if the agency has an affiliation  with 
or is under common control of a hospital providing  such medical services and the agency bills 
for such services. 
 
Prior to July 1, 1981, home health services under hospital insurance included  up to 100 home 
health visits,  after the beginning  of one benefit period and before the beginning  of the next.  The 
visits must have been furnished to a patient within 1 year of his/her most recent discharge from a 
hospital where he was an inpatient for at least 3 consecutive calendar days (counting  the day of 
admission,  but not the day of discharge).  If, after his/her hospitalization,  he had a covered stay 
in a SNF, the 1 year during which the patient may receive home health services began with the 
discharge from the SNF.  A plan of treatment must have been established within 14 days after the 
hospital or SNF discharge.  Home health services were also provided under supplementary 
medical insurance where the 100-visit  limit  under Part A was exceeded. 
  Effective July 1, 1981, the 100-visit  limitation  under Parts A and B, and the prior inpatient stay 
requirement under Part A were eliminated.  In addition,  a person could qualify for home health 
services based on his or her need for skilled  nursing services on an intermittent basis, physical 
therapy, speech-language pathology  services, or occupational therapy.  Effective December 1, 
1981, occupational therapy was eliminated  as a basis for entitlement  to home health services. 
However, if a person has otherwise qualified  for home health services because of the need for 
skilled  nursing care, physical therapy or speech-language pathology  services, the patient's 
eligibility  for home health services may be extended solely on the basis of the continuing  need 
for occupational  therapy. 
 
Effective January 1, 1998, the first 100 visits must be paid under Part A if the beneficiary is 
entitled under Part A, and the remainder of the visits may be paid under Part B. 
 
10.3 - Supplementary Medical Insurance (Part B) - A Brief Description 
(Rev. 28; Issued:  08-12-05; Effective/Implementation:  09-12-05) 
 
To obtain SMI, an eligible  individual  must enroll during an enrollment period and pay the 
required premiums.  An individual  is eligible  to enroll if they are entitled to HI or are 65 years of 
age and a citizen or resident alien who meets certain residence requirements.  SMI provides for 
payment to participating  providers for furnishing  covered services after a yearly cash deductible 
is met.  The voluntary medical insurance plan is designed to supplement the basic hospital 
insurance coverage.  It provides coverage for home health visits not available under hospital 
insurance (e.g., no Part A entitlement or visits after the first 100 visits) and for medical and other 
health services.  Payment may not be made under Part B for any service that may be paid under 
Part A.  However, where payment is not possible under Part A (e.g., no Part A entitlement or 
benefits are exhausted) payment may be made under Part B if the service is covered. 
 
Subject to coverage and limitations  described in the Benefit Policy Publication,  the following 
services are covered under Part B. 
 
  Physicians' services; 
 
  Services and supplies (including  drugs and biologicals  which are not usually self-
administered by the patient) furnished as an incident to a physician's professional service, 
of kinds which are commonly  furnished in physicians' offices and are commonly either 
rendered without charge or included in the physicians' bills; 
 
  Hospital services (including  drugs and biologicals  which are not usually  self-
administered by the patient) incident to physicians' services rendered to outpatients and 
partial hospitalization  services incident to such services; 
 
  Diagnostic services which are:  (i) furnished to an individual  as an outpatient by a 
hospital or by others under arrangements with them made by a hospital,  and (ii) 
ordinarily  furnished by such hospital  (or by others under such arrangements) to its 
outpatients for the purpose of diagnostic  study; 
 
  Outpatient physical therapy services, occupational  therapy services, and speech-language 
pathology  services; 
    Rural health clinic  services and Federally qualified  health center services; 
 
  Home dialysis  supplies and equipment,  self-care home dialysis support services, and 
institutional  dialysis  services and supplies; 
 
  Antigens (subject to quantity limitations  prescribed in regulations by the Secretary) 
prepared by a physician,  as defined in section 1861(r)(1) of the Act, for a particular 
patient, including  antigens so prepared which are forwarded to another qualified  person 
(including  a rural health clinic) for administration  to such patient, from time to time, by 
or under the supervision  of another such physician; 
 
  Services furnished pursuant to a contract under section 1876 of the Act to a member of an 
eligible  organization  by a physician assistant or by a nurse practitioner and such services 
and supplies furnished as an incident to his/her service to such a member as would 
otherwise be covered under this part if furnished by a physician or as an incident to a 
physician's service; and, services furnished pursuant to a risk-sharing contract under 
section 1876(g) of the Act to a member of an eligible  organization  by a clinical 
psychologist  (as defined by the Secretary) or by a clinical  social worker, and such 
services and supplies furnished as an incident to such clinical  psychologist's  services or 
clinical  social worker's services to such a member as would otherwise be covered under 
this part if furnished by a physician or as an incident to a physician's service; 
 
  Blood clotting  factors, for hemophilia  patients competent to use such factors to control 
bleeding without medical or other supervision,  and items related to the administration  of 
such factors, subject to utilization  controls deemed necessary by the Secretary for the 
efficient use of such factors; 
 
  Prescription drugs used in immunosuppressive  therapy furnished to an individual  who 
receives an organ transplant for which payment is made under this title; 
 
  Services which would be physicians' services if furnished by a physician  and which are 
performed by a physician  assistant under the supervision  of a physician and which the 
physician assistant is legally authorized to perform by the State in which the services are 
performed, and such services and supplies furnished as incident to such services as would 
be covered if furnished incident  to a physician's professional service; and but only if no 
facility or other provider charges or is paid any amounts with respect to the furnishing  of 
such services. 
 
  Services which would be physicians' services if furnished by a physician  and which are 
performed by a nurse practitioner or clinical  nurse specialist working in collaboration 
with a physician which the nurse practitioner or clinical  nurse specialist is legally 
authorized to perform by the State in which the services are performed, and such services 
and supplies furnished as an incident to such services as would be covered if furnished 
incident to a physician's professional service, but only if no facility or other provider 
charges or is paid any amounts with respect to the furnishing  of such services; 
 
  Certified nurse-midwife services; 
 
  Qualified psychologist  services;   
  Clinical  social worker services; 
 
  Erythropoietin  for dialysis  patients competent to use such drug without medical or other 
supervision  with respect to the administration  of such drug, subject to methods and 
standards established by the Secretary by regulation for the safe and effective use of such 
drug, and items related to the administration  of such drug; 
 
  Prostate cancer screening tests; 
 
  An oral drug (which is approved by the Federal Food and Drug Administration) 
prescribed for use as an anticancer chemotherapeutic agent for a given indication,  and 
containing  an active ingredient (or ingredients),  which is the same indication  and active 
ingredient  (or ingredients) as a drug which the A/B MAC (B) determines would be 
covered if the drug could not be self-administered; 
 
  Colorectal cancer screening tests; 
 
  Diabetes outpatient self-management training services; 
 
  An oral drug (which is approved by the Federal Food and Drug Administration) 
prescribed for use as an acute anti-emetic used as part of an anticancer chemotherapeutic 
regimen if the drug is administered by a physician  (or as prescribed by a physician)--  (i) 
for use immediately  before, at, or within 48 hours after the time of the administration  of 
the anticancer chemotherapeutic agent; and (ii) as a full replacement for the anti-emetic 
therapy which would otherwise be administered  intravenously; 
 
  Screening for glaucoma (as defined in subsection (uu)) for individuals  determined to be 
at high risk for glaucoma, individuals  with a family history of glaucoma and individuals 
with diabetes; 
 
  Medical nutrition  therapy services in the case of a beneficiary with diabetes or a renal 
disease who-- (i) has not received diabetes outpatient self-management training  services 
within a time period determined by the Secretary; (ii) is not receiving maintenance 
dialysis  for which payment is made under section 1881 of the Act; and (iii) meets such 
other criteria determined by the Secretary after consideration  of protocols established by 
dietitian  or nutrition  professional organizations; 
 
  Diagnostic X-ray tests (including  tests under the supervision  of a physician,  furnished in 
a place of residence used as the patient's home, if the performance of such tests meets 
such conditions  relating to health and safety as the Secretary may find necessary and 
including  diagnostic  mammography if conducted by a facility that has a certificate (or 
provisional  certificate) issued under section 354 of the Public Health Service Act), 
diagnostic laboratory tests, and other diagnostic tests; X-ray, radium, and radioactive 
isotope therapy, including  materials and services of technicians; 
 
  Surgical dressings, and splints,  casts, and other devices used for reduction of fractures 
and dislocations;  Durable medical equipment; 
    Ambulance service where the use of other methods of transportation is contraindicated by 
the individual's  condition,  but only to the extent provided in regulations; 
 
  Prosthetic and orthotic devices (other than dental) which replace all or part of an internal 
body organ (including  colostomy bags and supplies directly related to colostomy  care), 
including  replacement of such devices, and including  one pair of conventional  eyeglasses 
or contact lenses furnished subsequent to each cataract surgery with insertion of an 
intraocular lens; 
 
  Leg, arm, back, and neck braces, and artificial  legs, arms, and eyes, including 
replacements if required because of a change in the patient's physical condition; 
 
  Vaccines: (1) pneumococcal vaccine and its administration  and, subject to section 
4071(b) of the Omnibus Budget Reconciliation  Act of 1987, (2) influenza  vaccine and its 
administration;  and (3) hepatitis B vaccine and its administration,  furnished to an 
individual  who is at high or intermediate risk of contracting hepatitis B; 
 
NOTE:  A charge separate from the ESRD composite rate will be recognized and paid for 
administration  of the vaccine to ESRD patients. 
 
NOTE:  For Medicare program purposes, the hepatitis B vaccine may be administered upon 
the order of a doctor of medicine or osteopathy by home health agencies, SNFs, 
renal dialysis facilities  (RDFs), hospital outpatient departments, persons recognized 
under the "incident  to physicians' services" provision  of law, and, of course, doctors 
of medicine and osteopathy. 
 
  Services of a certified registered nurse anesthetist; 
 
  Subject to section 4072(e) of the Omnibus Budget Reconciliation  Act of 1987, extra-
depth shoes with inserts or custom molded shoes with inserts for an individual  with 
diabetes, if-- (1) the physician who is managing the individual's  diabetic condition  (a) 
documents that the individual  has peripheral neuropathy with evidence of callus 
formation,  a history of pre-ulcerative calluses, a history of previous ulceration,  foot 
deformity,  or previous amputation,  or poor circulation,  and (b) certifies that the 
individual  needs such shoes under a comprehensive plan of care related to the individual's 
diabetic condition;  (2) the particular type of shoes are prescribed by a podiatrist or other 
qualified  physician (as established by the Secretary); and (3) the shoes are fitted and 
furnished by a podiatrist or other qualified  individual  (such as a pedorthist or orthotist,  as 
established by the Secretary) who is not the physician described in (1) above (unless the 
Secretary finds that the physician  is the only such qualified  individual  in the area); 
 
  Screening mammography; 
 
  Screening pap smear and screening pelvic exam; and  
 
  Bone mass measurement. 
 
  No diagnostic tests performed in any laboratory, including  a laboratory that is part of a 
rural health clinic,  or a hospital (which, for purposes of this sentence, means an  institution  considered a hospital for purposes of section 1814(d)) of the Act shall be 
included unless such laboratory- 
 
1.  Is situated in any State in which State or applicable  local law provides for 
licensing  of establishments of this nature, (1) is licensed pursuant to such law, or 
(2) is approved, by the agency of such State or locality  responsible for licensing 
establishments of this nature, as meeting the standards established for such 
licensing; 
 
2.  Meets the certification  requirements under section 353 of the Public Health 
Service Act; and  
 
3.  Meets such other conditions  relating to the health and safety of individuals  with 
respect to whom such tests are performed as the Secretary may find necessary. 
 
There shall be excluded from the diagnostic services specified any item or service which would 
not be included if it were furnished to an inpatient of a hospital.  None of the items and services 
referred to in the preceding paragraphs of this subsection which are furnished to a patient of an 
institution  which meets the definition  of a hospital for purposes of section 1814(d) of the Act 
shall be included unless such other conditions  are met as the Secretary may find necessary 
relating to health and safety of individuals  with respect to whom such items and services are 
furnished. 
 
10.4 - Basis for Payment 
(Rev. 1, 09-11-02) 
 
(See Claims Processing, Pub 100-04 for a description  of the basis for payment for the various 
services.) 
 
20 - Administration of the Medicare Program - Introduction 
(Rev. 1, 09-11-02) 
 
The conduct of the program has been delegated by the Secretary of the Department of Health and 
Human Services to the Administrator  of the Centers for Medicare & Medicaid Services (CMS).  
Congress has also provided substantial administrative  roles for the States and for voluntary 
insurance organizations  in recognition  of their experience in the health care and insurance fields. 
 
The law does not permit the Federal Government to exercise supervision  or control over the 
practice of medicine,  the manner in which medical services are provided,  and the administration 
or operation of medical facilities.  The patient is free to choose any qualified  institution,  agency, 
or person offering him/her services.  The responsibility  for treatment and the control of care 
remains with the individual's  physician and the hospital or other facility or agency furnishing 
services.  The individual  may keep or obtain any other health insurance he/she desires including 
the choice to enroll in a Medicare+Choice plan.  More information  about Medicare+Choice plans 
is in the Medicare Managed Care Manual. 
 
20.1 - Financing the Program 
(Rev. 1, 09-11-02) 
  Part A is financed through separate payroll contributions  paid by employees, employers, and 
self-employed  persons.  The proceeds are deposited to the account of the Federal Hospital 
Insurance Trust Fund, which is used only for hospital insurance benefits and administrative 
expenses.  Federal employees and State and local employees who do not pay the full FICA tax 
must pay the HI portion; they are not eligible  for monthly  Social Security or railroad retirement 
benefits.  The cost of providing  Part A benefits to other persons who are not Social Security or 
railroad retirement beneficiaries is met by appropriations  to the Federal Hospital Insurance Trust 
Fund from general revenues or through premium payments. 
 
Part B is financed by monthly premiums of those who voluntarily  enroll in the program and by 
the Federal Government which makes contributions  from general revenues.  All premiums and 
Government contributions  are deposited in a separate account known as the Federal 
Supplementary  Medical Trust Fund.  Money from this fund is used only to pay for Part B 
benefits and administrative  expenses. 
 
20.2 - Discrimination Prohibited 
(Rev. 28; Issued:  08-12-05; Effective/Implementation:  09-12-05) 
 
Participating providers of Part A services under the supplementary medical insurance program 
(e.g., hospitals,  SNFs, HHAs, hospices, outpatient physical therapy, comprehensive outpatient 
rehabilitation  facilities (CORFs), occupational therapy and speech-language pathology  providers, 
and renal dialysis  facilities) must comply with the requirements of title VI of the Civil Rights Act 
of 1964.  Under the provisions  of that Act, a participating  provider is prohibited  from making a 
distinction  on the grounds of race, color, or national origin,  in the treatment of patients, the use 
of equipment,  other facilities,  and the assignment of personnel to provide services. 
 
The DHHS is responsible for investigating  complaints  of noncompliance. 
 
20.3 - Fraud and Abuse - General 
(Rev. 1, 09-11-02) 
 
Providers and suppliers have an obligation,  under law, to conform to the requirements of the 
Medicare program.  Fraud and abuse committed against the program may be prosecuted under 
various provisions  of the United States Code and could result in the imposition  of restitution, 
fines, and, in some instances, imprisonment.   In addition,  there is also a range of administrative 
sanctions (such as exclusion from participation  in the program) and civil  monetary penalties that 
may be imposed when facts and circumstances warrant such action. 
 
Following  are definitions  and examples of fraud and abuse.  These definitions  and examples give 
a better understanding  of the types of practices that are forbidden,  under law, in the Medicare 
program. 
 
20.3.1 - Definition and Examples of Fraud 
(Rev. 1, 09-11-02) 
 
Fraud is defined as making false statements or representations of material facts in order to obtain 
some benefit or payment for which no entitlement would otherwise exist.  These acts may be 
committed either for the person's own benefit or for the benefit of some other party.  In order to  prove that fraud has been committed against the Government, it is necessary to prove that 
fraudulent acts were performed knowingly,  willfully,  and intentionally. 
 
Examples of fraud include, but are not limited  to, the following: 
 
  Billing  for services that were not furnished and/or supplies not provided.  This includes 
billing  Medicare for appointments that the patient failed to keep; 
 
  Altering claims forms and/or receipts in order to receive a higher payment amount; 
 
  Duplicating  billings  that includes billing  both the Medicare program and the beneficiary, 
Medicaid, or some other insurer in an effort to receive payment greater than allowed; 
 
  Offering, paying, soliciting,  or receiving bribes, kickbacks, or rebates, directly or 
indirectly,  in cash or in kind,  in order to induce referrals of patients or the purchase of 
goods or services that may be paid for by the Medicare program; 
 
  Falsely representing the nature of the services furnished.  This encompasses describing a 
noncovered service in a misleading  way that makes it appear as if a covered service was 
actually furnished; 
 
  Billing  a person who has Medicare coverage for services provided  to another person not 
eligible  for Medicare coverage; and  
 
  Using another person's Medicare card to obtain medical care. 
 
20.3.2 - Definition and Examples of Abuse 
(Rev. 1, 09-11-02) 
 
Abuse describes practices that, either directly or indirectly,  result in unnecessary costs to the 
Medicare program.  Many times abuse appears quite similar to fraud except that it is not possible 
to establish that abusive acts were committed knowingly,  willfully,  and intentionally. 
 
Following  are three standards that CMS uses when judging  whether abusive acts in billing  were 
committed against the Medicare program: 
 
  Reasonable and necessary; 
 
  Conformance to professionally  recognized standards; and  
 
  Provision at a fair price. 
 
Examples of abuse include,  but are not limited  to, the following: 
 
  Charging in excess for services or supplies; 
 
  Providing  medically  unnecessary services or services that do not meet professionally 
recognized standards; 
    Billing  Medicare based on a higher fee schedule than for non-Medicare patients; 
 
  Submitting  bills  to Medicare that are the responsibility  of other insurers under the 
Medicare secondary payer (MSP) regulation; and  
 
  Violating  the participating  physician/supplier  agreement. 
 
Although these types of practices may initially  be categorized as abusive in nature, under certain 
circumstances they may develop into fraud if there is evidence that the subject was knowingly 
and willfully  conducting an abusive practice. 
 
30 - Federal Government Administration of the Health Insurance Program 
(Rev. 1, 09-11-02) 
 
The DHHS has overall responsibility  for administering  the hospital insurance and voluntary SMI 
programs.  Two major agencies - CMS and the Public Health Service - are involved  in specified 
administrative  functions. 
 
30.1 - CMS Responsibilities 
(Rev. 1, 09-11-02) 
 
The CMS is responsible for policy formulation.   The central and regional offices are responsible 
for the general management and operation of the program.  In brief, CMS's responsibilities 
include the following: 
 
  Determining  an individual's  entitlement to benefits in consultation  with the Social 
Security Administration  (SSA); 
 
  Determining  the nature and duration of services for which a beneficiary's benefits may be 
paid; 
 
  Establishing,  maintaining,  and administering  agreements with State agencies, providers 
of services, and A/B MACs (A) and (HHH); 
 
  Establishing  operational policy for contractors; 
 
  Developing  operational instructions  and official interpretations  of policy for contractors; 
 
  Formulating  major policies regarding conditions  of participation  for providers in 
consultation  with the Public Health Service; 
 
  Developing  and maintaining  statistical research and actuarial programs; and  
 
  Managing general finances of the program; and  
 
  Managing the Medicare Premium Collection  Operation. 
 
The regional offices are responsible for assuring that contractors meet applicable  Federal 
requirements under the provisions  of their contracts.  They also:   
  Provide liaison,  direction,  and technical assistance to contractors in the day-to-day 
management of their operations; 
 
  Interpret CMS guidelines,  policies,  and procedures applicable to contractor activities; 
 
  Analyze contractor budgets and spending patterns to assure that funds are economically 
and appropriately  utilized; 
 
  Conduct assessments of contractor operations; 
 
  Review contractor actions; and  
 
  Provide feedback to each contractor. 
 
30.2 - Public Health Service Responsibilities 
(Rev. 1, 09-11-02) 
 
The Public Health Service is responsible for administering  the professional health aspects of the 
program.  In brief, its responsibilities  include the following: 
 
  Consulting  and recommending  to CMS matters concerning the development of health and 
safety standards and other guidelines  needed for determining  whether providers of 
services meet the conditions  of participation  under the program; 
 
  Consulting  and advising  State agencies concerning the application  of standards for 
providers; and  
 
  Coordinating  programs and activities necessary in studying  the utilization  of services 
under the program. 
 
30.3 - State Agencies 
(Rev. 1, 09-11-02) 
 
The States, by agreement with the Secretary, are assigned significant  administrative  functions to 
the extent that each is willing  and capable of discharging  such responsibilities. 
 
30.3.1 - Certification by State Agencies 
(Rev. 1, 09-11-02) 
 
Facilities  desiring to participate in either the Medicare or Medicaid programs must meet 
participation  conditions  for certification.  State agencies certify to DHHS whether providers 
satisfy, and continue to satisfy, their respective conditions  of participation  in the Medicare and 
Medicaid programs.  The Secretary, DHHS, certifies facilities requesting participation  in the 
Medicare and Medicaid programs.  States certify those facilities that request participation  in the 
Medicaid program only. 
 
The State function of making certifications is intended to be a natural adjunct to ongoing  State 
activities (such as the licensing  of health care facilities and the setting of standards).   
30.3.2 - Consultation by State Agencies 
(Rev. 1, 09-11-02) 
 
A State consults with providers of services that need and request participation  condition 
assistance.  For Medicare participation,  the Secretary, DHHS, must approve the consultation 
service rendered by the State certifying agency. 
 
30.3.3 - Coordination by State Agencies 
(Rev. 1, 09-11-02) 
 
A State coordinates activities with other State programs that involve  payment for health care, 
quality of care, and location of health facilities.  Coordinating  these activities is essential in 
assuring effective and economical use of existing State facilities  and trained personnel and to 
prevent duplication  of effort. 
 
40 - Role of A/B MACs (A) and (HHH) 
(Rev. 28; Issued:  08-12-05; Effective/Implementation:  09-12-05) 
 
The A/B MAC (A) and (HHH) is a public or private agency or organization  that has entered into 
an agreement with CMS to enroll legitimate  providers into the Medicare program and process 
Medicare claims under both Part A and Part B services under the supplementary medical 
insurance program (e.g., hospitals,  SNFs, HHAs, hospices, CORFs, OPTs, occupational therapy, 
and speech-language pathology  providers, and ESRD facilities). 
 
A/B MACs (A) and (HHH) make payments to providers.  The amount of payment to a provider 
is restricted to the lower of the billed  charge, the reasonable cost of covered services or the fee 
schedule amount.  Hospices are paid on a per diem amount that is prospectively  set. SNFs and 
HHAs are paid based on a Prospective Payment System (PPS).  (See Provider Reimbursement 
Manual, Part 1, 2800ff.) 
 
Hospitals are paid based on the PPS. Under this system, Medicare payment is made at a 
predetermined, specific rate for each hospital discharge.  This statement applies to inpatient  for 
acute care hospitals and to inpatient rehabilitation  hospitals.  Whereas inpatient acute and rehab 
PPS payment is based on the discharge date, Outpatient PPS (OPPS) payments are based on 
Ambulatory Patient Classification  payment for the date of service. 
 
The amount of payment to other types of providers is restricted to the lesser of (a) the reasonable 
cost of covered services and items; or (b) the billed  charges with respect to such services; or (c) 
the fee schedule amount. 
 
In addition,  A/B MACs (A) and (HHH) assist in applying  safeguards against unnecessary use of 
covered services, furnish consultative  services to serve as a center for communicating  with 
providers, conduct audits of provider records, assist in the beneficiary appeals process, and 
provide information  and advice to institutions  and organizations  that wish to qualify as providers 
of services. 
  (See http://www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative-
Contractors/Home-Health-Hospice-Regions.html  for a list of A/B MACs (A) and (HHH) and 
service areas.) 
 
40.1 - Assignment of A/B MAC (A) and (HHH) 
(Rev. ) 
 
CMS assigns MACs based upon jurisdictions  as described in: 
 
http://www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative-
Contractors/MACJurisdictions.html   
 
There are no alternate selections permitted, effective with the implementation  of MACs. 
 
40.2 - A/B MAC (A) and (HHH) Service to HHAs 
(Rev. ) 
 
All HHAs bill  the assigned A/B MAC (HHH) and are paid by that MAC. 
 
In the case of HHAs and hospices based in another Medicare provider (e.g., a hospital or SNF), 
audit, cost report settlement, and other fiscal functions (such as setting interim payment rates) are 
performed by the A/B MAC (A) serving the parent provider. 
 
50 - Role of A/B MACs (B) and DME MACs 
(Rev. 1, 09-11-02) 
 
The law requires the Secretary, DHHS, to enter into contracts with A/B MACs (B) and DME 
MACs to serve in the operation and administration  of the non-provider  Part B program.  A/B 
MACs (B) enroll physicians,  non-physician  health care practitioners and other entities that will 
submit claims to the A/B MAC (B), and process Medicare claims and make payments for 
services and supplies covered by Part B.  Other major functions include, for example, controlling 
over-utilization  and communicating  with beneficiaries and the health community. 
 
DME MACs have been given the responsibility  of processing durable medical equipment, 
prosthetic, orthotic, and supply (DMEPOS) claims.  See Claims Processing Manual, chapter 1, 
for description  of jurisdiction. 
 
60 - Background and Responsibilities of the Peer Review Organization (PRO) 
(Rev. 1, 09-11-02) 
 
Section 1153 of the Social Security Act (the Act) requires the Secretary to enter into contracts 
with physician-approved  or physician-access organizations  defined as PROs. 
 
The PROs are organizations  who are responsible for monitoring  the quality of care provided to 
Medicare patients by hospitals, SNFs, home health agencies, Medicare+Choice plans, and other 
types of health care providers. 
  PRO review is governed by titles XI and XVIII of the Act as amended, and by regulations 
contained in: 
 
  42 CFR 411 - Limitation  on liability; 
 
  42 CFR 412 - Outlier review, diagnosis  related group (DRG) validation,  and hospital 
notices of non coverage; 
 
  42 CFR 417.605 - Immediate PRO review of Health Maintenance Organization 
(HMO)/Competitive  Medical Plan (CMP) notices of discharge; 
 
  42 CFR 422.622 - Immediate review of Medicare+Choice discharge notices; 
 
  42 CFR 475 - Definition  of eligible  organizations  and area designation; 
 
  42 CFR 476 - Assumption and conduct of review; 
 
  42 CFR 478 - PRO reconsideration and appeals; 
 
  42 CFR 480 - Disclosure of information; 
 
  42 CFR 482 - Hospital conditions  of participation;  and  
 
  42 CFR 1004 - PRO recommendations  of sanctions. 
 
60.1 - Purpose of PRO Review for the Individual Medicare Beneficiaries 
(Rev. 1, 09-11-02) 
 
The PROs review items or services provided to Medicare beneficiaries to determine: 
 
  Whether services provided  or proposed to be provided are reasonable and medically 
necessary for the diagnosis  and treatment of illness or injury,  or to improve functioning 
of a malformed body member, or for prevention of an illness,  or for the palliation  and 
management of terminal illness; 
 
  Whether those services furnished or proposed to be furnished on an inpatient basis could 
be effectively furnished on an outpatient basis, or in an inpatient health care facility of a 
different type; 
 
  Medical necessity, reasonableness, and appropriateness of inpatient  hospital care for 
which additional  payment is sought under the outlier provisions  of PPS; 
 
  Whether a hospital has misrepresented admission  or discharge information,  or has taken 
an action that results in the unnecessary admission  of an individual  entitled to benefits 
under Part A, unnecessary multiple  admissions of an individual,  or other inappropriate 
medical or other practices with respect to beneficiaries, or billing  for services furnished to 
beneficiaries; 
    The validity  of diagnostic and procedural information  supplied  by the provider to the A/B 
MAC (A) for payment purposes; 
 
  The completeness and adequacy of hospital care provided; and  
 
  Whether the quality  of services meets professionally  recognized standards of health care. 
 
These activities enable PROs to determine whether Medicare payment may be made for the 
services claimed and to identify  and initiate corrective action where appropriate.  PROs have the 
authority to deny Medicare payment for medically  inappropriate  and unnecessary admissions. 
They also investigate individual  beneficiary complaints  about the quality of care received. 
 
60.2 - PRO Responsibility for the Overall Approach to Health Care 
(Rev. 1, 09-11-02) 
 
In addition  to individual  case review, PROs also help providers improve the overall approach to 
health care for Medicare beneficiaries. 
 
This function includes the following  activities: 
 
  Using clinical and other data bases to examine patterns of care and outcomes, rather than 
focusing on isolated cases; 
 
  Identifying  systemic variations of concern or interest by monitoring  patterns of care and 
outcomes; 
 
  Working with providers to identify  provider-specific  root causes of systemic variations; 
and  
 
  Working cooperatively with the health care community  to measurably improve the 
processes and outcomes of care for Medicare beneficiaries. 
 
60.3 - Other PRO Responsibilities 
(Rev. 1, 09-11-02) 
 
A.  Responsibilities Prior to Review  
 
The PROs are responsible for: 
 
  Specifying  in their plan and instructions  to practitioners and providers the type of 
evidence they require to document the care ordered or furnished to provide medically 
necessary, appropriate, and quality health care services; and  
 
  Applying  professionally  developed criteria for providing  care, diagnosis,  and treatment 
based upon typical patterns of practice within their geographic area to evaluate the 
medical necessity, quality,  or appropriateness of services ordered or furnished. 
 
B.  Ongoing Review Activities 
  As a part of their ongoing  review activities,  PROs must: 
 
  Notify the appropriate agency of the State or Federal government when they become 
aware of situations which appear to be improper,  but which do not fall within their review 
responsibilities  (e.g., poor quality care in a renal dialysis center); 
 
  Use their authority or influence to enlist the support of other professional or Government 
agencies to ensure that all providers and practitioners for which they have review 
responsibilities  comply with their obligations  (see 1156 of the Act.); and  
 
  Perform beneficiary and physician outreach activities. 
 
C.  Responsibilities as a Result of PRO Review 
 
To act upon information  they obtain as a result of their review activities, PROs must: 
 
  Provide information  on results of their review (e.g., annual report, periodic meetings with 
providers/practitioners); 
 
  Identify and seek correction of situations that, if continued,  would result in violations 
under 1156 of the Act; 
 
  Submit reports to the Office of the Inspector General on providers and practitioners found 
to have substantially  violated an obligation  in a substantial number of cases, or to have 
grossly and flagrantly  violated an obligation  in one or more instances.  This includes 
referring certain cases to State licensing  boards. 
 
D.  Additional Activities 
 
PROs perform all other activities specified in the Scope of Work, including  any modifications, 
CMS regulations  and instructions,  and relevant statutory provisions. 
 
E.  Payment Error Prevention Program (PEPP) 
 
In order to reduce inpatient PPS payment errors, PROs must initiate  a program of Payment Error 
Prevention Projects (PEPPs). CMS defines the payment error rate as the number of dollars found 
to be paid in error out of the total of all dollars paid for inpatient PPS services.  CMS provides 
State-specific error rates to PROs to evaluate performance. 
 
60.4 - Statutory Obligations of Practitioners and Other Persons 
(Rev. 1, 09-11-02) 
 
It is the obligation  of any health care practitioner or other person who furnishes or orders health 
care items or services that may be reimbursed under Medicare, to ensure that to the extent of his 
or her authority,  those services are: 
 
  Furnished economically  and only when and to the extent medically  necessary; 
 
  Of a quality that meets professionally  recognized standards of health care; and    
  Supported by evidence of the medical necessity and quality of the services in the form 
and fashion that the reviewing PRO may reasonably require (including  copies of the 
necessary documentation)  to ensure that the practitioner or other person is meeting the 
obligations  imposed by Section 1156(a) of the Act. 
 
These obligations  apply whether payment is made directly to the provider (i.e., assignment) or to 
the beneficiary, or even if payment is not made. 
 
60.5 - Responsibilities of Designated Agents Working With PROs; 
Organizations Subcontracted for Review 
(Rev. 1, 09-11-02) 
 
The PRO has ultimate responsibility  for monitoring  the compliance of practitioners and 
providers with statutory obligations.   It is not relieved of any of the responsibility  under the 
sanction regulations in the event of non-performance by an organization  with which it has 
subcontracted for review. 
 
An organization  with which the PRO subcontracts to carry out review functions is responsible 
for: 
 
  Ensuring that practitioners and other persons meet their obligations  with respect to the 
items and services it reviews; and  
 
  Reporting to the PRO (primary contractor) those instances where it appears a violation  of 
an obligation  may have occurred or is occurring. 
 
70 - Institutional Planning and Budgeting 
(Rev. 1, 09-11-02) 
 
The Social Security Act requires each provider, as a condition  of participation  under Medicare, 
to have a written overall plan and budget reflecting an annual operating budget and a capital 
expenditures plan (that covers at least a 3-year period including  the year to which the operating 
budget is applicable).  For this requirement, provider means hospital,  critical access hospital, 
SNF, comprehensive outpatient rehabilitation  facility,  home health agency, or hospice program. 
 
The annual operating budget will include all anticipated income and expenses related to items 
which would under generally accepted accounting principles  be considered income and expense 
items.  The capital expenditure plan would be expected to include and identify in detail the 
anticipated sources of finance for, the objectives of, each anticipated expenditure in excess of 
$l00,000  related to acquisition  of land, the improvement  of land, buildings,  and equipment,  and 
the replacement, modernization,  and expansion of the buildings  and equipment which would, 
under generally accepted accounting principles,  be considered capital items. 
 
The overall budget and plan will be prepared under the direction of the provider's governing 
body by a committee consisting  of representatives of the governing body, administrative  staff 
and if any, the medical staff.  Further, it will  be reviewed and updated at least annually.  The 
purpose of the requirement is to assure that providers carry on budgeting  and substance by the 
Government or any of its agents.   
80 - CMS Managed Modules for Software Programs and Pricing/Coding Files 
(Rev. 2, 2-6-04) 
 
The CMS Managed Modules contains scheduled release dates for software programs and 
pricing/coding  files. 
 
Medicare contractors will be receiving subsequent quarterly updates of the CMS Managed 
Modules via a Recurring Update Notification.  Transmittals Issued for this Chapter 
 
Rev #  Issue Date  Subject  Impl Date  CR# 
R94GI  10/16/2015  Internet Only Manual Updates to Pub. 100-01,  11/16/2015  9336 
100-02 and 100-04 to Correct Errors and 
Omissions (2015) 
R80GI  10/26/2012  Manual Updates to Clarify SNF Claims  04/01/2013  8044 
Processing 
R42GI  11/09/2006  Swing Bed Hospital Updates  12/11/2006  5114 
R28GI  08/12/2005  Conforming  Changes for Change Request 3648 to  09/12/2005  3912 
Pub. 100-01 
R02GI  02/06/2004  Scheduled Release for April Updates to Software  03/08/2004  3123 
Programs and Pricing/Coding  Files 
R01GI  09/11/2002  Initial  Publication  of Manual  NA  NA 
 
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