(Medicare Claims Processing Manual)

5 Array of actual charges -  Where items 1 through 4 have not produced an acceptable prevailing charge and where at least four physicians or other persons in your service area (without regard to locality or specialty) have submitted charges for a service (but four qualified customary charges are not available), array all the available actual charges for that service.  Set the prevailing charge for that service at the 75th percentile of that array.   6 Item 4 may be omitted with RO approval from the sources of data listed above, e.g., because this simplifies claims processes and reduces the related expenses.  Also, when there is insufficient charge data to establish valid prevailing charges for substantial numbers of services or items, request RO assistance in working out mergers of charge data with that from other A/B MACs (B).  Use another A/B MAC (B)s data that has a similar service area with regards to medical prices, and other economic and demogra phic characteristics.  Such data mergers must receive prior approval from CMS.  The steps described above may not always achieve a perfect result.  However, beneficiaries, physicians, and suppliers have the right to question the determination in a given case.  In such instances, A/B MACs (B) should use their best judgment based on the  available data to resolve the issue.   The CMS publishes A/B MAC (B) and DME MAC localities.  These designations should be used in making reasonable charge determinations.  Where appropriate, multiple localities may be used with respect to different types and levels of services.  This may occur where there are not enough members of a specialty group in any one locality to establish a valid basis for deriving the prevailing charges for their services.  Prior CO approval must be obtained when deviating from the established CMS localities.   80.4.1 - Rounding of Reasonable Charge Calculation  (Rev. 1, 10- 01-03) B3-5021  A/B MAC (B) screens should include both dollars and cents.  Rounding of customary and prevailing charges should not normally take place with one exception.   Rounding is permitted in situations where the A/B MAC (B)s customary charge calculation is clearly erroneous and results in a peculiar or odd cent amount, e.g., $8.33.  In such an instance, rounding to the nearest l0 cents is permissible, pending the required correction of the calculation, where the data result in a customary charge that is not in 25-cent or 75- cent units.  For other than the 25- cent or 75 -cent amounts, fractional amounts ending in 5- cent increments should be rounded up to the nearest l0 c ents.  However, where the A/B MAC (B) knows the odd cents in a customary charge calculation are correct, e.g., because a sales tax is involved in the charges made by a physician, then no rounding of the odd cents should take place.   The above exception applies only to customary charge calculations, and not to prevailing charges.  The exception is permissible only as an interim measure to deal with an immediate problem.  The A/B MAC (B) should promptly identify the cause of the error a nd take appropriate corrective action.   There should be no need for rounding initial prevailing charge calculations since actual customary charges are used to establish these screens.   80.5 - Filling Gaps in A/B MAC (B) Reasonable Charge Screens  (Rev. 1, 10- 01-03) B3-5022, AB -02-136, B -02-089  Where there is insufficient actual charge data for determining the customary charge and/or the prevailing charge in the locality for a particular medical procedure or service, A/B MACs (B)/DME MACs must use one of the following gap- filling methods to estab lish the needed screen.   A. Gaps in Customary Charge Screens   A/B MACs (B)/DME MACs fill a gap in a customary charge screen:   1. By applying a conversion factor derived from the physicians (or suppliers) known customary charges for other services in the same category of service (medicine, surgery, etc.) to a relative value scale in the manner suggested in 80.3, or   2. By using the 50th percentile in the array of customary charges (weighted by frequency) that was used to establish the prevailing charges for similar services for the physicians in the same specialty and locality.  A/B MACs (B)/DME MACs must ensure that, where a 50th percentile charge is used as a customary charge for payment purposes, the reasonable charge does not exceed either that amount or the locality prevailing charge.  Also, all A/B MACs (B)/DME MACs that use  50th percentile charges to fill gaps in their customary charge data must retain the capacity to calculate and use conversion factors with relative value scales when this is appropriate.   B. Gaps in Prevailing Charge Screens   Where the A/B MAC (B) has not been able to establish a prevailing charge for a service based on the prevailing charge screen procedures, then A/B MACs (B)  must gap- fill the payment amounts using a prevailing charge conversion factor (80.5.1 ) and a relative value scale, manually if necessary.  (See 80.3 regarding charges for rare or unusual procedures.  This is to be used as a last resort.   80.5.1 - Use of Relative Value Scale and Conversion Factors for Reasonable Charge Gap -Filling (Rev. 1, 10- 01-03) B3-5022.1  The relative value scales used to fill gaps in charge data for the Medicare program should, to the extent possible, be those that contractors use in their own programs.  Relative value scales developed by contractors or by medical societies for States othe r than those in which your Medicare service area is located should be carefully reviewed and validated before they are used.  Ensure that a relative value scale, which is used to estimate customary charges or prevailing charges, accurately reflects charge patterns in the area y ou service.  Similarly, the conversion factor used with the relative value scale should reflect the known customary charges of the physician or other person for whom a customary charge is being estimated, or the known prevailing charges for services in the  locality, as appropriate.   As a result of consent agreements with the Federal Trade Commission (FTC), relative value scales formerly published by the American Academy of Orthopedic Surgeons, the American College of Obstetricians and Gynecologists, the American College of Radiology, and the California Medical Association have been withdrawn from circulation.  The FTC consent agreements did not bar the use of the related procedural terminology and coding systems.  However, do not use these four relative value scales to fill gaps in cus tomary and prevailing charge data.   This does not mean that you must discontinue using relative value scales to fill gaps in customary charges or in determining prevailing charges.  Instead use a system of relative value units that has not been the subject of a consent agreement, or develop your own system.  A potential source of information in this regard is the relative value scale that has been included with the CMS HCPCS.  This relative value scale is included with HCPCS as an informational item only.  You may use it, revise it, or use some other relative value scale if you deem it more appropriate.   You may, if necessary develop a relative value scale for gap -filling purposes by dividing the unadjusted prevailing charges in a locality by a common denominator and filling the gaps in the resulting relative value scale by relying on medical staff judgm ent or on other persons with knowledge of the charging patterns and practices in your service area.  Alternatively, you may use a service area wide approach and/or the unweighted average of the customary charges that have been made for a service, divided b y a common denominator.  For radiology codes (codes beginning with 7, local radiology codes, and R -codes in HCPCS), you may use the national and local relative values used to make payment under the radiology fee schedule.  Customary and/or prevailing charge conversion factors used with relative value scales to fill gaps in reasonable charge screens should be calculated as outlined in A and B below.  (Develop separate customary charge conversion factors for each physician or supplier from his known customary charges in the same category of services, e.g., medicine, surgery, radiology, etc.  Similarly, separate prevailing charge conversion factors, by locality (and by specialty or groups of specialties as applicable), should be  calculated based on the known prevailing charges, by locality and specialty, or groups of specialties within the same category of service.  Customary charge conversion factors may only be calculated for a physician for a category of service if the physici an has at least seven customary charges for services in that category of service upon which to base the conversion factor calculation.  If a physician does not have sufficient customary charges to calculate a conversion factor in one category of service, this does not preclude the calculation of his customary charge conversion factors for other categories of service for which he does have sufficient customary charges).   A. Customary Charge   Use the following formula for the calculation of a customary charge conversion factor:   C/F = Customary charge conversion factor   CHG = The physicians customary charge for a procedure   SVC = Number of times the physician performed the procedure   l-n = The different procedures the physician performed within a category of service   RVU = The relative value unit assigned to a procedure   SIGMA = Sum of   C/F =  CHG 1  RVU l x SVC l + CHG 2  RVU 2 x SVC 2 .CHG n  RVU n x SVC n _________________________________________________ SIGMA SVC 1-n EXAMPLE : Compute a customary charge conversion factor for a physician with the following charge history: (May be for medicine, surgery, radiology, pathology.)   Procedure  Frequency  Customary Charge  Relative Value  1 $ 3 5.00 1 2   7 12.00  2 3   5 35.00  4 4   4 20.00  3 5   6 8.00 1.5  25    Method  l. For each procedure, divide the customary charge by the relative value and multiply the result by the frequency of that procedure in the physicians charge history.   2. Add all the results of these computations.   3. Divide the result by the sum of all the frequencies.  Solution  (5x3)  1 + (12x7)  2 + (35x5)  4 + (20x4)  3 + (8x6  1.5 divided by 25=  (5 x 3) + (6 x 7) + (8.75 x 5) + (6.67 x 4) + (5.33 x 6) = 25  15 + 42 + 43.75 + 26.68 + 3l.98 = 25  159.41 = $6.40 (i.e., $6.38 rounded to the 25 nearest 10 cents)   To determine a physicians customary charge for a particular procedure where there is no reliable statistical basis, multiply the relative value of the procedure by the physicians customary charge conversion factor for the appropriate category of service (e.g., radiology, medicine, surgery).   B. Prevailing Charges   The prevailing charge conversion factors used with the appropriate relative value scale are developed from the same formula used for customary charge conversion factors, except that:  CHG = The fully adjusted locality prevailing charge for a procedure by locality and by specialty or group of specialties (regardless of the source of data from which the locality prevailing charge was developed).   SVC = The number of times the procedure was performed by all physicians in the same specialty or group of specialties and locality.  l-n = The different procedures within a category of service for which prevailing charges have been established by specialty or group of specialties and locality.  The conversion factors calculated for any fee screen year reflect customary and prevailing charges calculated on the basis of charge data for the year ending June 30 immediately preceding the start of the fee screen year.  Also, reasonable charge screens established through the use of a relative value scale and conversion factors consist of two components.  Consequently, the conversion factors must be recalculated when there is any change in the relative value units assigned to procedures (as may occur if you use a different or updated relative value scale) in order to as sure that the change(s) in unit values do not violate the integrity of the reasonable charge screens.  The economic index limitation, the no rollback provision, and the Administrative Savings Clause are not applied directly to prevailing charge conversion factors calculated in accordance with this section.   80.6 - Inflation Indexed Charge (IIC) for Nonphysician Services  (Rev. 2837, Issued: 12- 13-13, Effective: 01 -01-14 - payment reasonable charge basis/04- 01-14 - payment national fee schedule basis, Implementation: 01 -06-14 - payment reasonable charge basis/04- 07-14 - payment national fee schedule basis)   A General   Effective for services rendered on or after October 1, 1985, an additional factor -  the inflation indexed charge (IIC), is added to the factors taken into consideration in determining reasonable charges for non- physician services.  Non -physician services are defined as those Part B medical services, supplies, and equipment reimbursed on a reasonable charge basis and not subject to the application of the Medicare Economic Index (MEI).   Examples of items affected by the IIC are: