Mastering CMS 1500 Item 20: Billing Lab Services & Purchased Diagnostic Tests for Proper Reimbursement

Accurately completing the CMS 1500 form is crucial for healthcare providers to ensure timely and correct reimbursement. Among its many fields, Item 20, “Outside Lab”, often presents specific challenges, particularly when billing for lab services and purchased diagnostic tests. This comprehensive guide will walk you through the nuances of Item 20 on the 1500 form, helping you understand its requirements, avoid common errors, and ensure compliance for proper reimbursement. Learn how to accurately complete CMS 1500 Box 20 for lab services, including guidelines for purchased diagnostic tests and the critical link to Item 32, to ensure proper reimbursement.

Understanding CMS 1500 Item 20: Lab Service Entity

Item 20 on the CMS 1500 claim form is designed to indicate whether the diagnostic test being billed was performed by an entity other than the entity submitting the claim. This distinction is vital for accurate financial tracking and compliance with billing regulations, especially when dealing with billing outsourced lab services.

What is a “Purchased Diagnostic Test”?

A “purchased diagnostic test” refers to a laboratory or diagnostic service that a physician or other healthcare provider orders but does not perform themselves. Instead, they refer the patient to an outside laboratory or facility for the test, and that external entity performs the service. The referring provider then typically bills for this service on behalf of the performing lab, or the performing lab bills directly. Item 20 helps clarify this arrangement.

Defining “Entity Other Than the Entity Billing”

This phrase refers to any laboratory, facility, or healthcare provider that physically performs the diagnostic test, but is not the organization whose billing NPI (National Provider Identifier) is listed in Item 33 of the CMS 1500 form. For instance, if Dr. Smith’s office bills for a blood test, but the blood analysis was actually conducted by “City Clinical Lab,” then City Clinical Lab is the “entity other than the entity billing.”

The “Yes” Check: Billing Outsourced Lab Services

• A “yes” check in Item 20 indicates that an entity other than the entity billing for the service performed the diagnostic test.
• This applies when your practice purchases a diagnostic test from an outside laboratory (e.g., a reference lab) and then bills the payer for that service.
• It signifies that the service was “outsourced” to another provider for performance.

The “No” Check: In-House Lab Services

• A “no” check in Item 20 indicates that “no purchased tests are included on the claim.”
• This should be marked when the diagnostic test was performed by the same entity that is billing for the service – for example, if your clinic has its own laboratory facilities and performs the tests in-house.

Specific Scenarios: When to Mark “Yes” or “No” in Item 20

Understanding these scenarios is key to correct completion of CMS 1500 Box 20:

1. Scenario 1: Your practice refers a patient to an independent lab for tests, and your practice then bills for those tests.
   • Action: Mark “Yes” in Item 20.
   • Reason: The independent lab (entity performing the test) is different from your practice (entity billing for the test). You are billing outsourced lab services.
2. Scenario 2: Your practice performs the lab tests in its own CLIA-certified laboratory.
   • Action: Mark “No” in Item 20.
   • Reason: Your practice (entity performing the test) is the same as the entity billing for the test. No purchased tests are involved.
3. Scenario 3: An independent lab performs a test and bills directly to the payer.
   • Action: The lab would mark “No” in Item 20 on its own claim.
   • Reason: The lab performing the service is also the lab billing for it. Item 20 is about the relationship between the billing entity and performing entity on that specific claim.

The Critical Link: CMS 1500 Item 20 and Item 32 Requirements for Labs

One of the most crucial aspects of completing Item 20 correctly is its direct correlation with CMS 1500 Item 32 requirements for labs. This linkage is vital for reimbursement:

• When “Yes” is marked in Item 20: Item 32 must be completed.
• Information Required in Item 32:
  • Name and Address of the Performing Facility: You must enter the name, address, and ZIP code of the facility where the purchased diagnostic test was performed.
  • NPI of the Performing Facility: The National Provider Identifier (NPI) of the actual laboratory or facility that carried out the test must be included.

Why is this linkage critical for reimbursement? Payers need to know who physically performed the service to ensure proper oversight, prevent duplicate billing, and verify that the performing entity is properly credentialed and licensed. Failure to complete Item 32 when Item 20 is “Yes” is a common reason for claim denials and processing delays. This illustrates one of the key nuances of Item 20 on the 1500 form.

Common Errors and Challenges in CMS 1500 Lab Billing

Completing Item 20 for lab services can be complex, leading to several common errors in CMS 1500 lab billing:

• Misunderstanding “Purchased Diagnostic Test”: Sometimes providers incorrectly assume all outsourced tests are “purchased” in the billing sense, or conversely, fail to identify tests that truly meet this definition.
• Forgetting to Complete Item 32: This is perhaps the most frequent mistake. Marking “Yes” in Item 20 without providing the necessary performing facility details in Item 32 will almost certainly lead to a denial.
• Incorrect NPI in Item 32: Using the wrong NPI for the performing lab or accidentally putting the billing entity’s NPI in Item 32 when Item 20 is “Yes.”
• Billing Multiple Purchased Tests on a Single Form: As noted in official CMS guidance, when billing for multiple purchased diagnostic tests, each test must be submitted on a separate CMS-1500 Form. This rule is often overlooked, leading to denials.

Implications of Incorrect Completion

Errors in Item 20, particularly the failure to correctly link with Item 32, can have significant negative consequences:

• Claim Denials: Claims may be rejected outright, requiring re-submission and delaying reimbursement.
• Delays in Processing: Even if not denied, incorrect information can lead to claims being pended for manual review, extending the payment cycle.
• Compliance Issues: Repeated errors could trigger audits or compliance investigations, potentially resulting in penalties or sanctions.

Practical Tips to Avoid Mistakes

To ensure accuracy and prevent issues with CMS 1500 purchased diagnostic tests:

1. Train Staff Thoroughly: Ensure all billing personnel understand the definitions of “purchased diagnostic test” and the requirements for Item 20 and Item 32.
2. Establish Clear Workflows: Implement a clear process for identifying outsourced lab services and gathering the necessary information for Item 32.
3. Utilize Billing Software Features: Many practice management and billing systems have safeguards or prompts for Item 20/32. Ensure your staff uses these features correctly.
4. Regular Audits: Periodically review a sample of claims involving lab services to catch and correct patterns of error before they become systemic.

Frequently Asked Questions (FAQs) about CMS 1500 Item 20

Q1: What if multiple purchased diagnostic tests are on one claim?

A: When billing for multiple purchased diagnostic tests, each test must be submitted on a separate CMS-1500 Form. This ensures clarity and proper processing for each individual outsourced service.

Q2: Does Item 20 apply to all lab services, or just purchased ones?

A: Item 20 specifically addresses whether a diagnostic test was “purchased” from another entity. If the lab service was performed by the billing entity itself, Item 20 should be marked “No.” It’s not about all lab services, but the source of the lab service relative to the billing entity.

Q3: Where can I find official CMS guidance on completing the CMS 1500 form?

A: Official guidance can be found in the CMS IOM Publication 100-04, Medicare Claims Processing Manual, Chapter 26, which provides detailed instructions for completing and processing the Form CMS-1500 Data Set. Specifically, Section 10.20 addresses Item 20.

Key Takeaways & Summary Checklist for CMS 1500 Item 20

To master the accurate completion of CMS 1500 Item 20 for lab services, keep the following in mind:

• ✔ Understand “Purchased Diagnostic Test”: A test performed by an external entity, billed by your practice.
• ✔ “Yes” = Outsourced: Check “Yes” if an outside lab performed the service you’re billing.
• ✔ “No” = In-House: Check “No” if your practice performed the service in its own lab.
• ✔ Item 20 “Yes” Requires Item 32 Completion: Always provide the performing facility’s name, address, and NPI in Item 32.
• ✔ One Purchased Test Per Form: Submit separate CMS-1500 forms for each individual purchased diagnostic test.
• ✔ Avoid Common Errors: Pay close attention to definitions, NPIs, and the Item 20/32 link to prevent claim denials and delays.

By diligently following these guidelines, healthcare providers can significantly improve the accuracy of their CMS 1500 claims for lab services, leading to more efficient processing and appropriate reimbursement.