In October 2013, CMS issued a Fact Sheet outlining its policy regarding beneficiaries who are incarcerated or in custody.  See CMS Fact Sheet, available here.  Pursuant to 42 C.F.R. §§ 411.4, 411.6 and 411.8, where a beneficiary is in custody on the date items or services are provided, Medicare will typically not cover the items or services.

Medicare will deny claims for individuals who are: under arrest, incarcerated, imprisoned, escaped from confinement, under supervised release, on medical furlough, required to reside in mental health facilities, required to reside in halfway houses, required to live under home detention, or confined completely or partially in any way under a penal statute or rule.  See 42 C.F.R. § 411.4(b).  The Remittance Advice for the denial will include the code RARC N103, the current language of which has been updated.  As of April 2014, RARC N103 will read:

“Records indicate this patient was a prisoner or in custody of a Federal, State, or local authority when the service was rendered.  This payer does not cover items and services furnished to an individual while he or she is in custody under a penal statute or rule, unless under State or local law, the individual is personally liable for the cost of his or her health care while in custody and the State or local government pursues the collection of such debt in the same way and with the same vigor as the collection of its other debts.  The provider can collect from the Federal/State/Local Authority as appropriate.”

A beneficiary’s eligibility status can be confirmed through a 270/271 eligibility query in the HIPAA Eligibility Transaction System or by Medicare Administrative Contractor (MAC) interactive voice response units and provider internet portals.  However, while an incarcerated beneficiary will be designated as inactive, the reason for inactivity will not be provided, and further investigation may be necessary.

The only exception to this policy occurs when a state or local law requires repayment of the cost of medical services received in custody and the state or local government entity enforces this payment requirement by billing and seeking collection from all such individuals.  See 42 C.F.R. § 411.4(b).  According to CMS, to document eligibility for this exception, appropriate claims should be submitted using the relevant CPT or HCPCS code as well as the QJ modifier, “Services/Items provided to a prisoner or patient in State or local custody, however the State or local government, as applicable, meets the requirements in 42 CFR 411.4 (b).”  If an incarceration period spans only part of an inpatient stay, hospitals should bill any overlapping items or services as non-covered.  To ensure state or local entities are billing and collecting such payment appropriately, MACs randomly evaluate a sample of these cases.