Flagship Services Group Blog

Decision Point: Z Code Conundrums

Jul 20, 2020 6:26:08 PM / by Robert J. Finley

The fact pattern is simple and straightforward: A Medicare beneficiary is involved in a covered occurrence which necessitates an office or emergency room visit. A reasonable and necessary examination is conducted by a physician which results in no diagnosis. For example, your 75-year old father visits your home and, while napping after a lively family meal, rolls off the couch hitting his head, elbow and hip on the hardwood floor. He has pre-existing conditions related to his hip, so, despite crotchety resistance, he is taken to the emergency room to be checked out. After an outpatient examination, including radiological tests of his head, elbow and hip, he is released from the hospital without any symptoms, specific diagnosis or follow up plan. Everyone goes back home thankful he is OK. Your father receives the hospital bill for $5,000 (with no injury and external cause ICD-10 codes). He makes a claim which is covered and paid by your homeowner’s no fault/PIP insurance policy. 


Is this a Section 111 reportable claim on the homeowner policy? Does the carrier accept Ongoing Responsibility for Medical (ORM)? If they do, then what are the pros and cons of accepting ORM? Do they report “No” related to ORM? If so, then what are the pros and cons of not reporting? If they accurately report as coded by the ER physicians, and an error is returned, then how would this affect the error tolerances under CMS proposed civil money penalty rules (CMP)? If they choose to report, how would—or should—they determine the ICD codes to report? If they choose what they deem to be the most accurate ICD codes, but later CMS recovery sends a conditional payment notice with the same or similar ICD codes, then would the dispute be considered “contradictory” to the reporting? If they accept ORM, but later attempt to dispute a conditional repayment claim for the billed codes, then would this ORM decision trigger CMP? Does “No” ORM leave the door open for a CMP down the road under the current proposed rules? Would this be considered failing to report if the beneficiary needs treatment months later for injuries to same body parts or new body parts attributable to the same external cause codes? Is there are a perfect answer? Or at least a wrong one?


One might expect a simple answer to these practical questions with clear, consistent regulations and guidance from CMS. Yet, for RREs, simple answers can be elusive and direction difficult to discover. ICD-10, and the United States’ clinical modification (ICD-10-CM), provides codes to specifically classify morbidity data based on the patient’s visit and physician services which are relied upon for healthcare provider billing purposes.


CDC International Classification of Diseases


Furthermore, the Centers for Disease Controls (CDC) provides supporting guidelines “to assist both the healthcare provider and the coder in identifying those diagnoses that are to be reported,” ICD-10-CM Official Guidelines for Coding and Reporting . Worthwhile to note, these guidelines are prepared for healthcare providers and billing coders, whereas there is no mention of primary payers and responsible reporting entities.


ICD-10-CM contains “No Injury” codes, or Z-codes, where patient exhibits no symptoms, the physician provides no diagnosis, and there is no injury recorded in the notes—similar to your father’s after dinner roll off your couch. Under these circumstances, physicians can still bill for their services using “Z03” codes—i.e. encounter for exam and observation following other accident. “Codes that describe symptoms and signs, as opposed to diagnoses, are acceptable for reporting purposes when a related definitive diagnosis has not been established (confirmed) by the provider.” ICD-10-CM Official Guidelines for Coding and Reporting FY 2020 (10/1/2019 – 9/30/2020)(at 98-99). ICD-10-CM further permits use of external cause codes (V00-Y99) which further detail the cause, intent, place, status, activity, etc. based on patient history. Effectively, the patient sees a doctor but any disease/injury/condition is ruled out.


However, according to CMS, ICD-10 “Z” codes are invalid for Section 111 reporting and excluded from Section 111 claim reports. Any Section 111 reporting record with invalid ICD-10 codes will be rejected and returned with an error message. MMSEA Section 111 NGHP User Guide, Chapter 6: Claim Input File, Section ICD-9 and ICD-10 Diagnosis Code Details. NGHP User Guide


The father’s claim could be reportable by relying on general CMS guidance that NGHP claim information is to be submitted where the injured party is a Medicare beneficiary and payments for medical care (“medicals”) are claimed and/or released, or the settlement, judgment, award, or other payment has the effect of releasing medicals. MMSEA User Guide, Chapter 3: Process Overview; above.


That said, RREs rely on provider billing statements containing ICD-10 codes and are not in the business of coding medical records or repurposing the ICD-10-CM for Section 111 reporting rather than for intended clinical and billing uses. Since Z codes are invalid and an error report results, a closer reading of MMSEA indicates, perhaps, that payment of the father’s ER bill is not reportable. But, on the other hand, is there any harm to an RRE for Section 111 reporting that results in an error report? More on that issue below.


CMS could explain this regulatory void based on providers and their vendors unfamiliarity with and the resulting statistical insignificance of Z code claims. In 2020, the U.S. Department of Health and Human Services published the results of a study “representing the first analysis of Medicare FFS claims data for the utilization of Z codes. Findings from this study include:


  • 467,136 unique Medicare FFS beneficiaries with Z code claims in 2017, representing only 1.4 percent of the total FFS population.
  • To better understand the low utilization of Z code claims, in addition to this quantitative study, CMS held a listening session with interdisciplinary experts including health plans, EHR vendors, and providers leading CMS to conclude that participants generally lack of awareness of the Z codes.
  • Z Codes Utilization among Medicare Fee-for-Service (FFS) Beneficiaries in 2017


Next, must the No-Fault/PIP carrier accept ORM where the ER discharges the father with no ongoing treatment plan? Perhaps not, if the RRE determines it has no responsibility to pay, on an ongoing basis, for the Medicare beneficiary father’s medicals associated with the claim. MMSEA User Guide, Chapter 6, Section 6.7; above.


However, there may be other factors which are reasonable to consider when deciding ORM:


  • Opportunity to actively monitor the claim and reporting files.
  • Timely adjust and revise reporting in proximity to ongoing treatment/claims.
  • Avoid conditional payment exposure.
  • Avoid exposure under proposed CMP.
  • Duty to pay for medical bills associated with the claim.
  • Costs related to adjusting covered claims under the policy.


Let’s further assume, despite ER release without treatment plan, your father decides to return to his primary care physician with headaches and hip complaints though he forgets about his fall from the couch; and his physician refers him to a neurologist and orthopedist for additional consultation resulting in an established treatment protocol. All of these physicians and healthcare providers submit billing claims to Medicare for treatment, services and medication. Medicare pays more than $20,000 and is now seeking reimbursement based in part on external cause codes.


Also, CMS’ proposed CMP provide for $1,000/day penalties which may be levied against NGHPs where error tolerance thresholds are exceeded as well as where information provided in conditional payment recovery contradicts Section 111 reporting. However, CMS proposed CMP does not seem to carve out safe harbors for Z-codes and offers just a lone illustration of a “contradiction”: RRE repeatedly affirms ORM “yes” during reporting, and then 2 years later asserts that ORM coverage was terminated (“no”) during the recovery process.


How, if at all, will the initial ORM and reporting decisions by RREs play out under proposed CMP and conditional payment demand? Would errors based on accurate Z-code reports count against the threshold? Could contradictory “information” be something other than ORM like ICD-10 codes? Could CMP trigger where an RRE accepts ORM for a covered injury but prefers to dispute, in part, a conditional payment demand posting claims for the reported ICD-10 code?


CMS has an opportunity to allay some of the existing uncertainty on proposed CMP, and especially clarify the Z code conundrums, by accepting in its anticipated final rules some of the public comments regarding defining “contradiction”, addressing draconian enforcement and clarifying error tolerances. For example, CMS could allow RREs to self-correct their reporting errors, permit Z code reporting and limit penalties and/or conditional repayments in light of same. CMS could add more practical ORM termination guidance for case closure purposes. Finally, CMS could place reasonable limits on penalties by limiting enforcement to narrowly defined key data errors.


Plot your course. Be proactive. Create winning compliance strategies in line with best claims handling procedures and business judgment rule.


Disclaimer: This publication is provided for informational purposes only.  It is not intended to constitute, and shall not be construed as, the rendering of legal, accounting, or business advice or opinion or professional services of any type.  Nothing herein constitutes the views of the firm or its clients or the endorsement of any particular case, principle, or proposition.  The contents of this publication should not be viewed as a substitute for the guidance, advice, or recommendations of a retained professional


Flagship Services Group is the premier Medicare and Medicaid compliance services provider to the property & casualty insurance industry. Our focus and expertise have been the Medicare and Medicaid compliance needs of P&C self-insureds, insurance companies, and third-party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our team, and our customized solutions, please visit us at www.flagshipservicesgroup.com. To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or info@flagshipsgi.com.

Tags: MSA, civil monetary penalties, Robert Finley, Flagship Services, CMP, MSP, Medicare, Medicare Second Payers, section 111

Robert J. Finley

Written by Robert J. Finley

Robert J. Finley, a partner with Hinshaw & Culbertson LLP, has litigation and trial practice experience focused in tort, employment and healthcare. He also counsels firm clients under health plans, auto, property/casualty, no-fault, and workers compensation policies on Medicare repayment and Medicaid reimbursement compliance. Robert advises Flagship Services Group on high value matters, in administrative hearings, and with educational solutions involving Medicare Secondary Payer issues. For more information, visit: https://www.hinshawlaw.com