On July 1, 2025, a significant change from the Centers for Medicare & Medicaid Services (CMS) impacted how Critical Access Hospitals (CAHs) bill for outpatient services under Method II.

This change introduces a billing edit designed to ensure that physicians listed on claims are properly linked to the hospital through the Provider Enrollment, Chain, and Ownership System (PECOS). Failure to meet this requirement will result in claim denials, potentially disrupting revenue for professional services.

Here’s what CAHs need to understand—and why acting now is essential.

What Is Method II Billing?

CAHs have two options for billing Medicare: Method I or Method II. Under Method II, the hospital bills for both the technical and professional components of outpatient services on a single institutional claim (UB-04 form).

This streamlines the process and allows CAHs to receive direct payment for the physician services they provide. It's a widely used approach among CAHs aiming to optimize reimbursements and reduce billing complexity.

What Changed on July 1, 2025?

The change being implemented introduces a claim edit that targets how the attending or rendering provider is listed on Method II claims. Specifically, the new rule states:

If the physician on the claim is not properly reassigned to the CAH in PECOS, the professional claim will be denied.

This means CMS will electronically verify whether the listed provider has a formal reassignment of benefits on file within PECOS. If that link is missing or inaccurate, payment will be denied automatically.

Understanding Reassignment in PECOS

PECOS is the official CMS system for managing provider enrollment and affiliations. In this context, reassignment refers to the legal agreement that allows a physician to assign their Medicare payments to an organization (in this case, the CAH). If this reassignment isn’t recorded in PECOS, CMS has no mechanism to validate the provider-hospital relationship—and will block the claim accordingly.

It’s not enough for a provider to simply work at the hospital. The PECOS system must explicitly reflect the reassignment.

Consequences of Non-Compliance

If CAHs fail to verify that their providers are correctly reassigned:

• Claims will be denied for the professional component.
• Cash flow disruptions are likely, especially for high-volume outpatient services.
• Administrative burden will increase as billing staff work to identify, correct, and resubmit claims.

What Hospitals Should Do Now

To avoid denials and delays, CAHs should take immediate action:

1. Audit current Method II providers: Review all physicians submitting professional claims under Method II.
2. Check PECOS for reassignment: Log into PECOS to verify each provider’s reassignment status.
3. Work with providers to submit or update reassignment forms (CMS-855R) as needed.
4. Educate billing staff on the new requirements to ensure claims are accurately completed.

Final Thoughts

The July 1, 2025, CMS edit may seem like a small technical change, but it carries major financial implications for CAHs using Method II billing. Proactive PECOS verification is essential to keep your professional claims flowing smoothly. Ensuring compliance now will save time, reduce rework, and protect revenue down the line.

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