Claim Denial – M12

Introduction

Medical billing requires attention to detail, especially when handling diagnostic services. The healthcare reimbursement landscape depends on accurate coding and complete information to process claims correctly. Among the various codes and modifiers that healthcare providers must manage, M-codes play a major role in offering additional information about claims.

This article examines M12, a specific code that addresses purchased diagnostic services. Understanding M12 helps medical practices properly document and bill for diagnostic tests when some components are performed by external providers. Using the M12 code correctly can help in decreasing the payment delays, reduce the chances of claim denials, and support compliance with medical billing guidelines.

1. What is M12?

M12 is a remark code that indicates: “Diagnostic tests performed by a physician must indicate whether purchased services are included on the claim.”

This code is used when a healthcare provider conducts a part of a diagnostic test and outsources the rest part from an external provider or supplier.. For example, a physician might interpret test results (professional component) while the actual testing (technical component) is conducted by an external laboratory or imaging center.

When M12 Applies

M12 applies in scenarios such as:

  • A physician orders a diagnostic test but sends the specimen to another outside laboratory
  • A medical practice owns diagnostic equipment but hires external technicians to operate it
  • A physician reviews and analyses diagnostic test results that were conducted at laboratories not related with their practice.
  • A practice contracts with external providers for specialized diagnostic services

Here, the key focus is on transparency. Claims should clearly mention which services were carried out by the billing provider and which were outsourced from other parties.

2. Billing Challenges Associated with M12

Service providers face several challenges when they deal with purchased diagnostic services:

Common Issues

  1. Missing Documentation: Failing to indicate on claims that certain services were purchased from external providers
  2. Unclear Service Division: Not specifying which components were performed in-house versus externally
  3. Incorrect Modifier Usage: Applying wrong or no modifiers while identifying purchased components
  4. Inconsistent Billing Practices: Different staff members handling purchased services differently

Consequences of Non-Compliance

When practices fail to properly document purchased diagnostic services:

  • Claims may be returned with an M12 message requesting clarification
  • Payments can be delayed while additional information is gathered
  • Such claims could raise red flags in audits due to potential billing issues.
  • Medicare and other payers may suspect duplicate billing if the external provider also submits a claim

Common Denial Patterns

Medical practices receive denials with M12 remarks when:

  • The claim lacks information about purchased components
  • Documentation doesn’t match the services billed
  • The billing pattern suggests that full reimbursement is sought for services partially performed elsewhere

3. How to Apply M12 Correctly

Identifying Purchased Services

Medical practices should establish clear protocols for identifying diagnostic services that involve external providers:

  1. Create a reference list of all diagnostic services regularly ordered
  2. Make a note of components which are performed in-house and which are given to outside laboratories.
  3. Update this information as service arrangements change

Documentation Requirements

When purchasing components of diagnostic services, maintain:

  • Contracts with external providers
  • Invoices for purchased services
  • Records showing which provider performed each component
  • Notes indicating the referring physician when applicable

Proper Coding and Modifiers

Several modifiers help clarify purchased services on claims:

Table 1: Common Modifiers for Purchased Diagnostic Services

Modifier

Description

Usage

90

Reference/Outside Laboratory

When laboratory procedures are performed by a party other than the treating/reporting physician

TC

Technical Component

Indicates only the technical component was performed

26

Professional Component

Indicates only the professional component was performed

77

Repeat Procedure

When the same procedure is performed by a different physician

91

Repeat Lab Test

When the same lab test is repeated on the same day for medically necessary reasons

59

Distinct Procedural Service

When a procedure is separate and distinct from other services performed on the same day

4. M12 Denial Reasons and Resolution Strategies

Understanding why claims receive M12 remarks can help practices develop targeted solutions:

Table 2: M12 Denial Reasons and Resolution Strategies

Denial Reason

Description

Resolution Strategy

Missing Purchased Service Indicator

Claim lacks information about externally purchased components

Add appropriate modifier (90, TC, 26) to indicate purchased services

Insufficient Documentation

Medical records don’t support the division of services

Include clear documentation of which provider performed each component

Incorrect Provider Listed

The performing provider is incorrectly identified

Update claim with correct information about the performing provider

Global Billing Error

Billing for both components when only one was performed

Split billing into appropriate components with correct modifiers

Missing Reference Laboratory

No indication of which external lab performed the service

Include the name and NPI of the reference laboratory

Contract Discrepancies

Billing doesn’t match contractual arrangements with external providers

Align billing with established contractual terms

Billing Process Adjustments

To avoid M12-related denials:

  1. Train staff to recognize when diagnostic services involve external providers
  2. Implement pre-submission claim reviews that highlight services purchased
  3. Track claims involving split or purchased components by creating a tracking system
  4. Develop standard operating procedures for documenting purchased services

5. Impact of M12 Denials on Practice Revenue

Non-compliance with M12 guidelines can lead to major financial setbacks for medical practices.The chart illustrates the average loss experienced by mid-sized practices due to M12 claim issues.

Denial Impact Chart:      

 

Revenue Loss  

Administrative Costs

  Resubmission Success

Initial

$25,000

$8,500 

  65%

After Training 

$6,200  

$2,100   

  92%

By properly implementing M12 protocols, revenue loss can be reduced by 75%, administrative expenses can be reduced by over 70%, and resubmission success can be improved by 27%.

6. Real-World Example: M12 in Practice

Consider this scenario at PQR  Medical Group:

Dr. Josephṣ performs an electrocardiogram (ECG) interpretation for a patient. However, the technical component—the actual recording of the ECG—was done at an external facility with which Westside has a contract.

Initial Claim Submission:

  • Westside submits a claim for the complete ECG service (both technical and professional components)
  • No indication is provided that the technical component was purchased
  • The claim is returned with an M12 remark code

Corrected Approach:

  1. Westside resubmits the claim using modifier 26 (professional component only)
  2. Documentation clarifies that only the interpretation was performed by Dr. Joseph
  3. The practice maintains the invoice from the external facility for the technical component
  4. The claim is processed correctly and payment is received

Results:

  • The practice avoids duplicate billing issues
  • Payment is received more quickly
  • The billing process maintains compliance

7. Implementing an Effective M12 Strategy

Staff Training

Medical billing staff should understand:

  • The difference between professional and technical components
  • When services qualify as “purchased”
  • How to document the division of services
  • Which modifiers apply to purchased services

Auditing and Quality Control

Regular internal audits help identify possible M12 issues:

  • Review a sample of diagnostic claims monthly
  • Check for proper documentation of purchased services
  • Verify correct modifier usage
  • Compare invoices from external providers against submitted claims

Technology Solutions

Practice management systems can help track purchased services by:

  • Tracking diagnostic codes that are often linked to outsourced or third-party services.
  • Prompting staff to document purchased components
  • Automatically suggesting appropriate modifiers
  • Generating reports of claims involving purchased services

8. Financial Implications of M12 Compliance

Cost Tracking

When purchasing diagnostic components, practices should:

  • Track expenses for purchased services by category
  • Compare costs across different external providers
  • Analyze the financial impact of bringing certain services in-house

Revenue Cycle Management

Proper M12 handling affects the revenue cycle by:

  • Reducing denial rates and associated rework
  • Shortening payment timelines
  • Decreasing audit risks and potential recoupments
  • Improving cash flow predictability

9. Compliance Considerations

Regulatory Framework

Multiple regulations govern purchased diagnostic services:

  • Medicare regulations require disclosure of purchased tests
  • Laws against kickbacks prohibit certain financial relationships between referring doctors and testing centers
  • Stark Law restrictions apply to physician ownership in entities providing designated health services

Documentation Requirements

Maintain these records for M12 compliance:

  • Written agreements with external providers
  • Proof of medical necessity for ordered tests
  • Clear records of which entity performed each service component
  • Evidence that the billing provider performed the services claimed

Conclusion

M12 represents an important aspect of medical billing transparency. When physicians and medical practices purchase components of diagnostic services from external sources, proper documentation becomes necessary for accurate claims processing.

By following the practices outlined in this article, healthcare providers can:

  • Reduce claim denials related to purchased diagnostic services
  • Accelerate payment for services rendered
  • Maintain compliance with billing regulations
  • Improve overall revenue cycle performance

Establishing clear workflows for identifying, documenting, and billing purchased diagnostic services helps medical practices navigate the complexities of M12. The time invested in proper M12 handling pays dividends through smoother claims processing and more predictable reimbursement.

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