Individuals in Custody of a Penal Authority

40.7- Individuals in Custody of a Penal Authority (Rev. 13593; Issued: 01-26-26; Effective:02-26-26; Implementation:04-27-26) Individuals in custody of a penal authority generally have the status of public charges and, as such, have no obligation to pay for the medical care they receive. The special condition at 42 CFR § 411.4(b) for services furnished to individuals in custody of penal authorities operates as a rebuttable presumption. The presumption is that individuals who are in custody, as the term is described in 42 CFR § 411.4(b), have no legal obligation to pay for health care items or services they receive while in custody; therefore, Medicare is prohibited from paying for such health care items or services under the no legal obligation to pay payment exclusion. The presumption can be rebutted by a showing that: (1) the State or local government requires individuals in custody to repay the cost of the medical services they receive while in custody; and (2) the State or local government enforces the requirement to pay by billing all such individuals, whether or not covered by Medicare or any other health insurance, and by pursuing collection of the amounts they owe in the same way and with the same vigor that it pursues the collection of other debts. NOTE: The A/B MAC (A), (B), or (HHH), or DME MAC will require evidence that routine collection efforts include the filing of lawsuits to obtain liens against individuals’ assets outside the prison and income derived from non-prison sources. • The State or local entity documents its case with copies of regulations, manual instructions, directives, etc., spelling out the rules and procedures for billing and collecting amounts paid for prisoners’ medical expenses. The A/B MAC (A), (B), or (HHH), or DME MAC will inspect a representative sample of cases in which prisoners have been billed and payment pursued, randomly selected from both Medicare and non-Medicare eligible. The existence of cases in which the State or local entity did not actually pursue collection, even though there is no indication that the effort would have been unproductive, indicates that the requirement to pay is not enforced. The CMS maintains a file of incarcerated beneficiaries, obtained from SSA, that is used to edit claims. Providers and suppliers that render items and services to individuals in custody of a penal authority in a jurisdiction that meets the conditions of 42 CFR § 411.4(b)(1)(i) through (iii) should indicate the requirements have been met for payment. Providers and suppliers should use the “63” condition code for an entire claim or use the QJ modifier to identify services at the line level (see Pub. 100-4, ch.1, section 190). Otherwise, the claim or line(s) are denied. The regulation at 42 CFR § 411.4(b) states: “(b) Special conditions for payment for items or services furnished to an individual in the custody of a penal authority. (1) An individual in the custody of a penal authority is considered to have a legal obligation to pay for items or services furnished to the individual only if the following conditions are met: (i) State or local law requires the individual to pay the cost of items and services that the individual receives; (ii) The penal authority enforces the requirement to pay for items or services by billing all individuals who receive such items or services, whether or not covered by Medicare or any other health insurance; and (iii) The penal authority pursues collection of amounts owed for items or services received in the same way and with the same vigor that it pursues the collection of other debts. (2) For purposes of this paragraph, a penal authority means a police department or other law enforcement agency, a government agency operating under a penal statute, or a State, local or Federal jail, prison, penitentiary, or similar institution. (3) For purposes of this paragraph— (i) an individual is considered to be in the custody of a penal authority if the individual is: (A) Incarcerated in a jail, prison, penitentiary, or similar institution; (B) Temporarily outside of a jail, prison, penitentiary, or similar institution on medical furlough or similar arrangement; (C) Escaped from confinement by a penal authority; or (D) Required to reside in a mental health facility under a penal statute or rule. (ii) Individuals who are not considered to be in the custody of a penal authority include, but are not limited to, individuals who are— (A) Released to the community pending trial (including those in pretrial community supervision and those released pursuant to cash bail); (B) On parole; (C) On probation; (D) On home detention or home confinement; or (E) Required to live in a halfway house or other community-based transitional facility.”