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AHA, Hospitals Sue HHS Over RAC Payment Denials

The American Hospital Association (“AHA”) and four hospitals (collectively, the “Plaintiffs”) have filed a lawsuit against the Department of Health and Human Services (“HHS”), alleging that the Centers for Medicare and Medicaid Services (“CMS”, a sub-agency of HHS), through its Medicare RAC Program, has inappropriately refused to pay for Medicare Part B services that it acknowledges were reasonably and medically necessary. The lawsuit, filed earlier today, notes that hospitals have lost hundreds of millions of dollars in reimbursement for necessary care provided to Medicare beneficiaries.

RAC Audits, and particularly CMS’ decision to deny payment altogether when it deems that inpatient criteria has not been met (even while conceding that outpatient observation services were reasonable and necessary), have been a source of great uncertainty for hospital patient care and financial planning ever since the RAC Demonstration Project was implemented in 2005. The lawsuit cites four cases – one from each hospital involved in the lawsuit – where CMS did not dispute that outpatient payment was appropriate, yet continued to deny all reimbursement through several levels of appeal. Despite at least four decisions by the Medicare Department Appeals Board Medicare Appeals Council (“MAC”) – the final agency decision-maker – holding that payment for Part B services was appropriate, CMS continues to deny Part B payment after a denial of reimbursement for Part A-billed services, citing as its Payment Denial Policy (Medicare Benefit Policy Manual (“BPM”) Chapter 6 § 10) as its only justification. Notably, that provision of the BPM was promulgated without notice and rulemaking, and with no accompanying explanation.

The lawsuit alleges that CMS’ Payment Denial Policy violates the Medicare Act and is arbitrary and capricious. Additionally, the suit alleges that CMS’ failure to follow precedent and failure to undergo notice and comment rulemaking are arbitrary and capricious actions by the agency. Finally, the claim alleges that the Policy is invalid because it was not promulgated as a regulation, even though it establishes a substantive legal standard governing the scope of Part B benefits and payment.

As RAC payment audits and denials continue to plague healthcare providers across the United States, providers continue to turn to legal counsel for assistance in defending these payment audits and appealing improperly denied reimbursement for medically necessary services. Indeed, in the majority of cases nationwide the appealing hospital is ultimately successful in overturning the RAC payment denial.

Since the inception of the RAC Demonstration Program and implementation of the permanent RAC Program, the attorneys of The Health Law Partners, P.C. have provided legal counsel to numerous hospitals, inpatient rehabilitation facilities, physicians, and other providers faced with RAC payment audits and denials.


View Complaint Here.


To learn more about the RAC program and the appeals process, please contact Abby Pendleton, Esq. or Jessica Gustafson, Esq. at (248) 996-8510, or visit The HLP website.

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