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CMS Speaks: The Future for Payment of Part B Services Post-RAC Denial – CMS’ Long-Term Solution Too Limiting!

On March 13, 2013, the Centers for Medicare and Medicaid Services (“CMS”) concurrently issued Ruling CMS-1455-NR (the “Ruling”) and a proposed rule for revising Medicare Part B billing policies in the event of Part A payment denials (the “Proposed Rule”).

BACKGROUND
Since the conclusion of the Recovery Audit Contractor (“RAC”) demonstration program and prior to March 13, 2013, CMS has taken the position that following a contractor’s denial of a Part A inpatient hospital claim, hospitals were permitted to bill Medicare Part B for only a very limited portion of the denied services (i.e., the “ancillary services”). Moreover, these ancillary services could only be billed under Part B if such services were provided during the prior year under existing timely filing rules. Compounding the litany of financial problems created for hospitals from RAC denials, the RACs have denied an extraordinary number of short stay inpatient claims, in many cases many years following the dates of service, leaving hospitals with zero payment for services fully rendered, which the hospitals believe were reasonable and necessary under Part A. Although in many cases the RACs have determined that the services were reasonable and necessary as outpatient services, the RACs failed to provide Part B offset.

Accordingly, hospitals have had no choice but to vigorously pursue relief through the Medicare appeals process. In many cases, hospitals have argued that the inpatient services were medically necessary. Moreover, as an alternative, hospitals have argued that they are at least entitled to an offset under Part B (e.g., payment for outpatient observation services, payment for the procedure as if the patient had been an outpatient, etc.). Notably, some Administrative Law Judges (“ALJs”) have agreed that to the extent the Part A denial is upheld, the hospital is entitled to Part B payment (not limited to ancillary services) and have ordered same (“Partially Favorable Decisions”). The Medicare Appeals Council likewise agrees and has issued many decisions to this effect. Although CMS has been vocal in its disagreement on this issue, in July of 2012, CMS issued a memorandum to its contractors providing instructions as to how to effectuate the Partially Favorable ALJ and MAC decisions. For the past few months, many ALJs have also started to remand cases back to the Qualified Independent Contractor (“QIC”) stage of appeal as the QICs have ignored the hospitals’ arguments related to the Part B offset issue. Amazingly, despite the remand orders, the QICs have been reissuing the exact same decisions made in the first instance, in essence failing to comply with the ALJ’s orders and refusing to address the Part B offset issue.

CMS’ position, as adopted by its contractors, has led to a significant financial impact on hospitals as well as resulted in the unnecessary unburdening of the Medicare appeals process.

CMS STEPS IN
Given pressures asserted by the hospital community, including the recent litigation over the above issues filed by the American Hospital Association and five (5) health systems, on March 13, 2013, CMS announced a new Ruling in conjunction with the release of a proposed rule to define Part B billing policies when a Part A claim for a hospital inpatient admission is denied as not medically reasonable and necessary. While this Ruling provides significant relief, CMS’ continued position that outpatient observation services cannot be billed is troubling. Moreover, CMS proposed long term solution as set forth below is not palatable for the hospital community.

CMS RULING 1455-NR

Applicability
Ruling 1455-NR (the “Ruling”) became effective immediately on March 13, 2013. The Ruling is the interim guideline until CMS finalizes the proposed rule on the issue, establishing a permanent policy. The Ruling reiterates CMS’ position that the MAC and ALJ decisions discussed above are contrary to longstanding CMS policy that only allows billing for Part B ancillary services within a specified time from the dates of service (following a finding of Part A overpayment). The Ruling acknowledges that CMS is “acquiescing” to the ALJ and MAC decisions discussed above, and is applicable to all denials made (1) while the Ruling is in effect, (2) prior to the effective date of the Ruling where appeal rights have not expired, and (3) prior to the effective date for which an appeal is pending.

Summary of Billable Services under Ruling

When a Part A claim for inpatient services is denied by a Medicare contractor (not self-audit determinations or utilization review determinations) as not reasonable and necessary, the hospital may do the following:

1. Submit a Part B inpatient claim for more than just ancillary services. The hospital is entitled to bill a Part B inpatient claim for the Part B services that would have been payable had the beneficiary originally been treated as an outpatient rather than admitted as inpatient. However, CMS states that the hospital may NOT bill for those services that specifically require an outpatient status (e.g., outpatient visits, ED visits, and outpatient observation services). CMS’ decision to not permit observation services is particularly problematic as many of the cases at issue involve admissions from the ER where observation services would be applicable.

2. Submit a Part B outpatient claim for reasonable and necessary services for the outpatient services furnished during the 3-day payment window prior to the original inpatient window, including ED visits and observation services.

No Duplicate Claims
In order to rebill the claims, a hospital cannot have an outstanding appeal for payment under Part A. In other words, a hospital must withdraw the pending Part A appeal or wait for an appeal decision to become final or binding before rebilling is allowed. Once a claim for Part B reimbursement is submitted, the hospital will no longer be able to pursue an appeal for the Part A claim.

Timeframe for Rebilling
While the Ruling is in effect, a hospital will have 180 days from the date of determination or dismissal of a Part A appeal to rebill under Part B. The Ruling retains the presumed date of receipt: 5 days from the date of the notice/decision unless there is evidence to the contrary.

Treatment of Current ALJ Remands
Cases that have been remanded by an ALJ will be returned to the ALJ level and adjudicated according to the new scope defined by this Ruling – namely, the ALJ may only decide if Part A inpatient billing was appropriate because the services provided were reasonable and medically necessary. According to the Ruling, it is CMS’ position that the ALJ may not order Part B payment. Rather, the hospital must either withdraw the appeal from the ALJ or wait for a determination before rebilling for Part B services. This statement is particularly problematic, raising questions as to whether CMS has such authority via a memorandum ruling to essentially take away a provider’s due process appeal rights. Hospitals who seek outpatient observation payment as an alternative are well advised to continue making arguments in the appeals process as such issues may need to be preserved for potential federal court cases. Patient Status (copayments, deductibles, etc.)

Under the Ruling, because a patient’s status (inpatient vs. outpatient) cannot be changed after discharge, the patient will be considered an inpatient for Part B inpatient services billed, and an outpatient for Part B outpatient services billed.

Part A/B Rebilling Demonstration Terminated
The Ruling noted that the demonstration program for Part A to Part B billing, an experiment targeted at solving the problem of excessive lengths of observation care stays, is terminated since the Ruling and the permanent rule to follow are the perceived resolution to the problem.

PROPOSED RULE FOR PART B INPATIENT BILLING IN HOSPITALS

The Ruling is only the interim solution. Also on March 13, 2013, CMS released a proposed rule to be published in the Federal Register on March 18, 2013, which would supersede the Ruling once issued as a final rule. The Proposed Rule would retain the right for hospitals to rebill under Part B for inpatient hospital services deemed not to be reasonable and medically necessary within the same scope as defined in the Ruling, but significantly narrows the circumstances for doing so. In fact, CMS readily admits that the Proposed Rule will “greatly limit the capacity in which a hospital could rebill,” thus offsetting the cost to the Medicare program. The additional limitations not present in the Ruling, but introduced in the Proposed Rule are described below.

As detailed below, CMS’s proposed long term solution is not a fair remedy for hospitals and must be challenged. Hospitals must take advantage of the comment period as well as continue to pursue legal recourse if necessary.

One Year from Service Limitation
The most significant problem with the proposed rule is CMS’ position that Part B claims may only be filed within one (1) year of the beginning date of service, irrespective of any audit or decision on appeal. This severely restricts the availability of CMS’ solution and casts doubt as to its real intention behind the Proposed Rule. If a determination is not made within one year of the beginning date of service (which will be the circumstances in most audit determinations outside of pre-payment review), a hospital will not be able to avail itself of Part B billing in the event that Part A services are found by an auditor to be not reasonable and medically necessary. CMS treats the billing as an original claim, and not as an adjustment.

Hospitals May “Self-Audit” and Rebill
Unlike the interim solution under the Ruling discussed above, the Proposed Rule would allow hospitals that discover inpatient hospital admissions to be not medically necessary in the course of utilization reviews to rebill these claims as Part B if the other requirements of the Proposed Rule are met. CMS anticipates that hospitals will increase “self-audits” and rebill under Part B, saving the Medicare program money by reducing the number of Part A claims. CMS also anticipates lower appeal volumes.

Patient Requirement and Treatment
For a hospital to be allowed to rebill services under Part B, the subject patient must be enrolled in Medicare Part B. The Proposed Rule also requires that any Part A payment collected from the patient be refunded. Additionally, the Proposed Rule contemplates requiring prior notice to patients about possible changes in deductible and cost sharing if Part A payment is denied. Patients would continue to be liable for Part B copayments, the full cost of drugs that are usually self-administered, and Part D coverage (the patient may pursue Part D reimbursement).
A patient’s right to appeal a Part A inpatient admission denial is not extinguished by a hospital’s submission of a Part B claim. If a patient has a pending Part A claim, the hospital may not file a concurrent Part B claim. If the patient’s appeal is not decided within 12 months of the date of service, hospital will not be able to rebill under Part B.

HOSPITAL IMPACT
While CMS purports to address the problem of increasing lengths of outpatient hospitalizations and resolve the piecemeal solution of MACs and ALJs ordering payment as if outpatient services were performed when it is determined that inpatient hospital services are not reasonable and medically necessary, in reality the Proposed Rule will not likely result in these solutions.

First, as noted above, in permitting hospitals to rebill claims as Part B claims if an inpatient hospital claim is denied as not medically necessary under Part A, CMS has expressly created an exception for rebilling observation services; this is not permitted. Therefore, as it is clear that RACs are continuing to aggressively deny hospital “short stay” cases, there is very little incentive for hospitals not to admit beneficiaries as outpatients and order observation services for the first 24-48 hours of each hospitalization, in cases where there beneficiary will require services that can be provided both to “outpatient observation” patients and inpatients (i.e., ongoing monitoring and assessment). This result decreases reimbursement to the hospitals, and increases costs passed along to beneficiaries and does not ensure “accurate” reimbursement.

Moreover, creating a result that ALJs are purportedly stripped of authority to issue “partially favorable” decisions raises significant due process concerns.

The one-year claims filing limitation included in the Proposed Rule would put a hospital between a rock and a hard place – it must decide whether to preemptively accept reduced payment when in fact it is very likely that an ALJ or MAC may find that inpatient hospital services were indeed medically necessary, or to risk losing all payment for medically necessary services rendered to the Medicare patient.

For the reasons described above, the Proposed Rule does not create a meaningful solution for hospitals, and will not result in more “accurate” payments being made to hospitals.

The HLP intends to submit comments to this Proposed Rule. For more information on the information addressed herein, including RACs, the Ruling or Proposed Rule, please contact Abby Pendleton or Jessica Gustafson at (248) 996-8510.

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