In an attempt to mitigate the growing backlog of appeals and the attending strain on adjudicative resources, the Centers for Medicare & Medicaid Services (CMS) are offering an administrative agreement to certain providers.

CMS will pay 68 percent of the net payable value of a denied eligible claim in exchange for a hospital’s acceptance of the administrative agreement as the full and final administrative and legal resolution of the claim.    

CMS defined the “net payable amount” as including the DRG value and add-ons and excluding deductibles, co-insurance, and out-of-pocket obligations included in “gross” or “allowable” amounts. If a hospital elects settlement, one lump-sum payment (per 6-digit provider number or per owner/operator of multiple settling hospitals) will be made. Further, CMS has agreed to “timely” payment, that is, payment will be issued to the hospital within 60 days of the date of the last signatory to the agreement.

CMS cautions hospitals that the payment is payment in full by Medicare. In other words, CMS will not pay 935 interest to hospitals on claims included in the agreement. However, CMS will pay interest to a hospital for the period beginning on day 61 through the date CMS makes payment to the hospital in accordance with the settlement agreement. 

Despite CMS’ educational teleconference on Sept. 9, 2014, providers have many unanswered questions. With an imminent opt-in date of October 31, 2014, hospitals should review their claim inventories and thoughtfully consider whether this one-size-fits-all settlement is truly the best fit for them.

Who can participate?

Only eligible hospitals can opt-in to the settlement process. Eligible hospitals are those defined by §1886(d) or §1820(c) of the Social Security Act, being acute care hospitals (including those paid via prospective payment system, periodic interim payment, and Maryland waiver) and critical access hospitals. Psychiatric hospitals paid under the inpatient psychiatric facilities prospective payment system, inpatient rehabilitation facilities, long-term care hospitals, cancer hospitals, and children’s hospitals are expressly ineligible from participating in the settlement process. Otherwise eligible providers can nevertheless be excluded should False Claims Act litigation or investigations be pending. 

Which claims are eligible?

CMS defines an “eligible” claim as one that meets all of the following seven criteria:

  • The claim was denied by an entity which conducted a review on behalf of CMS (for example, a Medicare Administrative Contractor (“MAC”), Recovery Audit Contractor (“RAC”), Comprehensive Error Rate Testing Contractor (“CERT”), or Zone Program Integrity Contractor (“ZPIC”));
  • The claim was not for items or services furnished to a Medicare Part C enrollee;
  • The claim was denied based upon an inappropriate setting determination (a “patient status” denial);
  • The first day of admission was before Oct. 1, 2013;
  • The hospital timely appealed the denial;
  • As of the date the administrative agreement is executed by the hospital and submitted to CMS the claim was either (1) still pending at the MAC, QIC, ALJ, or DAB; or (2) the hospital had not yet exhausted its appeal rights at the MAC, QIC, ALJ, or DAB level; and
  • The hospital did not receive payment and/or bill for the service as a Part B claim.

In a teleconference held Sept. 9, 2014, CMS emphasized that a claim must be denied due to “patient status” to be eligible for the administrative agreement. In providing examples CMS clarified that a denial on grounds that the services were reasonable and necessary but could have been provided in an alternate care setting is a “patient status” denial. Whereas, a denial on grounds that the services provided were not medically reasonable and necessary in any setting; or a denial on grounds of insufficient documentation of conservative treatment prior to a surgical procedure; or a coding denial or lack of documentation denial are not “patient status” denials and are ineligible for the agreement. In its teleconference CMS indicated that in its next teleconference it would clarify the seventh criteria, as to whether ineligible claims are those which were rebilled for Part B payment, or claims in which Part B payment has actually been received. 

In exchange for the partial payment, the hospital must agree to a dismissal of all eligible claims. A provider cannot select certain eligible claims for settlement and not others. Any eligible claims not included in the hospital’s initial claim spreadsheet or ineligible claims improperly included by the hospital will be identified and addressed by CMS contractors through a claim reconciliation process. 

How and when to participate?

To participate in the proposed settlement, the eligible hospital must opt-in to the process by emailing a settlement request to CMS on or before Oct. 31, 2014. A settlement request is comprised of the hospital’s signed administrative agreement and spreadsheet of eligible claims. Hospitals are cautioned to submit a separate signed settlement agreement and eligible claim spreadsheet for each 6-digit provider number, also known as the provider’s CCN, OSCAR, or PTAN number. Settlement Instructions, the administrative agreement, and template eligible claim spreadsheet are located on CMS’ Inpatient Hospital Reviews website.

Although CMS encourages providers to submit their settlement requests by Oct. 31, 2014, CMS has offered providers who cannot meet this deadline the option of requesting an extension from CMS. Notably, however, CMS has not addressed whether or under which circumstances requests for extension will be granted. Providers wishing to capitalize on the settlement proposal would be prudent to submit their settlement requests before the Oct. 31, 2014, deadline.

What are the steps of the settlement process?

Once a hospital submits a settlement request, the settlement enters a multi-round “validation” period in which CMS and its contractors review and reconcile the data against their own information. 

In the first round of validation, for all agreed-upon claims the appropriate contractor will apply the 68 percent partial payment and send its claims list and settlement value to the hospital for final review. The hospital can then either confirm the list and notify CMS of its intent to proceed with settlement (in which case CMS will countersign the agreement, payment will be effectuated, and the associated appeals will be dismissed) or, notify CMS of the hospital’s intent to abandon the settlement (in which case the eligible claims will fall back into queue and the administrative stay on the claims will be lifted.) Importantly, providers with claims at multiple stages in the administrative appeals process might receive multiple lists, as claims pending at redetermination will be validated by the provider’s assigned MAC, claims pending at reconsideration will be validated by the AdQIC, and claims pending before the ALJ or DAB will be statistically sampled by the AdQIC.


If CMS identifies discrepancies in the hospital’s spreadsheet of eligible claims, but the hospital wishes to proceed with settlement, all agreed-upon claims will be the subject of an initial agreement, payment will be made on the agreed-upon claims and the agreed-upon claims will be dismissed. Any disputed claims will proceed to a second round of validation. Although CMS indicates that a provider may “abandon the settlement process at any point prior to a fully executed administrative agreement,” hospitals must be mindful that their decision to proceed with the “initial administrative agreement” is binding and final upon all claims subject to the initial agreement. In other words, if an initial administrative agreement is signed by the parties but the hospital wishes to abandon the settlement process, the hospital may only opt-out as to the disputed claims subject to the second round of validation.

In the second round of validation, CMS will provide the hospital with a statement of discrepancies. The hospital will have only 14 days from receipt of CMS’ statement(s) to review and submit a revised spreadsheet to CMS for validation. If CMS’s data matches the hospital’s revised spreadsheet a settlement agreement will be signed, payment will be effectuated, and the affected appeals will be dismissed. If discrepancies in the data remain, CMS and the hospital will conduct further discussions until the parties are in agreement as to the remaining claims.

Although CMS has not imposed any definitive time limits on itself or its contractors in completing the validation reviews, CMS anticipates that round one and round two review periods can be completed within 31 days. Furthermore, in executing the agreement CMS and the hospital agree to “promptly” resolve disputes. Should a hospital elect the settlement offer, it must remain vigilant and fully prepared to respond to CMS, as a hospital has only 14 days in which to receive, review, and respond to CMS’ statement(s) of discrepancies. 

There are many unanswered questions for hospitals unable to respond within 14 days of receipt of the statement(s) of discrepancies. For example, is a hospital’s failure to timely respond fatal to settlement on the remaining claims? Would the disputed claims automatically fall back into queue for appeal, or would the disputed claims be automatically subject to 68 percent settlement? Can a hospital submit a request for extension and, if so, under what circumstances would a request be granted? What, if any, other repercussions might befall a hospital failing to timely respond?

The third (and likely final) round of validation is a reconciliation process by which the ALJ or DAB will request CMS action in the event that errors are identified in the agreed-upon settlements. For example, if the ALJ or DAB identified claims ineligible for settlement inadvertently included in the agreement, the ALJ or DAB will request CMS recoup monies on ineligible claims. Or, the ALJ or DAB will request CMS pay providers the appropriate settlement sum for eligible claims inadvertently omitted from the agreement. Again, many questions remain unanswered for providers. May hospitals voluntarily request reconciliation of self-identified errors, or may only the ALJ or DAB identify errors and request CMS’ corrective action? How long do ALJs or DABs have after identification of the error to request corrective action?

What effect does a settlement request have on my pending appeals?

By submitting a settlement request, all eligible claims are automatically stayed as of the date of the submitted settlement request. In its September 9, 2014, teleconference, CMS clarified that the administrative stay also extends to claims included in the initial eligible claim spreadsheet later determined by CMS through the validation process to be ineligible for the settlement. In such a circumstance, on the date CMS determines the claim is ineligible for settlement, the stay would lift as to the ineligible claim and appeal deadlines on the claim would continue to accrue. We urge hospitals facing imminent appeal deadlines to continue to file and perfect their appeals while they determine whether or not to elect the settlement offer. Imminent appeals should be perfected so that no deadlines will run if and when a hospital opts out of the settlement or a claim is rejected through the validation process.

Should I opt in?

CMS strongly encourages eligible providers to opt in to the process to alleviate the significant and still growing backlog of appeals. However, whether the settlement is in the provider’s best interest depends on a variety of factors worthy of careful consideration. By way of example, here are a few:

The strength of a provider’s pending appeals and the provider’s ideology in pursuing appeal greatly affects the attractiveness of CMS’ offer. Providers who selectively appealed cases with a reasonable likelihood of success on the merits are essentially agreeing to 32 percent reduction in reimbursement (not including 935 interest). Contrastingly, providers with an indiscriminate appeal philosophy are promised guaranteed reimbursement at 68 percent of the net payable amount.

Hospitals should also consider the services provided and estimate the anticipated payment differential between 68 percent of the net value and the Part B rebilling value. For example, a hospital will likely receive greater reimbursement for a surgical implant claim by withdrawing its pending appeal and rebilling under Part B, rather than proceeding to settlement on 68 percent of the net payable amount. Medical and surgical DRG claims without surgical implants may likely fare better under the 68 percent agreement. Although electing the settlement is optional, a provider must include all eligible claims in the settlement. Therefore, the number of surgical implant claims should be considered as well.

Hospitals should also weigh the 935 interest and value of Part B rebilling they will forfeit, against the time-value and certainty-value of the settlement offer. By proceeding with settlement, a hospital forfeits its 935 interest value on favorable claims and Part B rebilling values on unfavorable claims. These values may be substantial and more favorable than 68 percent of the net payable amount. For example, based upon our discussions with CMS, if 935 interest accrues at approximately 11 percent pro rata per 30 days at the time CMS begins recoupment and a hospital receives a favorable ALJ decision after three years of recoupment, the hospital would be entitled to approximately 133 percent of the favorable claim value, as opposed to 68 percent of the claim value through settlement. In this scenario, a hospital would experience almost a 50 percent reduction in claim value. In exchange for settlement, however, hospitals can expect timely reimbursement within 60 days of a fully executed agreement at a 68 percent net payable value. Additionally, according to the answer to a question posed during CMS’ September 9 teleconference, if CMS has collected interest from the hospital related to any eligible claim included in the agreement, the hospital will be repaid. If the hospital has not yet paid interest to CMS related to any eligible claim included in the agreement, the interest will be reduced to zero. 

Also, by settling its eligible claims a hospital avoids incurring the necessary costs in pursuing appeal, which often include internal personnel time and resources, external expert fees, and attorneys’ or consultants’ fees and costs.

As the opt-in date of Oct. 31, 2014 quickly approaches, eligible hospitals are encouraged to review their claims early and expeditiously and thoughtfully consider whether CMS’ settlement offer is truly in their best interest.

About the Authors

Andrew B. Wachler is the managing partner of Wachler & Associates, P. C. Mr. Wachler has been practicing healthcare law for more than 25 years. He counsels healthcare providers and organizations nationwide in a variety of healthcare legal matters. In addition, he writes and speaks nationally to professional organizations and other entities on healthcare law topics such as Medicare appeals, Stark, fraud and abuse, and HIPAA. Mr. Wachler is a member of the RACmonitor editorial board.

Erin Diesel Roumayah is an associate attorney at Wachler & Associates, P.C.  Ms. Roumayah represents healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.  A substantial portion of her practice is dedicated to the successful defense of health care entities at all states of the administrative appeals process.

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