Two proposed documents issued by The Centers for Medicare & Medicaid Services (CMS) yesterday offer both good and — and perhaps contradictory— bad news for providers reconciling inpatient and outpatient claims.

First the good news. In what appears to be a major policy reversal CMS has issued a ruling that hospitals whose Part A claims have been denied in the past as being unnecessary will now be entitled to Part B payment.

The CMS Ruling — effective March 13, 2013 and binding on all recovery auditors— is what the agency describes as “an interim measure until CMS can address issues raised by the Administrative Law Judge and decisions made by Medicare Appeals Council.”

“The ruling says that when inpatient status is rejected, a hospital has 180 days — from whenever the hospital learns of the denial — to submit a bill for outpatient services,” David M. Glaser, a principal in the law firm of Fredrikson and Byron, said.

If a RAC concludes an inpatient stay was not necessary, the hospital has 180 days to bill for an outpatient stay, Glaser explained. 

“Alternatively, the hospital can appeal the RAC decision,” Glaser asserted.  “If the hospital loses its appeal, the hospital has 180 days from the loss of the appeal to bill for outpatient stay.” 

Glaser’s understanding of the ruling is that if a hospital agrees with a RAC or MAC denial of inpatient status, there will be no need to file an appeal.

“The hospital will be able to simply bill Part B for the outpatient status,” Glaser said.  “It should go without saying that if the hospital does disagree with the audit, and elects to appeal, the hospital should not bill for Part B services unless or until the hospital loses the appeal.” 

Under Pressure to Respond

Pressure has been mounting over the last several years for CMS to change its policy regarding inpatient versus outpatient status. In November of 2012, the American Hospital Association (AHA) filed a lawsuit against the U.S. Department of Health and Human Services that challenged HHS’ refusal to reimburse hospitals for what the AHA stated was “reasonable and necessary care” that recovery audit contractors later decided could have been provided in an outpatient setting.

“(This comes) in response to the increasing number of Administrative Law Judge (ALJ) and Medicare Appeals Council (Appeals Council) decisions upholding the Medicare review contractor’s determination that the inpatient admission was not reasonable and necessary, but ordering Medicare to issue payment for all Part B services, including observation and all underlying care,” Andrew B. Wachler, principal of Wachler & Associates told RACmonitor in a written statement. 

The CMS proposed rule entitled, “Medicare Program; Part B Inpatient Billing in Hospitals,” proposes a permanent policy that would apply on a prospective basis and appears to address the significant number of pending appeals of Part A hospital inpatient reasonable and necessary denials. 

“Our discussions with CMS have confirmed that pursuant to this revised policy,” Wachler said. “CMS will pay for Part B therapeutic as well as diagnostic services during the inpatient stay and the outpatient services furnished during the 3-day (or 1-day for non-IPPS hospitals) payment window prior to the inpatient admission, including observation and other services.” 

Wachler, as well as others, have been working with CMS to obtain meaningful relief from CMS’s current policies regarding obtaining Part B payment when Part A services are denied as not medically necessary or wrong setting.

The Not-So Good News

“Although the CMS’s interim ruling provides some relief and waives timeliness of filing requirements with regard to the billing of Part B claims, the proposed rule, if it becomes final in its current form, would not allow hospitals to bill for Part B services if the services were billed later than one year from the date of service,” Wachler said.

According to Wachler, if the RAC waits one year until denying the claim or one-year elapses from the date of service while the hospital is in the appeals process the hospital will not get any relief.

Further the administrative law judges would be prohibited from ordering payment for Part B services including observation and underlying care under the proposed rule, Wachler noted.

“However, as reflected in a fact sheet concurrently issued by CMS, this revised policy appears to differ significantly from the uniform approach taken in at least 18 Appeals Council decisions dating back to 2005 on the issue of subsequent Part B billing following the denial of a Part A hospital inpatient claim,” Wachler said.  “For example, pursuant to CMS’ Proposed Rule and Administrator’s Ruling, services that require an outpatient status, such as observation services, will not be reimbursed for the time period the beneficiary spent in the hospital as an inpatient. 

Wachler added that any subsequent Part B claims filed after a Medicare review contractor denies Part A will be subject to the statutory timely filing deadline and will be denied if filed more than 12 months after the date of service.

“CMS’ Administrator’s Ruling establishes a standard process for handling pending appeals and billing for Part B services while the proposed new policy goes through notice and comment making,” Wachler said.  “This Ruling appears to limit the authority of ALJs and the Appeals Council when reviewing these and other, similar cases.  According to the Ruling, if a hospital submits an appeal of a determination that a Part A inpatient admission was not reasonable and necessary, the only issue before the adjudicator is the appropriateness of the Part A claim, not any issue regarding any potential Part B reimbursement.”

“The Medicare Part A to Part B Demonstration has been terminated,” Steven J. Meyerson, MD, with Accretive Physician Advisory wrote to its clients. “Hospitals will now have the opportunity to be paid 100 percent of the part B services rather than 90 percent under the terms of the rebilling demonstration.”

CMS considers this ruling an interim measure pending a Final Rule on the subject. CMS will publish a Proposed Rule in the Federal Register entitled, “Medicare Program; Part B Inpatient Billing in Hospitals,” to establish a permanent policy to replace this ruling. Proposed rules are just that: proposed. and healthcare professionals have a 60-day opportunity to comment.

 “What CMS giveth, CMS taketh away, ” Wachler said.



CMS Administrative Ruling

Proposed Rule: Medicare Program; Part B Inpatient Billing in Hospitals


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