On Aug. 2, the Centers for Medicare & Medicaid Services (CMS) released CMS-1455-F, finalizing several proposed changes in the agency’s policies regarding payment for hospital inpatient services provided under Part B, Medicare’s inpatient admission guidelines, and medical review criteria for inpatient stays.

The effective date of this final rule is Oct. 1. However, hospitals will be permitted to follow the Part B billing timeframes established in the CMS-1455R ruling regarding appeals and the submission of Part B claims after the effective date of the final rule, provided that a) the Part A inpatient claim denial was one to which the ruling originally applied or b) the Part A inpatient claim has a date of admission before Oct. 1 and is denied after Sept. 30 — on the grounds that the medical care was reasonable and necessary, but the inpatient admission was not. 

Payment of Medicare Part B Inpatient Services

As part of this final rule, CMS will implement the proposal in CMS-1455-P to allow hospitals to receive Part B payment if an inpatient admission is determined to be not reasonable and/or necessary after discharge, provided that the beneficiary is enrolled in Medicare Part B. This Part B payment excludes certain services specifically requiring an outpatient status, such as observation services, outpatient DSMT, and hospital outpatient services, including certain emergency department visits. However, CMS will not exclude therapy services from Part B inpatient payment, as previously proposed.

Despite strong opposition, CMS also finalized its proposal to apply the one-calendar year time limit from the date of service to the billing of Part B inpatient services (more than 300 commenters on the proposed bill regarding Part B Inpatient Billing objected to this, while only one commenter was in support). As noted by the commenters voicing opposition, RACs may audit claims with dates of service within the prior three years, and claims typically reviewed by the RACs often are more than one year old. This one-calendar year time limit to file for Part B services almost certainly will expire before RAC reviews of Part A inpatient claims are completed, leaving most, if not all, of any given hospital’s denied Part A claims ineligible for re-billing.  However, CMS declined to create an exception to the one-calendar year time limit to file claims, stating that the changes to inpatient admission guidelines as well as the new definition of “inpatient” found in this final rule will provide more clarity, allowing hospitals to bill correctly. 

CMS also took the position that the Part B inpatient billing process will promote timely self-auditing and push Part B billing closer to the dates of service. However, a hospital’s ability to self-audit may be hampered if, as CMS seemed to suggest in certain comments, the self-audit process has to conform to the utilization review rules under the conditions of participation (CoPs), most notably those rules governing physician concurrence, beneficiary notification, and other aspects related to continuation of an inpatient stay. Hospitals often conduct internal reviews other than utilization reviews, and a number of commentators asked CMS if an inpatient stay could be re-billed if an error is discovered as part of those internal reviews. In response, CMS stated that “we did not propose and are not finalizing a policy that would allow hospitals to bill Part B following an inpatient, reasonable-and-necessary self-audit determination that does not conform to the requirements for utilization review under the CoPs.”  Instead, “hospitals must follow (agency) policies requiring physician involvement and concurrence in hospital decisions regarding patient status and the medical necessity of hospital inpatient admissions under the Condition Code 44 rules and the CoPs.” The implications of these comments are unclear. 

Admission and Medical Review Criteria for Payment of Hospital Inpatient Services under Medicare Part A

CMS also finalized proposed revisions and clarifications to its definition of an appropriate inpatient admission and its medical review criteria for payment of hospital inpatient services under Medicare Part A; such criteria are contained in the agency’s proposed inpatient prospective payment systems (IPPS) rule for the 2014 fiscal year. CMS’s previous guidance provided for a 24-hour benchmark, instructing physicians that, in general, beneficiaries who are expected to need to stay at a hospital for less than 24 hours should be treated as outpatients while those expected to require care lasting greater than 24 hours usually may be treated as inpatients. 

CMS’s revised admission guidance changed the inpatient admissions benchmark from an hourly expectation (24 hours) to a daily (two midnights) expectation. This is consistent with the agency’s application of Medicare utilization days, which are defined by the number of midnights that pass. In addition to the two-midnight benchmark, the final rule also incorporates a two-midnight presumption. Under this presumption, inpatient hospital claims with lengths of stay greater than two midnights after the formal inpatient admission order is issued generally will be presumed appropriate for Part A payment and will not be the focus of medical review efforts absent evidence of systematic gaming, abuse or delays in the provision of care in an attempt to qualify for the presumption. For inpatient stays of less than two midnights after admission, such claims would not be subject to the presumption that services were provided appropriately during an inpatient stay (rather than an outpatient stay) because the total inpatient time did not exceed two midnights. However, upon medical review, the time spent as an outpatient will be counted toward meeting the two-midnight benchmark, and the physician is expected to apply this in order to determine the appropriateness of the decision to admit. In other words, if an inpatient admission only lasted one Medicare utilization day, for example, medical reviewers will consider the fact that the beneficiary received services in the hospital for greater than two midnights following the onset of care when making a determination of whether the inpatient stay was reasonable and necessary. 

The final rule also clarified the requirements for physicians’ orders, physicians’ certifications, verbal inpatient admission orders, and the authorization to admit to inpatient.  CMS stated that a physician’s inpatient admission orders must be present in the medical record, supported by the physician’s admission and progress notes and the physician’s indication that services are required to be rendered on an inpatient basis. CMS also stated that physicians must certify that their services were provided in accordance with applicable law, at the beginning of inpatient care and before discharge, and each separate certification must be entered on forms, notes, and/or records with the appropriate physician’s signature. With respect to verbal inpatient admission orders, CMS explicitly stated that if the physician’s order is not in the medical record, the hospital should not submit a claim for Part A payment. However, CMS did note that it will continue to discuss and develop its requirements regarding verbal orders. Finally, with regard to the authorization to admit as an inpatient, CMS indicated that practitioners who are not responsible for inpatient care of the beneficiary, but who are otherwise qualified (and have staff privileges) to admit patients at that hospital and are knowledgeable about the case may order inpatient admission. Specifically, CMS added that such a practitioner should be knowledgeable about the patient’s hospital course, medical plan of care, and current condition.


Also of note is that the final rule addressed concerns regarding the three-day inpatient requirement for beneficiaries to receive Part A skilled nursing facility (SNF) coverage and the requirements for inpatient rehabilitation facility (IRF) orders. CMS clarified the existing rule, stating that as long as beneficiaries have a three-day inpatient stay (under Part A or Part B) and the stay is medically necessary, the beneficiary will receive SNF coverage. With regard to the IRF orders, although the required physician orders outlined in this rule apply to all hospital admissions, including admission to an IRF, IRFs have additional requirements that must be met. Due to the inherent differences in the operation of IRFs and beneficiary admission to them, such providers are excluded from the two-midnight admission guidelines and medical review instruction.

Before the effective date of Oct. 1, hospitals should consider investing in compliance efforts such as regulation analysis, training, and policy revision.

About the Authors

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payer audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topics.

Jesse Adam Markos is an attorney at Wachler & Associates, P.C.  He graduated Magna Cum Laude, from Wayne State University Law School in 2008 where he served on the Wayne Law Review and was nominated to the Order of the Coif.  He attended law school on a full academic scholarship as a Dean’s Scholar and Lombard Leadership Fellow and graduated fifth in his class.  Mr. Markos graduated with distinction from Western Michigan University in 2004. 

Michael Bossenbroek is an attorney at Wachler & Associates, P.C. Mr. Bossenbroek primarily represents healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid, and third party payer audits. Mr. Bossenbroek graduated Magna Cum Laude from Wayne State University Law School in 2005 where he was elected to the Order of the Coif and served on the Wayne Law Review as a Senior Articles Editor and an Associate Editor.

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