On March 13, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule and a ruling that significantly revised Medicare’s Part B payment policy when a Part A hospital inpatient claim is denied as not medically necessary because care was not provided in the appropriate setting. The CMS ruling (CMS-1455-R) was issued to address the significant number of pending appeals of Part A hospital inpatient “reasonable and necessary” denials, while the new proposed rule, titled Medicare Program: Part B Inpatient Billing in Hospitals (CMS-1455-P), proposes a permanent policy that would apply on a prospective basis. The CMS ruling became effective upon issuance and will remain in effect until the proposed rule becomes final, either in its current form or incorporating revisions as a result of the notice and comment period.

While the CMS interim ruling and proposed rule permit a hospital to submit a Part B claim for more services than what are listed in Chapter 6, Section 10 of the Medicare Benefit Policy, they both also explicitly state that services requiring an outpatient status, such as observation services, will not be reimbursed for the time period in which the beneficiary was admitted as an inpatient in the hospital.

Following the issuance of the interim ruling and proposed rule, there remained lingering questions regarding the implementation of both. On March 22, CMS issued Change Request 8185, titled CMS Administrator’s Ruling: Part A-to-Part B Rebilling of Denied Hospital Inpatient Claims. The change request implements the CMS ruling and provides some specific guidance for contractors with regard to accepting inpatient claims rebilled from Part A to Part B. However, again, questions still remain as to the process and timing for submitting Part B inpatient claims – and, perhaps most concerning, whether the Medicare Administrative Contractors are ready to address these claims.

The change request begins with a description of the March 13 CMS announcements, followed by a more detailed explanation of the CMS ruling. The change request reiterated the ruling’s statement that a hospital may submit a Part B inpatient claim for payment for services that would have been reimbursed had the beneficiary been treated as an outpatient rather than an inpatient (except for those services that, according to CMS, specifically require an outpatient setting). This includes outpatient visits, emergency department visits and observation services. Also, for cases in which no Part A payment is made because the Part A inpatient claim is denied as not medically necessary, hospitals may bill separately for outpatient services provided during the three-day window prior to inpatient admission. For example, if an entire emergency department visit preceded the inpatient admission order, the services provided during that visit may be billed separately on a Part B outpatient claim.

In addition, the change request restates language from the CMS ruling and proposed rule indicating that an appeals adjudicator’s scope of review is limited to the determination of whether the Part A inpatient admission is reasonable and necessary (meaning the adjudicator cannot determine an issue regarding any potential Part B claim that the hospital had not yet submitted). It also explains that the CMS ruling only applies to claim denials by a Medicare review contractor and does not extend to inpatient admissions in which the hospital itself deemed services not reasonable and necessary through methods such as utilization review or self-audits. Furthermore, the change request orders that hospitals wishing to submit a Part B inpatient claim must submit a withdrawal of pending Part A claim appeals to the adjudicator with whom an appeal is pending. If a hospital receives a denial of a Part B inpatient claim from a contractor, it may appeal the denial of that claim through the standard appeals process.

Regarding any Part B inpatient claims while the CMS ruling is in effect, the change request instructs hospitals to submit the claims with the condition code W2. Through the use of this condition code, “the hospital acknowledges that the Part B claim is a duplicate of the previously denied Part A claim, that no payment shall be made with respect to the items or services included on the Part A claim, and that any amounts collected from the beneficiary with respect to the Part A claim will be refunded to the beneficiary,” according to the language of the change order. The order also explains that the inclusion of “W2” on the claim signifies the hospital’s attestation that there are no pending appeals of the previously submitted Part A claim, and that any previous appeal ruling on the Part A claim is final or binding (or has been dismissed, and that no further appeals will be filed on the Part A claim). Contractors are instructed, subject to the CMS ruling, to reject any inpatient Part B claims that do not include condition code W2.

A very relevant question with regard to the change request is whether the Medicare Administrative Contractors are prepared for the influx of inpatient Part B claims that they may receive as a result of the CMS ruling. The change request states that the effective date is March 13, or the date the ruling was released. The implementation date of the change request is July 1, however, according to CMS, hospitals may submit their claims before that date. Even once the change request is implemented, however hospitals should monitor the status of their inpatient Part B claims closely in order to track the contractor’s progress on reimbursing the claims. Although the contractors should be prepared to receive these claims, experience with contractors teaches us to keep a close eye on their progress.

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 payor 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.

Jessica C. Forster is an associate at Wachler & Associates, P.C.  Ms. Lange dedicates a considerable portion of her practice to defending healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.  Her practice also includes the representation of clients in Stark, anti-kickback, and fraud and abuse matters.

Kevin Miserez is an associate at Wachler & Associates, P.C.  Mr. Miserez dedicates a substantial portion of his practice to representing healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.

Contact the Authors




To comment on this article please go to editor@racmonitor.com

Change Request 8185 is available online at http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R1203OTN.pdf.

MLN Matters Article (MM8185) is available online at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/Downloads/MM8185.pdf.

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