In its latest attempt to mitigate the ever-growing Medicare appeals backlog and respond to provider and stakeholder cries for relief from the financial strain of claims stuck in stasis for years, the Centers for Medicare & Medicaid Services (CMS) has elected to reopen a modified version of the 2014 hospital appeals settlement process colloquially known as the “68-percent settlement.”

The 2014 settlement offered eligible hospitals 68 percent of the net-allowable amount of eligible inpatient status claims in exchange for the hospitals agreeing to the withdrawal and dismissal of their pending administrative appeals. The settlement resolved approximately 346,000 claims through agreements with 2,022 hospitals. In sum, CMS paid hospitals $1.47 billion through executed settlement agreements.

The new process, the 2016 hospital appeals settlement process, similarly allows eligible hospitals to enter into a settlement agreement with CMS. In contrast to the 2014 settlement, participating hospitals will now receive 66-percent payment of the net allowable amount of the settled claims.

Despite the minor reduction in the payment as compared to the 2014 settlement, CMS intends the 2016 version to be an attractive offer for hospitals seeking a prompt resolution to their pending inpatient-status appeals.

Similar to the 2014 settlement, acute-care hospitals (including those paid via the Inpatient Prospective Payment System (IPPS), periodic interim payments, and the Maryland waiver) and critical access hospitals are eligible for the new process, but 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 not eligible. Otherwise eligible hospitals can nevertheless be excluded due to False Claims Act litigation or investigations. 

Eligible claims are those that satisfy all of the following criteria:

  1. The claim was denied by an entity that conducted a review on behalf of CMS;
  2. The claim was not for items or services furnished to a Medicare Part C enrollee;
  3. The claim was denied based on an inappropriate setting determination (i.e. a “patient status” denial for service that might have been reasonable and necessary, but treatment on an inpatient basis was not);
  4. The first day of the admission was before Oct. 1, 2013;
  5. The hospital appealed the denial in a timely fashion;
  6. As of the date of an executed settlement agreement submitted to CMS by the hospital, the appeal decision was still pending at the administrative law judge (ALJ) or the Medicare Appeals Council levels of review, or, the hospital had not yet exhausted its appeal rights at the ALJ or Council level; and
  7. The hospital did not receive payment for the service as a Part B claim.

In large part, CMS adopted the same claim eligibility criteria as that of the 2014 settlement, with exception to criteria Nos. 6 and 7. Under the 2014 settlement, as of the date of an executed settlement agreement submitted to CMS by the hospital, a claim must have been pending at the Medicare Administrative Contractor (MAC), Qualified Independent Contractor (QIC), ALJ, or Council level – or, the hospital must not have yet exhausted its appeal rights at these levels. The 2016 settlement restricts eligibility to claims for which the appeal decision is still pending at the ALJ or Council levels only – or, the hospital must not have yet exhausted its appeal rights at the ALJ or Council levels. In modifying this criterion, CMS explained that there are no patient status claim denial appeals with dates of admission prior to Oct. 1, 2013 at the MAC or QIC levels of appeal. Secondly, under the 2014 settlement, for a claim to be eligible, the hospital could not have received payment or billed for the service as a Part B claim. Under the 2016 settlement, claims that have been rebilled as Part B, but for which the hospital hasn’t yet received payment, are still eligible.

The 2016 settlement differs from the 2014 settlement in important procedural respects as well. First, to request participation in the 2014 settlement, hospitals had to compile a proposed list of eligible claims and submit the list to CMS for review and verification. Under the 2016 settlement, hospitals need only submit a signed expression of interest form and CMS will prepare the proposed list of eligible claims for the hospital to review and verify. Secondly, hospitals may recall that the 2014 settlement had multiple claim validation and payment phases. In the first round of validation, all agreed-upon claims were paid, and any disputed claims proceeded to a second and potentially third phase for validation and payment. The 2016 settlement contemplates only one round of claim validation and payment.

The 2016 settlement will be opened to hospitals beginning on Dec. 1, 2016. To participate, hospitals must submit an expression of interest form no later than Jan. 31, 2017. Following receipt of the form, CMS will prepare and send the hospital a spreadsheet identifying the hospital’s list of eligible claims and an administrative agreement. The provider must respond within 15 days or it will be considered to have abandoned the settlement process. If a provider agrees with the spreadsheet of claims, the provider must respond by signing and returning the administrative agreement to CMS. If a provider does not agree with the spreadsheet of claims, the provider must respond by submitting an eligibility determination request to CMS, in which case the provider and CMS will then have 30 days to resolve any discrepancies. If the discrepancies are resolved, the hospital will then sign the administrative agreement and return it to CMS for counter-signature. The hospital’s MAC will then have up to 180 days to effectuate the agreement and make payment on the settled claims. At any time prior to signing the administrative agreement, the hospital may withdraw from the settlement, and the claims will remain in the administrative appeal process.

Hospitals with pending patient status appeals should evaluate their claims for this settlement opportunity while keeping in mind a variety of factors. First, hospitals should consider their past history of ALJ wins and losses while considering that, according to a May 2016 Government Accountability Office report, the percentage of Part A favorable rulings on appeal by ALJs have dropped in recent years, meaning that Part A providers heading to an ALJ hearing today may fare less favorably than Part A providers who proceeded to an ALJ hearing in years past. Additionally, hospitals with an indiscriminate appeal philosophy may fare more favorably under a guaranteed 66-percent payment on all eligible claims, as opposed to the uncertainty of administrative hearing, wherein favorable rulings on appeal with ALJs range from 18 to 85 percent. Lastly, similar to the 2014 settlement, hospitals should consider the value of 935 interest they waive by participating in the settlement. 935 interest derives its name from Section 935 of the 2003 Medicare Prescription Drug, Improvement and Modernization Act, which requires CMS to pay interest to providers and suppliers in post-payment overpayment matters. CMS has advised that it will not pay providers 935 interest on claims under appeal and that the 66-percent payment is payment in full.

Depending upon how long a hospital’s appeals have remained pending in the appeals process, the value of 935 interest to which a hospital is entitled may be substantial.  For example, assume that 935 interest accrues at the current rate of 9.75 percent on a $100,000 claim that has been involuntarily recouped while a provider waited three years prior to receipt of a fully favorable ALJ decision. In this scenario, the provider could anticipate approximately $29,250 in interest on the $100,000 claim. By participating in the 2016 settlement, the provider waives $29,250 in interest on top of the $34,000 waived through settling the face value of the claim at a 34-percent loss. Additionally, hospitals should consider the costs involved in continuing to pursue appeals, which often includes expert fees, attorney fees, and internal personnel time and resources.

In the coming weeks, hospitals with eligible appeals should begin weighing the costs and benefits of participating in the 2016 settlement, as the cutoff date of Jan. 31, 2017 is quickly approaching. Further details and instructions pertaining to the settlement are currently available on the CMS website.

Providers should anticipate additional information to be made available at an MLN Connects National Provider Call scheduled for Nov. 16, 2016. 

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.

Erin Diesel Roumayah is an associate attorney at Wachler & Associates, PC. Ms. Roumayah represents healthcare providers and suppliers in Medicare, Medicaid, and third party payer audits. She devotes a substantial portion of her practice representing healthcare providers and suppliers in the audit administrative appeals process.  In addition, Ms. Roumayah represents healthcare providers in regulatory compliance matters and healthcare litigation. Ms. Roumayah graduated from Wayne State University Law School.

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