On March 13, the Centers for Medicare & Medicaid Services (CMS) released the much-discussed interim rule 1455-NR and proposed rule 1455-P, giving hospitals the opportunity to receive nearly full Part B reimbursement when a Part A payment is denied based on the chosen level of care.

While the proposed rule indicates that hospitals will be bound by the timely filing deadlines and only able to bill for Part B services within one year of the date of service after either a denial or a billing error discovered by the hospital itself, the interim rule allows hospitals with outstanding appeals at any level, from any date of service, and from any contactor to withdraw these appeals and receive payment for all Part B services (except observation hours and a select few other Part B services).

This is in contrast to current regulations that only allow hospitals to bill for a limited number of services (commonly referred to as “ancillary Part B services”) after an inpatient denial. These services are specified in Chapter 6 of the Medicare Benefit Policy Manual and include such items as diagnostic X-rays, arm and leg braces, select vaccines, prosthetic devices (including pacemakers and cardiac stents), and several other uncommon services.

Assessing the Financial Impact

The financial impact of this was especially harsh with denied inpatient admissions for surgery. For example, hysterectomy for non-malignancy can be performed as an inpatient or outpatient procedure. If performed as inpatient, the DRG payment for DRG 742, uterine procedures with CC, is approximately $8,000 while the APC payment for the same surgery performed as outpatient is approximately $2,500. If the hospital performs the surgery as inpatient and is denied, and if the denial is upheld throughout the appeal process, the Part B payment available likely would be less than $200, since few “ancillary” services, if any, were provided.

Under the interim rule 1455-NR, however, this same hospital now is able to evaluate its ability to defend the inpatient status decision and has the option to withdraw its appeal and receive the full APC payment of $2,500.

To Appeal or Not to Appeal

Since the onset of the permanent RAC program, the American Hospital Association (AHA) has reported that only approximately 40-45 percent of all denials have been appealed by hospitals. Some hospitals reported that they did not have the resources to prepare appeals; others reportedly did not appeal out of fear of being audited even more. Others felt that they could not defend their denials adequately. But in reality, the minimum requirements for appealing a denial were quite simple: fill out the form, indicate that the hospital disagreed with the denial (with a simple explanation such as “the physician felt that inpatient status was appropriate”), and file the appeal. There was no evidence that auditors were compiling “hit lists” or that any punitive action was being taken if an appeal was deemed “inadequate.”

Those who follow the online RAC and Case Management forums know that I have been advocating for all hospitals to appeal all denials for a long time. It is well known that the audit process used by CMS, the OIG and other agencies is flawed (see “Who Audits the Auditors?”).

By appealing all denials, I feel that it sends a message to CMS that hospitals are not satisfied with the objectivity of the audit process and that they feel that auditors are incorrectly interpreting CMS regulations. The converse of this actually proved true, as CMS touted in the much-maligned “RAC Myths” document that, “to date, only 2.4 percent of all 2010 claims collected have been both challenged and overturned on appeal. Healthcare providers have appealed 8,449 claims to date, which constitutes 5 percent of all claims collected in FY 2010.” In essence, the agency is claiming that the low number of appeals and overturned denials indicates that hospitals are admitting guilt.

System Overload

I also long have felt that increasing the number of appeals would stress the ability of the auditors to handle the volume of appeals, eventuality resulting in the system “breaking.” But alas, the system broke without the extra appeals. Maximus, the qualified independent contractor (QIC), notified hospitals in late 2012 that it could not meet its deadlines and gave them the option of skipping that level and forwarding the appeal directly to the administrative law judge (ALJ). Then the ALJs became overloaded, receiving more than 5,000 appeals per week, and started remanding cases back to the QIC to determine Part B benefits eligibility before they even would consider the appeals. I am certain that the system overload was a factor in the decision by CMS to develop these new rules.

The Missed Opportunity

And herein lies the missed opportunity. Had hospitals appealed the vast majority of their denials, they now would be able to withdraw those appeals and receive full Part B payment. In other words, they would be able to get paid for the medically necessary care they provided even though they originally may have designated the incorrect admission status. Instead they received no payment at all. I even urged a national hospital advocacy organization to issue a “national call to action,” requesting that hospitals appeal all denials for the reasons outlined above, and even supplying them with data on hospital success at the ALJ level in getting part B awards, but they declined. And now those hospitals that sat back and accepted the denials and their advocacy organization literally are paying the price for the inaction, allowing the Medicare Trust Fund to keep tens of millions of dollars that were rightly earned by those hospitals.

About the Author

Ronald Hirsch, M.D. serves as vice president of physician advisory services (AccretivePAS®) in the Regulation and Education Group (“the REG Specialists”). Prior to his employment at Accretive Health, Dr. Hirsch, a board certified internist and HIV specialist, practiced and served as president at a multispecialty practice in Illinois, and medical director of case management at Sherman Hospital in Elgin, Ill.

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