The Medicare Appeals Council recently issued two decisions that lend support to the position that providers are entitled to appropriate Part B payments when Part A inpatient services are denied. These decisions build on a longstanding position of the council, outlined in O’Connor Hospital v. National Government Services.

In the O’Connor decision, issued Feb. 1, 2010, the council reinforced its stance voiced in UMDNJ – University Hospital v. Riverbend GBA (March 14, 2005), concluding that hospitals are entitled to Part B reimbursement when Part A reimbursement is denied in inpatient short-stay cases. The council supported that stance by citing provisions of the Medicare Benefit Policy Manual, Medicare Financial Management Manual and Medicare Claims Processing Manual, finding that failure to reimburse a hospital for medically necessary services was inconsistent with Medicare guidance.

The O’Connor decision laid out an important interpretation of manual provisions. The aforementioned two recent council cases, Providence Health Center v. Trailblazer Health Enterprises (June 29, 2012) and Indiana University Health Methodist Hospital v. National Government Services (May 17, 2012) build on that decision in two important ways, though. In Providence the council adopted the ALJ’s unfavorable coverage ruling as it pertains to inpatient admission under Medicare Part A, but directed the contractor to review the services at issue and provide reimbursement on an outpatient basis under Medicare Part B for those services found to be medically reasonable and necessary.

But the significance of this casegoes beyond the order for reimbursement. The council went a step further in awarding coverage of the hospital services under Medicare Part B, as the ALJ had not issued an order for Part B reimbursement, but only determined that the inpatient hospital admission was not medically necessary and that the services could have been furnished on an outpatient basis. In contrast, the ALJ issued a partially favorable decision in the O’Connor case, finding that observation and underlying care was warranted, while the council declined to review that matter, concluding that the ALJ ruling was binding.This distinction is particularly notable because, again, the council in Providence independently directed the contractor to review the services and provide payment under Part B for those found to be medically necessary and reasonable, further illustrating its position in such cases.

The council’s decision in Indiana University also provides important supporting analysis for Part B reimbursement where an inpatient admission is denied. In this case, the council concluded that while the inpatient level of service was not medically necessary, the medical care provided was necessary and appropriate – and qualified for coverage as outpatient services under Part B.

In addition to citing the supporting Medicare manual provisions outlined in O’Connor, the council cited the RAC Statement of Work in ruling that when the RAC determined an overpayment existed, it should have offset the inpatient payment against the allowable outpatient charges rather than deny reimbursement for the full amount of the Part A claim. The decision effectively incorporates the obligations and responsibilities outlined in the RAC Statement of Work as supporting authority for the finding. 

While Medicare Appeal Council decisions do not create binding precedent, they do provide insight into the council’s interpretation of this critical issue for hospitals. As such, it remains crucial for hospitals and health systems to challenge RAC denials of inpatient short-stay cases on the issue of coverage of the inpatient admission under Medicare Part A, as well as alternatively seeking reimbursement under Medicare Part B for outpatient services (including observation and underlying care).

Currently, if a RAC denies coverage of an inpatient admission, the hospital receives no Part B reimbursement for the services provided unless it appeals the claim through the Medicare appeals process. In our appeals experience, Administrative Law Judges across the country have ordered reimbursement for outpatient observation services and underlying care even when it was determined that the inpatient admission was not medically necessary. It is imperative that hospitals advance the legal arguments supporting their rights to reimbursement, or else risk leaving dollars on the table.

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.

Jennifer Colagiovanni is an attorney at Wachler & Associates, P.C. Ms. Colagiovanni graduated with Distinction from the University of Michigan and Cum Laude from Wayne State University Law School. Upon graduation, Ms. Colagiovanni was nominated to the Order of the Coif. Ms. Colagiovanni devotes a substantial portion of her practice to defending Medicare and other third party payer audits on behalf of providers and suppliers. She is a member of the State Bar of Michigan Health Care Law Section.

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Please insert links to the underlined cases above:

O’Connor Hospital MAC decision

Providence Health Center MAC decision

Indiana University Health Methodist Hospital MAC decision

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