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Interim Part B rebilling rule is step forward, but longer-term proposal troubles the AHA

March 22, 2013

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Expressing concern about the limited scope of a Centers for Medicare & Medicaid Services’ (CMS) proposed rule on Medicare Part B rebilling, the AHA said last week that it will push forward with its lawsuit challenging the agency’s policy of denying payment on hospital claims because they were provided in an inpatient, rather than outpatient setting.

CMS last week issued an interim administrative ruling and a proposed rule revising its policy on rebilling claims denied by Medicare contractors, including recovery audit contractors (RAC). Under the interim rule, hospitals are eligible for Part B payment following the denial of a Part A claim for those services that would have been reasonable and necessary had the beneficiary been treated as a hospital outpatient. The rule took effect March 13, the date it was issued.

The rule also allows hospitals
to bill Medicare separately for some outpatient services that might otherwise have been bundled into the Part A bill, because they occurred within three days of the hospitalization.

The interim rule replaced a policy that limited hospital payment in these cases to a fraction of Part B payment if an auditor found that outpatient care was medically necessary. AHA data show that these setting-of-care decisions account for most of the claims denied by RACs, who are paid a percentage of the money they take back from hospitals retroactively.

The AHA welcomed the interim rule, but not the agency’s notice of a proposed rulemaking for a long-term solution to the billing issue. The proposed rule would allow hospitals to rebill CMS only within the narrow timeframe of one year from when the patient services were provided – and regardless of
whether it took a Medicare recovery audit contractor (RAC) a year or more to reject a claim. RACs can audit claims for services going back three years.

“Since the recovery audit contractor typically reviews claims that are more than a year old, the practical effect would be that hospitals would again not be fairly reimbursed for the care they provide Medicare patients,” AHA President and CEO Rich Umbdenstock said.

In a complaint filed last Nov. 1 with the U.S. District Court for the District of Columbia, the AHA – now joined by five other hospital systems – said the denials violate Medicare and other laws and harm hospitals and patients. The association asked the court to both overturn the policy and direct the government to reimburse hospitals that have been denied payment for
these services.

Commenting on last week’s rulemaking, Umbdenstock said the proposed rule “threatens to undermine progress [in the form of the interim rule] made on this important issue,” because it would not fully reimburse hospitals for all reasonable and necessary services. “That’s why it’s essential that the AHA continue with our litigation.” He urged CMS to reimburse hospitals for claims that have previously been denied.

The AHA received support for its efforts from Reps. Sam Graves, R-MO, and Adam Schiff, D-CA, who earlier this week introduced AHA-supported legislation that would make much-needed improvements to the RAC program and other Medicare audit programs (see story on this page).

In releasing the regulations, CMS also announced the cancellation of the Part A to Part B rebilling demonstration program, in which about 400 hospitals were allowed to re-bill for about 90% of the Part B payments in cases where Part A hospitalization claims were denied.

AHA’s intent to press forward with its litigation on the Medicare Part B rebilling issue was welcomed by hospital compliance officials like Larry Hegland, M.D., chief medical officer and system medical director for recovery audit and appeal services for the 15-hospital Ministry Health Care System in central Wisconsin. “The positive features of the [interim] ruling will be taken away if the proposed regulations are implemented,” he says. “The process still serves to markedly increase the administrative burden and cost to preserve properly paid claims.”

Ministry Health has 4,500 claims audited under the Medicare RAC program along, resulting in 600,000 pages of documentation. It budgets $800,000 a year for audit compliance. Hegland says Ministry Health appeals about 80% of claims denials. The organization prevails 85% of the time, including 98% before an administrative law judge. (For more on RAC audits, see the related story on page 1.) Carol Conley, Cox Health’s audit and compliance director in Springfield, MO, hailed CMS’ “significant change from the past billing methodology,” but says the regulations “don’t go far enough” in addressing hospitals’ concerns about an overly aggressive audit system. Cox Health devotes four full-time professionals – two register nurses, a billing specialist and a certified coder – to its auditresponse department for four hospitals. Their salaries total about $200,000 a year. “We will continue to scrutinize our appeals and will diligently pursue those we feel are medically necessary inpatient stays,” Conley says.

The proposed rule is “very negative,” says L.T. Slaughter, 420-bed Munroe Regional Medical Center’s vice president and chief audit and compliance officer in Ocala, FL. He said the one-year time limit for part B claims “is a major barrier” to hospitals getting paid in these cases. “It just doesn’t make a whole lot of sense to me,” he adds. Comments on the proposal are due May 17.