CMS Addresses Part B Inpatient Billing Controversy

Find out how a new ruling and a proposed rule will affect your claims processing.

By Stacy Harper, JD, MHSA, CPC

Due to a recent controversy in claims payment, the Centers for Medicare & Medicaid Services (CMS) issued Ruling 1455-R on March 13 and a proposed rule on March 18. The rules substantially affect how hospitals are reimbursed for Part B services when a Medicare contractor denies payment for such services under Part A based on findings that the inpatient admission was not reasonable and necessary.

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In recent years, Medicare audit contractors, including recovery audit contractors (RACs), have scrutinized inpatient hospital claims and frequently contested whether the admitting physician’s decision for inpatient services were reasonable and necessary. Contractors alleged more often than not that certain services are more appropriately provided in the outpatient setting, and would subsequently demand repayment under Medicare Part A.

Although analysis finds services could (and should) have been billed as Part B outpatient services, CMS historically has taken the position that hospitals are not entitled to payment because proper Part B claims for these services were not filed in a timely manner. This position has been repeatedly reversed by the Medicare Appeals Counsel of the Departmental Appeals Board (DAB), and is being challenged in a lawsuit brought by the American Hospital Association.

Know How CMS Ruling 1455-R Affects Billing

The March 13 ruling reverses CMS’ historic position and implements the holdings of the DAB regarding these claims. The ruling permits hospitals to submit claims and receive reimbursement for Part B services when a Part A claim is denied by a contractor due to a determination that it is not reasonable and necessary. Payment for Part B services will be made as long as those services are reasonable and necessary and would have been paid if the patient had originally been treated as an outpatient (except for services that specifically require outpatient status).

For example:

Dr. Brown admitted Susie Smith as an inpatient to the hospital for performance of a cardiac catheterization. Ms. Smith was in the hospital for 36 hours of monitoring following the procedure. The hospital submitted the inpatient bill for services to Part A and received payment. Some time later, a Medicare auditor reviewed the service and determined the procedure could have been performed as an outpatient with monitoring provided as outpatient observation.

Under CMS Ruling 1455-R, the hospital could now submit a Part B claim for outpatient services, including the cardiac catheterization. The claim, however, cannot include the services for outpatient observation because these services specifically require an outpatient order for submission to Medicare, which the hospital does not have.

Medicare contractors are instructed to waive timely filing requirements and accept these Part B claims even when they are not submitted within one year of the date of service. This ruling applies to Part A hospital claims denied by a Medicare contractor prior to the effective date of the ruling, but for which the time to appeal has not expired, or for which an appeal is pending. The ruling will no longer apply on the final rule’s effective date for these services.

To Be More Specific

Similar to the interim ruling, the proposed rule permits hospitals to receive reimbursement under Part B for services as if the patient had originally been treated as an outpatient, except for services that specifically require outpatient status. The proposed rule permits this payment when a Medicare contractor determines services were not reasonable and necessary, or when the hospital itself, in a post-discharge self-audit, makes the same finding.

The proposed rule does not apply to all Part A claims that are subsequently denied by Medicare contractors as not reasonable and necessary. Medicare contractors currently may review claims up to five years from the date of service. The proposed rule will only permit payment of the corrected Part B claim by a hospital if it is submitted within one year of the date of service. Part B claims presented more than one year from the date of service will continue to be denied for untimely filing, without the possibility of an appeal.

The proposed rule also does not permit adjustment by the reviewer who makes the Part A denial determination. The hospital must separately submit the claim for Part B services. This is primarily relevant because a Part B claim cannot be submitted when an appeal to the Part A determination is filed by the provider or the patient. As such, the hospital must either waive its appeal rights related to the Part A reasonable and necessary determination to timely file the Part B claim; or appeal the Part A determination and waive the right to reimbursement for any Part B services.

The Bottom Line

The language of the proposed rule, if finalized, will have significant implications on a hospital’s ability to recover reasonable and necessary services when there is disagreement regarding the setting where the services should be provided. The comment period for the proposed rule ended May 17. A final ruling is expected later this year.

The information contained in this document is to alert you to legal developments and should not be considered legal advice. If you would like more information, please contact Lathrop & Gage LLP or your attorney.

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Stacy Harper, JD, MHSA, CPC, is of counsel with Lathrop & Gage LLP in Overland Park, Kan., and serves on the National Advisory Board for AAPC. She focuses her practice on regulatory compliance and healthcare reimbursement. Harper has experience as a physician practice office manager and compliance officer. She has firsthand knowledge of the legal and practical reimbursement structures for government and private payers. Harper assists providers with the successful resolution of reimbursement disputes related to claims denials, audits, and appeals. She also offers an in-depth understanding of the federal and state regulatory environment affecting healthcare.

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