CMS Revises Policy on Billing Part B for Inpatient Claim Denials

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In a ruling published March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) officially revised the current policy on Part B billing, following the denial of a Part A inpatient hospital claim on the basis that inpatient admission wasn’t reasonable and necessary.

Since the National Recovery Audit Contractor (RAC) program started in 2010, CMS reports the total collection of overpayments went from approximately $ 75.4 million at the end of September 2010 to nearly $ 3.9 billion by the end of 2012. According to data voluntarily reported by hospitals to the American Hospital Association’s (AHA) RACTrac program and published in its fourth-quarter 2012 report, 96 percent of denied dollars were for complex denials, and the vast majority of those were for short-stay inpatient claims. The report also states nearly 70 percent of short stay medical necessity denial dollars were due to care provided in an incorrect setting, i.e., inpatient versus outpatient. The dollars associated with the issue are significant.

Until now, the opportunity to rebill services provided in the incorrect setting has been limited. Only a small number of diagnostic services could be billed on a “Part B Only” claim, leaving reimbursement for more costly services, including surgery, unreimbursed to providers. After a growing volume of provider appeals—with 72 percent of completed appeals overturned in favor of the provider, particularly at the Administrative Law Judge (ALJ) level—CMS started to feel pressure from the provider community. In addition, the AHA, together with several providers, filed suit against the U.S. Department of Health and Human Services (HHS) in late 2012 for refusing to reimburse hospitals for reasonable and necessary care that could have been provided in an outpatient setting.

The revised policy published on March 13 is intended to be an interim solution until a proposed rule, also published by CMS, is approved for application on a prospective basis.

Essentially, the ruling acquiesces to the approach taken in prior ALJ and Appeals Council decisions regarding rebilling Part B services that were clinically reasonable and necessary, after inpatient status was denied.

The ruling became effective on the date of issuance. It applies to Part A hospital inpatient claims denied by a Medicare review contractor because the inpatient admission was determined not reasonable and necessary, as long as the denial took place in one of the following circumstances:

  • Denial was made while ruling is in effect
  • Denial was made prior to the effective date of the ruling, but an appeal is pending
  • Denial was made prior to the effective date of the ruling, but the time frame for appeal has not expired

The ruling states those services originally bundled into the inpatient claim in compliance with the three-day window should be billed on a Part B outpatient claim, which will not be subject to the usual timely filing restrictions. This includes observation time increments ordered and charged prior to the point of change to inpatient status. The other services that would be payable had the patient remained an outpatient should be billed on a Part B inpatient claim (bill type 12X).

The ruling gives providers the option to withdraw pending Part A appeals subject to this ruling and submit Part B claims for payment; otherwise, the provider will need to wait until the appeal is processed.

The ruling also states the Part A to Part B Rebilling Demonstration is being terminated; details will be communicated to participating hospitals and contractors.

Special rebilling time periods are established by the ruling. Until a final rule is approved and issued, CMS is adopting the position that subsequent Part B rebilling in situations covered by the ruling is supported by adjustment billing. Essentially, as long as the corresponding denied Part A inpatient claim was filed within the timely filing requirement, the one-year timely filing limitation will be held in abeyance; the Part B inpatient and Part B outpatient claims are not to be rejected by Medicare’s claims processing system. The ruling did not address any special billing code that will be necessary to permit the claim to bypass this edit in the Outpatient Claim Editor.

If a hospital with a pending Part A appeal decides to withdraw the appeal and rebill, it will have 180 days from the date of receipt of the dismissal notice to file its Part B claim(s). If the hospital decides to keep the appeal in process and the appeal is subsequently lost, the hospital will have 180 days from the date of the receipt of the appeal decision, determination or redetermination. The date of receipt is presumed to be five days after the date of the notice, unless there is evidence to the contrary.

Note:  The ruling specifically states the beneficiary’s patient status remains inpatient as of the time of inpatient admission and is not changed to outpatient. This implies the beneficiary’s co-insurance responsibility for the inpatient Part B claims will not change as a result of the change in reimbursement methodology to the provider.

CMS will issue operational and other applicable regulatory guidance necessary to implement the ruling, including the mechanics of how to bill Part B inpatient and Part B outpatient services.

Meanwhile, CMS is soliciting comments for a 60-day period about the proposed rule. The ruling and associated instructions to contractors only will be effective until such time a final rule is published. The relief offered by the ruling was driven by ALJ and Medicare Appeals Council decisions; CMS states it disagrees with these decisions and they may not be part of a final rule. Providers and interested parties have the opportunity to comment on the proposed rule and potentially influence the final decision. Both the proposed rule and the ruling can be found here.

For more information, contact your BKD advisor.


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