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Health Law Blog: CMS Offers Settlement to Hospitals for Resolving Patient Status Denials - September 9, 2014

On September 9, 2014, the Centers for Medicare & Medicaid Services (CMS) held a conference call with providers and other interested parties regarding CMS’s recent offer to resolve any acute care or critical access hospitals’ pending appeals of patient status claim denials.

This call followed an August 29, 2014 initial communication from CMS in which the agency presented the offer.  Specifically, CMS is offering an “administrative agreement” to any such hospital that agrees to withdraw pending appeals in exchange for a payment of 68% of the net payable amount.  Eligible claims for inclusion in the settlement are those denied based on the appropriateness of the inpatient admission.  As explained on the call, the “net payable amount” is the “bottom line” of the claim, which is the diagnosis related group (DRG) payment plus any add-on payments, less deductibles and co-insurance.  Initial settlement requests are due to CMS on or before October 31, 2014.

The impetus for CMS’s offer was the well observed and much criticized backlog on Medicare appeals.  The short of the long history is that CMS, though its contractors, can deny a hospital’s inpatient claims as not medically necessary, alleging that the claims should have been billed as outpatient (observation) claims.  A provider can then appeal the denial through several administrative steps to a hearing before an Administrative Law Judge (ALJ).  Due to the “rapid and overwhelming increase in claim appeals,” the Office of Medicare Hearings and Appeals (OMHA) decided to suspend assignment of most new requests for ALJ hearings.  OMHA currently estimates that the average processing time for appeals is 387 days.  Subsequently, on May 22, 2014, the American Hospital Association (AHA) and several member hospitals filed a lawsuit to compel the Secretary of Health and Human Services (HHS) to meet the 90-day statutory deadline for administrative review of claim denials.  The AHA estimated that more than 480,000 claims were awaiting assignment.  On August 26, 2014, the Center for Medicare Advocacy (CMA) filed a class action lawsuit with similar allegations.  Both cases are pending.

Hospitals should carefully consider whether to accept CMS’s offer.   Hospitals have had fair success in appealing patient status claim denials at the ALJ level and have received payment in full as a result.  What CMS is offering is 68% of the full payment.  Note that even if a hospital would not be successful on the appeal of the Part A claim, the hospital would receive a reduced payment under Part B.  A hospital should consider its case mix on appeal, the time delay in claim resolution, and other factors.  For instance, a hospital should be mindful of the impact on certain cost-based reimbursement because, according to CMS, the hospital would not be able to count the claims as Medicare Part A claims for purposes of graduate medical education (GME) and other payments.  CMS staff also explained that hospitals could not count outstanding deductible amounts of the resolved claims as Medicare bad debt.  On the other hand, the settlement would resolve all of CMS’s allegations for the claims.  CMS staff explained that CMS would be foregoing these administrative actions, including those of its contractors, but that it could not resolve other claims made under the False Claims Act (FCA) or from the Department of Justice (DOJ).  Ultimately, if a hospital does not believe that 68% of the net payable amount of its pending inpatient claims is a fair value, the hospital does not have to accept the offer.  It could continue with appeals process for each of those claims.

Additional information, including the Administrative Agreement, resources and FAQ, can be found on the following CMS website: