Inpatient vs. outpatient: Hospitals reject new Medicare billing rule

Hospitals say the rule will not resolve wrong-care-setting disputes

A new Medicare rule released this week is designed to address complaints over denied payments resulting from wrong-care-setting disputes—but hospital leaders say the new policy "threatens to undermine the progress made on this important issue."

Background: Outpatient v. inpatient?

In November 2012, the American Hospital Association (AHA) and four health systems filed a lawsuit against HHS over a policy that denies Medicare payments to hospitals when auditors retroactively determine care could have been provided in an outpatient setting.

According to the lawsuit, CMS refuses to provide any payments to hospitals in cases where auditors retroactively determine that an inpatient service should have been performed outside the hospital.

"In short, CMS simply refuses to pay hospitals for services that it acknowledges are covered under Medicare Part B and that it acknowledges were reasonable and medically necessary in the particular case," the lawsuit states, adding, "That policy has resulted in hospitals losing hundreds of millions of dollars for necessary care—surgeries, drugs, observation care, and on and on—that the hospitals provided to Medicare beneficiaries months or years earlier."

CMS issues new rule to address the issue

On Wednesday, acting CMS Administrator Marilyn Tavenner released a new rule that directs Medicare judges to allow hospitals to claim Part B inpatient costs in situations where the setting of care was initially incorrect.

The rule also says that hospitals may separately bill Medicare for Part B outpatient services that might otherwise have been bundled into a Part A bill because the services were provided within three days of a hospitalization.

Tavenner says the rule is expected to affect thousands of pending claims.

Hospitals take issue with time limit on Part B payments

The new rule "is not what hospitals want to see," says health care attorney Andrew Wachler, who has discussed the rule change with CMS officials.

Wachler says the new rule makes it tougher for hospitals to receive payments for wrong-setting-of-care cases because it imposes a one-year time limit for Part B claims, even if a Medicare recovery audit contractor took more than a year to appeal the claim.

"If the RAC waits a year to deny your claim, you are out for any Part B services. If you appeal, and one year lapses from the date of service, you cannot get any Part B services, and the judges can't order them," he says, adding, "The proposed rule is really a significant step backward from the current situation for hospitals."

AHA President and CEO Richard Umbdenstock says the group will continue to litigate the issue because of the one-year limit and that the new rule "threatens to undermine the progress made on this important issue" (Carlson, Modern Healthcare, 3/14 [subscription required]; CQ HealthBeat, 3/14 [subscription required]).

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