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O'Connor Hospital's RAC Decision Provides Optimism for Providers

James Carroll, for HealthLeaders Media, April 5, 2010

The Medicare Appeals Council issued a decision on one of the many outstanding appeals from the RAC demonstration project, which ultimately resulted in a win for providers.

O'Connor Hospital in San Jose, CA, originally appealed four claims, three of which were found to be "fully favorable" to the provider, and were granted Medicare coverage for inpatient services by the Administrative Law Judge (ALJ). The fourth claim was denied coverage for inpatient hospitalization because the services were not considered to be reasonable and necessary, however, as stated in the decision, the ALJ found that the "observation and underlying care were warranted."

This is of particular interest because the RAC's revised initial determination on one particular claim stated that the provider had received an overpayment for the inpatient services, but the beneficiary met the criteria for outpatient observation, according to Debbie Mackaman RHIA, CHCO, regulatory specialist for HCPro, Inc.

"The ALJ decision was partially favorable to the provider and it stated that payment should be made under Medicare Part B for those services that cannot be made under Medicare Part A, and CMS went on to the appeal the decision,"  Mackaman says.

CMS requested to move the determination up to the fourth level of appeal, stating that the ALJ "erred by ordering Medicare payment for the observation and underlying care" because those services are not separately billable under Part A. Thus, this position was considered to be inconsistent with guidance set forth in CMS manuals, particularly the Medicare Benefit Policy Manual, Chapter 6, § 10.

Ultimately the Administrative Qualified Independent Contractor (AdQIC) was directed to the appeals council to coordinate with the MAC for payment to the provider for those separately billable Part B inpatient services, and thus offset any Part A overpayment. The appeals council also stated that it "will not take own motion review" of this case and that the ALJ's September 16, 2009, decision is binding.

There are many claims dating back to the RAC demonstration project that have yet to be resolved up through the five levels of appeal, but this decision provides optimism, according to Mackaman. The appeals process can be long and costly, with some appeals taking over two years to get to the highest level of appeal, for Judicial Review in the U.S. District Court. Winning an appeal at a lower level, such as with the ALJ, saves time and money for the many staff involved, potentially involving the provider's legal counsel, as well.

"This decision should give providers encouragement that the parties responsible for reviewing the cases are familiar with and follow CMS guidance in the manuals even though they are not bound by law to follow them," says Mackaman.


James Carroll is associate editor for the HCPro Revenue Cycle Institute.

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