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AHA Sues CMS Over Medicare Reimbursements

 |  By John Commins  
   November 02, 2012

The American Hospital Association and four health systems are suing the federal government for allegedly refusing to pay for "hundreds of millions of dollars for necessary care" in Medicare claims that were flagged by private contract auditors.

The suit, filed Thursday in U.S. District Court in Washington, D.C., claims that the Centers for Medicare & Medicaid Services has violated the Medicare Act by declining to reimburse the audited claims of hospitals, even though the claims were ultimately acknowledged by CMS to be reasonable and medically necessary.

AHA President and CEO Rich Umbdenstock said in an interview Thursday that the suit was prompted by "member frustration with the policy and with the hit they take after these medically necessary services have been provided."

"We pointed this out to CMS and have been in conversation with them, but we were not able to get a resolution," Umbdenstock said.

At the center of the conflict are the private recovery audit contractors that comb hospital records months and years after care is delivered to flag questionable payments. RACs,  which are paid a percentage of the money they recover from hospitals and other providers, often retroactively determine that procedures billed as inpatient hospital care under Medicare Part A should instead have been delivered as an outpatient procedure under Medicare Part B.

Re-billing Prohibited
However, when Part A reimbursements are denied or rescinded, AHA says, CMS refuses to allow hospitals to re-bill the care under Part B.

"They have put in their policy manual that you are not allowed to re-bill. Period," Umbdenstock says. "They determined that it was medically necessary, but shouldn't have been billed under Part A. We're saying 'if it is medically necessary we should be able to bill under Part B' and they are saying 'no you can't bill.'"

The suit states that "CMS has made no effort to articulate a statutory justification—or any justification—for this policy. Nor could it. Put simply, when a hospital furnishes reasonable and medically necessary items and services, if payment cannot be made under Part A, it must be made under Part B."

AHA says that in the first quarter of 2012, hospitals reported that they were forced to pay $236 million for medically necessary inpatient items and services that RACs later determined should have been provided in an outpatient setting.

Estimated Costs: 'Hundreds of Millions'
AHA General Counsel Melinda Hatton, reached by phone Thursday, said that it's hard to determine exactly how much the CMS denial policy is costing hospitals. "We expect it is in the hundreds of millions but we just don't know the exact number," she said.

"Some hospitals chose not to appeal claims that should and could have been paid under Part B. There is not a good way for us to know the exact number other than that it is large and it is growing."

Joining AHA in the suit are: Missouri Baptist Sullivan Hospital, in Sullivan, MO; Munson Medical Center, in Traverse City, MI; Lancaster General Hospital, in Lancaster, PA; and Trinity Health Corp., in Livornia, MI.

The hospitals complain that the CMS policy creates "prolonged uncertainty about whether Medicare will ultimately pay for the services previously provided (and) wreaks havoc on hospital financial planning, including the ability to assess capital and staffing needs. Both the uncertainty and the actual loss of Medicare funds ultimately may adversely affect patient care."

The hospitals want a federal judge to strike CMS' payment denial policy because it is "contrary to federal law, arbitrary and capricious, and invalid for failure to undergo notice and comment."

The hospitals also want CMS to repay them for the "reasonable and medically necessary services they provide to patients. No matter whether it was provided in the inpatient or outpatient setting, Medicare must pay hospitals for such medically necessary care."

RACs have been a continuing source of friction between hospitals and the federal government every since they were created as part of the Medicare Modernization Act of 2003. CMS reported in May that RACs collected $1.86 billion in overpayments from October 2009 through March 2012, but identified only $245.2 million in underpayments.

Hospitals say that RACs are incentivized to aggressively and unfairly flag hospitals bills because the auditors keep a percentage of the money they identify, even if the billing classification is later proved to be justified.

A CMS study found that about 40% of RAC findings are appealed, but providers win those appeals about 75% of the time. Despite the good odds of winning an appeal providers complain that the process is too costly and cumbersome.

"If you look at the complaints from the individual hospitals you see how costly it is for them to appeal these RAC decisions," Hatton says. "There are some great examples that hospitals have of the number of employees they have had to hire and outside services they have had to retain. It is no small undertaking to challenge every improper denial of a RAC. There is no provision that I am aware of that pays you for the cost of the appeal. You'd be lucky if you got paid under Part B."

Audit Reform Bill Pending
The Medicare Audit Improvement Act of 2012, introduced in the House in October, calls for a number of improvements and financial penalties for—among other things—overturned appeals. The Office of Inspector General has announced plans to examine the Centers for Medicare & Medicaid Services payment policies to hospitals under Part A and Part B next year.

Umbdenstock says AHA supports the legislation in Congress that would curb RAC abuses.

"It tries to bring some balance to the numbers of records RACs can demand at one time and the burdens on hospitals of meeting all of this, which members find so onerous. It puts some boundaries around the process and brings it to a more reasonable level of scrutiny and accountability," he says.

Hatton says the AHA suit is similar to a recent suit settled last week by Medicare beneficiaries that dealt with scope of services. "It has the same basis – that CMS had a policy for which they had no statutory authority that was denying in that case services – in this case for services rendered," she says. "It is very similar... in that there it is a policy based on an absence of statutory authority."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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