CMS Changes Course on Rebilling RAC-Denied Claims

The federal government announced this week that it will change its contentious policy of flatly denying any reimbursements to hospitals that provide medically necessary care determined by auditors to have been delivered inappropriately in an inpatient setting.

The interim rule (PDF) is seen as a major victory for hospitals, which had claimed that the existing rule prevented them from collecting hundreds of millions of dollars in reimbursements. The American Hospital Association and four health systems claimed, in a suit filed last November, that the Centers for Medicare & Medicaid Services had 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.

"CMS has conceded that its current policy of refusing to reimburse hospitals for reasonable and necessary care when the only dispute is which setting, not whether care should have been delivered, is contrary to the law," AHA President/CEO Rich Umbdenstock said in prepared remarks. "That is a central issue in our lawsuit." 

Hospitals have long complained about the process that allows private recovery audit contractors to comb hospital records months and years after care is delivered to flag questionable payments.

Recovery Audit Contractors (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.

When Part A reimbursements are denied or rescinded, however, CMS as a matter of policy won't let hospitals re-bill the care under Part B, even if the care is determined to be medically necessary and reasonable.

Although pleased with the new interim rule, Umbdenstock said the lawsuit will continue because "the proposed rule then threatens to undermine the progress made on this important issue."

"Under the proposal, hospitals will be able to rebill CMS only within the narrow time frame of one year from when patient services were provided," he said. "Since the recovery audit contractor typically reviews claims that are more than a year old, the practical effect would be that hospitals would again not be fairly reimbursed for the care they provide Medicare patients." 

"While CMS's interim ruling is a victory for hospitals, its long-term proposed solution is not. That's why it's essential that the AHA continue with our litigation," he said. 

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 Livonia, 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 ever since they were created as part of the Medicare Modernization Act of 2003. CMS reported last spring 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.