CMS Implements Restrictive Rules for Medicare Part A Appeals

29 May 2008 Publication
Authors: Chris E. Rossman Lawrence W. Vernaglia

Legal News Alert: Health Care

The Medicare Part A provider appeal process is about to become much more difficult for hospitals and other providers that derive significant reimbursement through the cost report on matters such as disproportionate share hospital and medical education payments, bad debts, outliers, critical access hospital payments, transplant and organ acquisition programs, and other cost-based payments.

On May 23, 2008, the Centers for Medicare & Medicaid Services (CMS) published a final rule (Final Rule) that will substantially revise the Medicare Part A provider appeal process before the Provider Reimbursement Review Board (PRRB). The Final Rule will dramatically limit the historical practices of most hospitals and other providers when challenging cost report based intermediary determinations found in the Medicare Notice of Program Reimbursement (NPR). In light of the changes in the Final Rule, providers will need to implement new and different management approaches in order to respond rapidly to NPRs. The Final Rule will generally become effective on August 21, 2008.

On June 25, 2004, CMS issued a proposed rule to update, clarify, and revise various provisions of the regulations governing the Medicare Part A provider appeal process. Most of the regulations governing the Part A provider appeal process are more than 30 years old. It was not until nearly four years after the proposed rule was issued that CMS issued the Final Rule implementing the changes. In the regulatory preamble issued in conjunction with the Final Rule, CMS stated that it expects that revisions to the appeal regulations will lead to a more effective and efficient appeal process before the PRRB and will help the PRRB reduce its case backlog, which at the present time consists of approximately 6,800 cases.

We discuss below some of the most significant changes in the Final Rule from the providers’ perspective.

Limitation on the Addition of Issues to the Appeal, Including Appeals Already Filed
The most controversial aspect of the Final Rule is the restriction on the addition of issues to PRRB appeals. Under the Final Rule, a provider’s request to add one or more issues to its original hearing request must be received by the PRRB within 240 days after receipt of an NPR. This is a radical departure from the existing regulations, which permit the addition of issues at any time prior to the hearing. There are no exceptions to the 240-day time limit, whether for good cause or for any other reason.

Often providers do not learn about important legal and reimbursement developments until years after the issuance of an NPR. The previous rules allowed providers to incorporate those developments into their PRRB appeals as they learned of favorable PRRB or court decisions in other cases. In addition, at the time an appeal is filed, providers may not always possess all of the facts or documentation needed to determine whether a particular issue should be appealed, or how it should be presented. In addition, some providers have avoided appealing certain issues because they were not confident that an appeal would be meritorious, but knew they could add issues subsequently, once further research or factual development confirmed that the issues were suitable for appeal.

In light of this new restriction on adding issues to an appeal, providers will be required to proactively conduct a comprehensive review of the cost report and the NPR, in order to identify all of the issues that should be appealed. The Final Rule will likely result in providers appealing more issues in their hearing requests as “protective filings” or place-holders. This means that if a provider is unable (at the time of filing an appeal) to make its final decision on whether a particular issue should be appealed, it will likely include the issue in the hearing request in order to preserve its appeal rights.

This restriction on the ability of providers to add issues to a PRRB appeal applies not just to appeals received by the PRRB on or after August 21, 2008. CMS also intends to apply the restriction to all appeals pending before the PRRB on August 21, 2008. For appeals that are pending before the PRRB prior to the effective date of the Final Rule, a provider that wants to add one or more additional issues to its appeal must do so by the later of: 60 days from August 21, 2008 or 240 days from the date of issuance of the NPR. In light of this requirement, providers should promptly begin to evaluate all pending appeals to determine whether there are additional issues that should be added to existing appeals. For most providers, this means they will need to act prior to October 20, 2008.

Contents of Hearing Request
The Final Rule contains several new requirements applicable to a provider’s request for a hearing. Specifically, a provider must demonstrate that it satisfies the jurisdictional requirements for a PRRB hearing. The provider also must explain why it believes the Medicare payment is incorrect for each disputed item, and how, and why, the provider believes the Medicare payment must be determined differently for each disputed item. Alternatively, a provider that does not have access to the underlying information could explain why it is unable to determine whether the payment is correct. If a provider self-disallows a specific item, it must describe the nature and amount of each self-disallowed item and the reimbursement sought for that particular item. The provider also must submit a copy of the intermediary’s or CMS’ determination under appeal, and any other documentary evidence it considers necessary to satisfy the new requirements governing the request for hearing. These requirements mandate that providers have a thorough grasp on the merits of their challenges at the time they submit their request for a hearing — which is very early in the appeal process.

Revised Self-Disallowance Policy
In order to preserve its appeal rights, a provider must either claim an item on its cost report when seeking reimbursement that it believes to be in accordance with Medicare policy or self-disallow (filing the cost report “under protest”) the item when seeking reimbursement that it believes may not be in accordance with Medicare policy.

The Final Rule requires that in order to self-disallow an item, the provider must follow the procedures for filing a cost report under protest that are currently found in the Provider Reimbursement Manual, Part II, Section 115. These procedures generally require a provider to identify the disputed item and amount for each issue in footnotes to the settlement worksheet.

This provision will apply to cost reporting periods ending on or after December 31, 2008. CMS stated that it is delaying the effective date of this new requirement so that providers will have additional time to evaluate whether they wish to include self-disallowed items in their filed cost report.

Other Procedural Changes
The Final Rule adopts a number of other procedural changes to the PRRB appeal process that legal counsel representing providers must master or risk dismissal of or prejudice to their cases. These include:

  • Time limits for requesting discovery in PRRB appeals.
  • Specifications that a quorum of the PRRB is not required for a PRRB hearing.
  • Regulatory support for the PRRB’s dismissal of cases or the imposition of other sanctions on providers for failure to follow procedural requirements or for inappropriate conduct during hearings. (Notably, the regulations impose lesser sanctions on intermediaries that fail to follow the PRRB’s procedures.)
  • Mandating that a change of a legal interpretation or policy by CMS in a regulation, CMS ruling, or CMS general instruction is not a basis for reopening a CMS, PRRB, or intermediary decision. This restriction on reopenings is a significant statement to providers that underscores the importance of filing appeals to protect their rights through the formal appeal process and not to rely on the possibility that an intermediary might agree to reopen a prior determination.

PRRB Instructions Will Likely Be Further Revised
The Final Rule will be interpreted by the PRRB through its appeal “Instructions.” The Instructions are guidance through which the PRRB instructs providers and intermediaries on the process and procedures of the PRRB. In February 2005, the PRRB issued Draft Instructions that would further restrict the procedures for PRRB appeals. There are a number of areas in which the Draft Instructions overlap or are inconsistent with provisions of the Final Rule. The PRRB previously indicated that it would not finalize the provisions of the Draft Instructions until the Final Rule was finalized. In the preamble to the Final Rule, CMS stated that it anticipates that the PRRB will make revisions to its current Instructions as a result of the publication of the Final Rule.

The most significant and controversial aspect of the Draft Instructions concerns the appeal information and documentation that must be submitted with the provider’s request for a hearing. Under the Draft Instructions, providers would be required to provide in their initial request for a hearing the explanation and documentation that is currently required in the provider’s preliminary position paper. Also, the provider would be required to state, in numbered paragraphs, the material facts supporting the provider’s claim. If any documents necessary to support the appeal were not previously furnished to the intermediary, the provider would be required to send those documents to the intermediary with the hearing request. The provider also would have to describe any legal issues in dispute and the authorities upon which it relies. The Draft Instructions would constitute a major change to the current notice filing for appeals and, if adopted by the PRRB, would greatly increase the burden on providers in the early stages of the appeal.

Action Steps for Providers
In light of the far-reaching changes in the Final Rule, it is important that providers take the following steps:

  • Immediately, providers should evaluate their internal processes and resources for prompt review and analysis of NPRs. This is necessary to ensure that all applicable appeal issues are included in the request for hearing. Providers should assess whether additional internal or external resources will be required.
  • Prior to October 20, 2008, review all existing cost reporting periods with pending appeals to determine whether there are additional issues that need to be included in the appeals and the information or research necessary to make a decision regarding those issues.

Legal News Alert is part of our ongoing commitment to providing up-to-the minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals: 

Jeffrey R. Bates
Los Angeles, California

Lena Robins
Washington, D.C.

Chris E. Rossman
Detroit, Michigan

Lawrence W. Vernaglia
Boston, Massachusetts

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