CMS Announces Part B Rebilling Demonstration Project

17 November 2011 Publication
Authors: Maria E. Gonzalez Knavel Donald H. Romano Chris E. Rossman Lawrence W. Vernaglia Judith A. Waltz

Legal News Alert: Health Care

On November 15, 2011, CMS announced a demonstration project whereby hospitals will be allowed to rebill under Part B, following a Recovery Audit Contractor (RAC) reopening and denial of inpatient hospital services, on the grounds that the services should have been furnished on an outpatient basis. The demonstration project is limited to only 380 hospitals, and those hospitals will receive only 90 percent of the allowable Part B payment. The demonstration project is CMS's response to the efforts of Foley and others, during the last 2 1/2 years, to convince CMS to change its current policy. Currently, CMS will not allow hospitals to rebill under Part B for the entire Part B allowable amount, but rather limits hospitals to the list of "Part B ancillaries" — which does not encompass things such as observation care, emergency room services, and surgical procedures. CMS's current policy is a change from the RAC demonstration project, under which rebilling under Part B for the full amount was allowed. Currently, hospitals have been uniformly successful in having an Administrative Law Judge (ALJ) or HHS's Departmental Appeals Board (DAB) award the full Part B payment following an appeal of the RAC denial.

Concurrent with the announcement of the demonstration project, CMS issued a Fact Sheet on the demonstration project, which provides some information but also raises significant questions. First, although demonstration projects are usually conducted under a special statutory demonstration authority that allows CMS to depart from, temporarily, the requirements of the Medicare Statute, in this case, the fact sheet neither references a specific demonstration project authority nor explains why allowing full Part B payment is not already permitted under the Medicare Statute. Although CMS has informally questioned whether it has authority to allow hospitals to rebill under Part B following an RAC denial of an inpatient claim filed under Part A, it has not responded to the repeated requests of hospitals and hospital associations to explain why it is precluded by the statute or the regulations from allowing hospitals to rebill under Part B.

Additionally, the manual instructions allow hospitals to rebill under Part B, albeit for the limited Part B ancillaries amount. The Fact Sheet explains the purpose of the demonstration project. It does state that CMS will educate hospitals on the correct billing of inpatient versus outpatient services; however, that could be done outside the context of a demonstration project. It also states that CMS will “monitor participating hospitals and the impact of the demonstration on the Medicare Trust Find [sic].” This latter statement is unclear. Is the point to determine whether the demonstration will increase the incentive for hospitals to bill for inpatient services because they know that they will receive 90 percent of Part B payment anyway? Hospitals already are being awarded 100 percent Part B payment when they appeal the RAC’s denial. Moreover, physicians, not hospitals, make the decision whether to admit a patient. Finally, in other contexts, such as where a hospital bills at an incorrect and higher DRG, the hospital is paid the lower amount to which it is entitled.

Second, the Fact Sheet does not explain why Part B payment will be limited to 90 percent of the full Part B payment, or, on a related note, why the demonstration is limited to only a small fraction of the total number of short-term acute-care hospitals. Is 10 percent being withheld to fund the cost of the demonstration, and, if so, will the withhold be sufficient to cover the cost of the demonstration? If that is the case, why not open the demonstration to all hospitals, or at least significantly more than the 380 hospitals allowed to participate? In this regard, the Fact Sheet states that hospitals that appeal RAC denials “face an expensive and time-consuming appeals process” in order to obtain Part B payment, and if only 380 hospitals can take part in the demonstration, that statement will continue to be true for the near future. Presumably, the appeals process also is expensive and time consuming for CMS’s contractors, which again raises the question as to why so few hospitals are being allowed into the demonstration.

Third, the Fact Sheet states the 380 hospital slots in the demonstration project will comprise a variety of small, medium, and large hospitals, without indicating how many slots will be allocated to each category or what criteria (e.g., number of beds) will be used to determine the categories.

Fourth, the Fact Sheet states that the demonstration will begin January 1, 2012 and will last for three years, but is silent on whether this means that the demonstration will apply only to RAC denials occurring on or after January 1, 2012, or if it also will include RAC denials made prior to that date and that are not final (i.e., an appeal is pending or the time to appeal has not yet run).

Fifth, the Fact Sheet does not address whether hospitals that participate in the demonstration may rebill patients for their co-pays if the outpatient co-insurance and deductible is greater than the inpatient co-insurance and deductible, and, if so, whether the outpatient co-insurance and deductible are calculated using the 90 percent "allowable" outpatient payment.

Lastly, the Fact Sheet states that the 380 hospitals allowed into the demonstration will be selected on a first-come, first-served basis, but there are no details on how to apply for inclusion into the demonstration.

Given that the ALJs and the DAB routinely are awarding 100 percent of the full Part B payment amount, hospitals that may be inclined to participate in the demonstration will have to weigh the advantage of being awarded 10 percent more payment through taking an appeal versus participating in the demonstration against the disadvantage of incurring the costs of appeal. Of course, for those hospitals that will not be selected for the demonstration, taking an appeal is currently the only way to receive full Part B payment following an RAC denial. 

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

Donald H. Romano
Washington, D.C.

Jeffrey R. Bates
Los Angeles, California

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

Chris E. Rossman
Detroit, Michigan

Lawrence W. Vernaglia
Boston, Massachusetts

Judith A. Waltz
San Francisco, California

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