Murtha Means More

Getting the Message on Inpatient Denials: CMS Allows Expanded Inpatient Part B Reimbursement

March 27, 2013

Your hospital has been driven crazy by retrospective determinations that your Medicare inpatient admissions should have been kept in observation (OBS) status. Your utilization review staff has scrambled to "convert" questionable admits to outpatient status before discharge in order to satisfy condition code 44. Your physicians have thrown up their hands and said they will just place everybody in OBS in order to avoid Medicare denials. Your Medicare patients are incurring greater financial liability after a couple of days in a hospital bed (such as the cost of "self-administered drugs"). After discharge from the hospital they are ineligible for Medicare coverage for SNF admissions because they did not have a 3 day inpatient stay. The truth is, it is almost impossible for hospitals to determine which clinical presentations guarantee Medicare payment for inpatient admission.

When a Medicare beneficiary's admission is retrospectively determined to lack medical necessity, the current rules permit a hospital to subsequently submit a Part B inpatient claim. However, only a very limited set of services (referred to as "Part B inpatient") are eligible for payment (Medicare Benefit Policy Manual Chapter 6, Section 10). This restriction is a significant hardship for the hospital since it may have delivered costly services to someone it considered to be an inpatient. The fact that all these services would have been payable if the hospital had originally characterized the patient as an outpatient makes this seem punitive. Not only has the hospital lost the DRG, it has lost reimbursement for otherwise billable outpatient services.

In the 2013 OPPS proposed rule, CMS claimed to be feeling your pain:

Hospitals have indicated that often they do not have the necessary staff (for example, utilization review staff or case managers) on hand after normal business hours to confirm the physician's decision to admit the beneficiary. Thus, for a short stay, the hospital may be unable to review and change a beneficiary's patient status from inpatient to outpatient prior to discharge in accordance with the condition code 44 requirements. We've heard from various stakeholders that hospitals appear to be responding to the financial risk of admitting Medicare beneficiaries for inpatient stays that may later be denied upon contractor review, by electing to treat beneficiaries as outpatients receiving observation services, often for longer periods of time, rather than admit them.

In fact, CMS wants to clarify when patients should be OBS and when inpatient admission is justified. It has announced a willingness to revise the definition of an inpatient and to establish clinical or time-based criteria for when to admit.
The hospital would have to submit a "no pay/provider liable" Part A claim to extinguish the previous inpatient claim. It then bills for the services it rendered under Part B inpatient. CMS's new flexibility will apply only when there's been a denial for lack of medical necessity or the hospital has "self-audited." Once the claim is resubmitted as Part B inpatient, other outpatient hospital services that were rendered during the three day payment window may be billed on a Part B outpatient claim. There are some outpatient services for which CMS simply won't pay under Part B inpatient (such as emergency department visits, diabetes self-management and PT/OT/SLP). The beneficiary will remain identified as an inpatient even though a Part B claim is subsequently filed, because there is no way to change a beneficiary's status after discharge.

Anxious to stop the flood of appeals of these denials, CMS issued a ruling applying this approach to all Part A claims denied by a Medicare review contractor for lack of medical necessity provided the denial was issued: (1) after March 13; (2) before March 13 if an appeal is already pending; (3) for cases not yet appealed but for which the time for an appeal hasn't expired. If a hospital chooses to submit a Part B claim, it cannot also continue its appeal of the Part A denial.

To further encourage hospitals to drop their Part A appeals and submit Part B claims, the ruling will permit them to be filed beyond the usual one year from date of service time limit. The rule (CMS-1455-R) will remain in place until CMS issues a final rule on the inpatient/OBS issue.

If you have questions about the issues addressed here or any other matters involving Health Care Law, please contact your usual Murtha Cullina attorney or Elizabeth Neuwirth at 203.772.7742 /



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