Doctor concerned with health care law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Health Law Daily, March 14, 2013

CMS provides for additional Part B payment when inpatient admission is denied as not reasonable and necessary

By Susan L. Smith JD, MA

Hospitals stand to benefit from a new ruling from CMS, effective March 13, 2013, that allows Medicare to pay for additional hospital inpatient services under Medicare Part B when a Medicare Part A claim is denied because the beneficiary should have been treated as an outpatient rather than being admitted to the hospital as an inpatient. The CMS ruling is an interim measure to address issues raised by administrative law judges (ALJs) and Medicare Appeals Council (MAC) decisions until CMS can finalize a new policy. Concurrently with the ruling, CMS will publish a proposed rule in the Federal Register on March 18 to address the payment issues facing hospitals in this situation.

CMS current policy and hospital concerns. Under CMS’ current policy, a hospital may only bill for a limited number of ancillary medical and other health services as inpatient services under Medicare Part B when a hospital submits Part A claims for payment of an inpatient admission that is denied as not reasonable and necessary. Hospitals must bill for services no later than 12 months after the date of service. In addition, a hospital may not change a beneficiary’s status and bill for Part B outpatient services once the beneficiary has been discharged from the hospital. Hospitals have argued that all Part B hospital services provided should be billable to Medicare because they would have been reasonable and necessary if the beneficiary had been treated as an outpatient and not as an inpatient. In response to hospitals’ concerns, CMS initiated the Part A to Part B Rebilling Demonstration to evaluate impacts of making such a policy change and requested public comments on potential changes to Medicare’s Part B inpatient billing policy and related hospital inpatient admission standards in its calendar year 2013 Hospital Outpatient Prospective Payment System proposed and final rules, according to a CMS Fact Sheet.

CMS Administrator Ruling. Hospitals increasingly have appealed Part A inpatient denials and, although ALJs and MACs have upheld the Medicare review contractor’s determination that the inpatient admission was not reasonable and necessary, they also have ordered payment of the services as if they were rendered as an outpatient or observational level of care. The decisions effectively require Medicare to issue payment for all Part B services that would have been payable if the patient were treated as an outpatient rather than an inpatient, which limits payment to only the set of Part B payment services that are designated in the Medicare Benefit Policy Manual. In addition, the decisions have required payment regardless of whether the subsequent hospital claim for payment under Part B is submitted within the statutory deadline for filing claims. The ALJ and MAC decisions providing for payment of all reasonable and necessary Part B services are contrary to CMS’ longstanding policies that permit billing for only the limited list of Part B inpatient services and timely filing requirements.

To address the significant number of pending appeals of Part A hospital inpatient reasonable and necessary denials while the proposed rule goes through notice and comment rulemaking, CMS Acting Administrator Marilyn Tavenner issued an Administrator’s Ruling (CMS-1455-R). Under the Administrator’s Ruling, effective March 13, 2013, Medicare will pay for all Part B inpatient services that would have been reasonable and necessary if the beneficiary had been treated as an outpatient rather than admitted as an inpatient (except for services requiring strictly outpatient status), until the proposed rule is finalized. Hospitals that have appeals pending with the MAC or an ALJ may withdraw them to seek payment for all Part B inpatient services by following the instructions provided in the Ruling. Alternatively, they will have 180 days to bill Medicare for inpatient Part B services following the date of receipt of the appeals dismissal notice or an appeal decision upholding the reasonable and necessary denial on the Part A claim.

The Ruling allows hospitals to “submit Part B inpatient claims for payment for the Part B services that would have been payable to the hospital had the beneficiary originally been treated as an outpatient rather than admitted as an inpatient, except when those services specifically require an outpatient status, such as outpatient visits, emergency department visits, and observational services.” In addition, hospitals may bill for preadmission services on a Part B outpatient claim and will not be subject to the usual timely filing restrictions. Hospitals that choose to submit a Part B claim for payment following the denial of a Part A inpatient admission, cannot maintain their request for payment for the same services on the Part A claim. Hospitals must choose either to no longer pursue an appeal of the Part A claim denial or withdraw any pending appeal request on the Part A denial prior to submitting the Part B claim. Under the Ruling, Part B inpatient and Part B outpatient claims that are filed later than one calendar year after the date of service will not be rejected as untimely as long as the Part A inpatient claim was filed timely. The beneficiary’s status remains inpatient and is not changed to outpatient. The beneficiary, however, is considered an outpatient for services billed on the Part B outpatient claim and is considered an inpatient for services billed on the Part B inpatient claim.

Proposed rule. Under the proposed rule, when a Medicare review contractor denies a Part A claim because a hospital inpatient admission is not reasonable and necessary, if the beneficiary is enrolled in Part B, Medicare would accept a new timely filed Part B inpatient claim for all reasonable and necessary services submitted by the hospital and provide payment for all reasonable and necessary Part B inpatient services, except those that require outpatient status (such as observation services). The hospital, however, would not be able to change the beneficiary’s status to outpatient after discharge. The proposed policy would apply to all types of hospitals and critical access hospitals, including Maryland waiver hospitals, psychiatric hospitals, inpatient rehabilitation facilities, and long-term care hospitals. The proposed rule also would apply when a hospital determines upon self-audit or other utilization review that a beneficiary should have been treated as an outpatient rather than admitted to the hospital.

The proposed rule would allow hospitals to bill under Part B for pre-admission services, including services that are outpatient services by definition, furnished up to three calendar days (or one calendar day for a non-IPPS hospital) prior to admission, which hospitals must include on inpatient claims, if the Part A claim is denied because the admission was not reasonable and necessary. Subsequent Part B inpatient and outpatient claims would be subject to the statutory timely filing deadline of submission within 12 months of the date of service and would be denied if filed beyond the deadline.

MainStory: TopStory ReimbursementNews PartANews PartBNews BillingNews

Health Law Daily

Introducing Wolters Kluwer Health Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.