In an effort to clear up an 18-month backlog of appeals, the Centers for Medicare & Medicaid Services has made a one-time offer to hospitals to settle patient status claim denials in the appeals process for 68% of the net payable amount.
The claims included in the settlement are cases that were billed as inpatients, but the auditors believe they should have been billed as observation services or strictly outpatient.
"While the service may have been reasonable and necessary, the auditor determined that treatment on an inpatient basis was not," says Steven Greenspan, JD, LLM, vice president of regulatory affairs for Executive Health Resources, a Newtown Square, PA, healthcare consulting firm.
The settlement offer applies only to cases with a date of admission prior to Oct. 1, 2013, which eliminates all denials under the two-midnight rule, Greenspan says. However, he points out that there was a lot of Recovery Auditor activity prior to the implementation of the two-midnight rule and that the reasons cited for many of their denials was that the services provided did not require an inpatient level of care.
"From the standpoint of timing, I think the majority of cases under appeal fall into the eligible claims category," he says.
The denials could be from the Recovery Auditors (RAs), the Medicare Administrative Contractors (MACs), the Zoned Program Integrity Contractors (ZPICs), or the Office of Inspector General (OIG). It doesn’t matter if the denial was made on a prepayment or post-payment review, Greenspan adds.
All claims that meet the criteria must be included in the settlement. Hospitals cannot choose which claims they want to continue appealing, points out Deborah K. Hale, CCS, CCDS, president of Administrative Consultant Services, a Shawnee, OK-based healthcare consulting firm.
"It’s an all-or-nothing deal for hospitals even if the auditor clearly made an error in denying the case, such as denying an inpatient stay for procedures on the Inpatient Only list," she says.
The advantage to taking the offer from CMS is that the settlement is a way to free up some of the money that hospitals have lost as a result of a Recovery Auditor (RA) or Medicare Administrative Contractor (MAC) denial and is less labor-intensive than an Administrative Law Judge appeal, Hale says.
However, if hospitals elect not to settle, their cases are likely to be delayed for quite a while due to the backlog, and the hospitals may not win, she says.
It will take a comprehensive understanding of each hospital’s financial situation to decide whether to accept the offer, Greenspan says. "CMS is taking the position that all provider cases have been appealed in the same period of time, but that’s not true," Greenspan says.
To decide if the settlement offer is a good deal for them, hospitals need to know their overturn rates, their cash flow situation, their case mix, and the status of their appeals, he says.
For instance, if the majority of a hospital’s appeals are nearing the end of the appeals process, it might not be in the hospital’s best interest to settle.
Hospitals need to weigh all of those factors to determine whether the 68% figure is reasonable, Greenspan says.
In order to participate in the settlement offer, hospitals must individually review all denials to see if they are eligible and enter them on a spreadsheet of individual line items.
CMS set a deadline of Oct. 31, 2014, for hospitals to sign an agreement to participate and submit a spreadsheet of denied claims that are eligible for the settlement. CMS has promised that hospitals will receive their payments within 60 days of having a fully executed Administrative Agreement, Greenspan says.
In Round 1 of the process, a hospital has the opportunity to review the claims that CMS finds eligible. The Medicare Administrative Contractors (MACs) will pay the hospital 68% of the net payable amount on all the claims that CMS and the hospital agree upon, Greenspan says.
If during Round 1 there is a discrepancy on some claims between the information that the hospital submits and CMS’ records, CMS and the hospital will negotiate on those claims until they reach an agreement. This is considered by CMS to be Round 2, Greenspan adds.
In a prepared statement, the American Hospital Association commented that the proposal "fails to address the underlying cause of the problem — overzealous RAC reviewers. But given the tremendous financial hardship the Administrative Law Judge delay is causing many hospitals, it could provide some temporary relief."