On March 18, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register two important documents addressing the hotly contested issue of a hospital's ability to obtain payment under Part B for services provided during an inpatient stay that is later denied under Part A as not reasonable and necessary. The first, a CMS Administrator Ruling (Ruling) that is binding upon all CMS components and contractors, is an interim measure to relieve the overwhelmed Medicare appeals process and provides continuity in how such appeals are handled. The Ruling went into effect on March 13 and will apply to any new denials, prior denials that are still eligible for appeal and currently pending appeals until CMS issues a final rule on this topic. Accordingly, CMS also issued a proposed rule that would govern this issue when it is finalized (Proposed Rule).

Each of the issuances expands the services for which a hospital may receive payment under Part B after an inpatient admission is denied due to lack of medical necessity, compared to CMS's previous official position that limited Part B payment to specifically identified ancillary services. Accordingly, under each policy, hospitals are permitted to submit a Part B inpatient claim for reasonable and necessary services that would have been payable if the patient were initially classified as an outpatient rather than an inpatient. The Ruling and Proposed Rule each state that payment is not available for services that require an outpatient status, such as emergency department visits, clinic visits and observation services. Many administrative law judge decisions previously directed contractors to pay for such observation services upon an inpatient admission denial. Additionally, the Ruling and the Proposed Rule each would permit a hospital to separately bill for outpatient services provided during the three-day payment window period if the inpatient admission is subsequently denied as not medically necessary.

While the issuances are similar in many ways, there are a few key differences between the two policies that should be noted. First, the Ruling applies to Part A claims denied by a Medicare contractor (e.g., a Recovery Audit Contractor (RAC) or Medicare Administrative Contractor (MAC)). This is in contrast to the Proposed Rule, which also would allow hospitals to rebill those inpatient admissions that are identified as not medically necessary during a self-audit or utilization review. On the other hand, the Ruling is more favorable to hospitals in that it permits rebilling for all qualifying contractor denied claims, while the Proposed Rule would limit rebilling to those services provided during the previous year under the timely filing deadline. Because RACs currently have a three-year lookback period and MACs have a four-year lookback period, a majority of auditor-denied claims likely would be ineligible for rebilling under the Proposed Rule.

CMS will accept comments on the Proposed Rule through May 17. We encourage hospitals to comment on the unfavorable aspects of the Proposed Rule, including the exclusion of observation services from the types of services eligible for rebilling and the imposition of the timely filing deadline.