Hospitals Can Settle Certain Claims Now for 68 Percent of Their Value

The Centers for Medicare and Medicaid Services (CMS) recently announced a policy1 allowing acute care and critical access hospitals to settle inpatient-status claims currently on appeal in exchange for a partial payment equal to 68 percent of the claims’ net allowable amount. The claims eligible for the settlement are those that were billed on an inpatient basis but, according to Medicare contractors (particularly the RACs), should have been billed as outpatient or inpatient Part B claims. Claims that have been denied for a reason other than “patient status” are not eligible for the settlement.

All Eligible Claims Must Be Settled at the Discounted Rate

However, hospitals must accept the settlement for all eligible claims, and cannot choose to settle some claims at 68 percent while continuing to appeal others in hopes of obtaining 100 percent reimbursement. Eligible claims are those that were billed as inpatient claims with dates of admission prior to October 1, 2013 that are currently under appeal, or that the provider has not yet exhausted their appeals rights at the MAC, Administrative Law Judge (ALJ), qualified independent contractor, or departmental appeals board levels.2 This includes claims that have not yet been appealed, but are within the timeframe to be appealed to the next level.3 Importantly, according to a CMS representative who spoke at a Hospital Open-Door Forum held by CMS on September 30, 2014,  claims that are pending (but not yet paid), such as claims that have been withdrawn from appeal and re-billed as inpatient Part B claims, also must be included in any settlement.4


CMS announced the settlement offer in order to more quickly reduce the volume of inpatient-status claims appeals currently pending before Office of Medicare Hearings and Appeals ALJs.5  Medicare ALJs have been totally overwhelmed by the recent growth in appeals, particularly those caused by RAC denials. In light of a projected two-year backlog, most new appeal requests for an ALJ hearing were suspended earlier this year. As a result, in many cases, providers are facing multiple year delays before they can expect their appeals to be heard.6

In light of the uncertainty and delays currently surrounding the Medicare appeals process, four hospital-providers submitted the required paperwork to CMS shortly after the settlement process was announced. However, thus far, CMS has been reluctant to provide updated information regarding the number of hospitals that subsequently submitted settlement requests.

Factors to Consider Before Settlement

  • The Time Value of Money

Hospitals should carefully consider whether to accept CMS’s settlement offer. One of the primary advantages of settling may be the fact that the hospital will receive payment within 60 days of receiving a signed settlement agreement from CMS.7Note, however, that CMS currently estimates that hospitals will receive a signed settlement agreement within 50 days after submitting a settlement request.8Therefore, payment might not be made until 3-4 months after a settlement request is submitted. Moreover, this timeframe also is dependent on the number of claims each hospital submits for settlement, as well as the overall number of hospitals proceeding with the settlement process. Specifically, CMS stated that it expects the earliest payouts to be made to hospitals that submit their requests early in the settlement process and that have fewer than 25 claims being submitted for settlement.9 Nevertheless, in the vast majority of cases, the settlement payment is likely to arrive sooner than any amount won on appeal.

  • What is the Likelihood That You Would Win on Appeal?

Another key factor to evaluate when deciding whether to settle is the hospital’s likely success if the claims proceed to appeal. As previously reported, a significant number of inpatient claims that were denied by the RACs were overturned on appeal.10 Particularly, hospitals that have had previous success may want to continue with the appeals process in hopes of receiving full payment, rather than 68 percent, for the disputed claims. Hospitals also should consider whether, by foregoing the settlement altogether, they would obtain a higher payment by rebilling certain  claims as Inpatient Part B claims, in conjunction with continuing through the appeals process on the remaining claims.

  • Conclusion: The Decision Must be Made Soon

Hospitals should work closely with their financial departments and legal counsel in order to determine to what extent they would benefit from accepting the settlement. However, they must act quickly. In order to participate, hospitals must send a request for settlement to CMS by October 31, 2014 (or request an extension from CMS if they are unable to meet this deadline).