Hospitals have until October 31, 2014, to consider an offer by the Centers for Medicare & Medicaid Services (CMS) to settle pending appeals of denied Medicare claims for 68 percent of the net allowable amount. All acute care hospitals and critical access hospitals with pending appeals are eligible for this program. To be eligible for settlement, a claim must: (i) be Medicare Fee-For-Service (not Medicare Advantage); (ii) have a date of admission that is earlier than October 1, 2013; (iii) have been denied by a Medicare contractor (e.g., RAC, ZPIC or MAC); and (iv) be based on a finding that, while the services may have been reasonable and necessary, provision on an inpatient basis was not. CMS hopes this administrative offer will reduce the number of pending appeals and provide timely partial payment for hospitals’ appealed claims.

CMS’ settlement offer promises hospitals a guaranteed return on their appeals and a quicker resolution than waiting for their turn in the case backlogs of administrative law judges. On the other hand, hospitals must balance these advantages against the rights they would give up in accepting the settlement. Here are 10 considerations that a hospital should weigh prior to accepting CMS’ offer:

  1. Inpatient Status Claims Only. As the settlement applies only to inpatient status denials, it offers hospitals the opportunity to resolve only a segment of its potential claims. Hospitals will need to consider whether the offer will resolve a sufficient number of claims to justify the settlement amount.
  2. Relinquishment of Part B Billing Rights. In agreeing to the settlement, a hospital relinquishes the right to bill any eligible services as a Part B claim. If the hospital forgoes the settlement, it may resubmit any upheld denials that are eligible under Part B. Under Part B, the hospital may be able to recoup between 30 and 50 percent of the denied claim. Thus, a hospital must consider whether the settlement still offers a better chance at maximizing its recovery, given its potential ability to resubmit denied claims under Part B.
  3. No Interest Payment. Hospitals may be entitled to interest payments on successfully appealed claims. If a hospital participates in the settlement offer, it forfeits its rights to interest payments. Given that a hospital may have a significant number of appeals that have been pending for a number of years, hospitals must balance forfeiting potentially significant, accumulated interest against the value of immediately receiving funds.
  4. All or Nothing. As a condition of settlement, a hospital must submit all of its inpatient status claim denials to CMS. Each hospital should consider the overall strength of its portfolio of claims before participating. A hospital with a significant number of weaker claims may find settlement more appealing than hospitals where the reverse is true.
  5. Claims Will Remain Denied. Claims will remain denied in the CMS system after settlement. Hospitals should consider the impact that records of denial may have on secondary funds from payors, cost reports and GME Medicare Part A percentages. CMS has stated that it believes secondary payors will continue to follow their normal process on claim denials.
  6. Timing. CMS has promised payment within 60 days of executing the settlement agreement with the hospital. However, before a final agreement can be executed, CMS will review the submitted claims and, if a discrepancy exists between the hospital and CMS’ records, require a revised list of claims. Totaling all of CMS’ maximum estimates for the timing involved in the review process yields an upper bound of 102 days. However, given the unprecedented nature of the settlement offer, actual results may vary. Each hospital should evaluate the current stage of its eligible appeals to determine whether settlement is justified by timing considerations.
  7. Contracts with Contractors. A hospital also should consider the settlement in light of its contracts with independent contractors or outside legal counsel. If a hospital contracts with a third party to handle its Medicare claim denials, the agreement may stipulate a percentage recovery regardless of whether the claim is settled or successfully appealed. Given its contractual arrangements, a hospital should consider the likelihood and degree to which a settlement will reduce its legal and administrative fees.
  8. Larger Health Systems. Hospital settlements are offered for all claims associated with a particular Medicare provider number. As a result, a health system with multiple provider numbers should consider whether partial participation, based on a particular provider number or numbers, is more advantageous than all-or-none. Health systems with only one provider number will need to determine whether the settlement would be preferable to pursuing appeals across all associated hospitals.
  9. The 68-Percent Offer. CMS’ 68-percent offer is based on the net paid/payable amount, which means calculated after any deductible and coinsurance. Therefore, to determine CMS’ actual settlement offer, a hospital must subtract the deductible and coinsurance from the DRG payment with any DSH or IME add-on.
  10. One-Time Offer. CMS has stated this offer is “one-time” and requires submission of all claims by October 31, 2014. However, CMS has provided some flexibility to hospitals that are unsure or unable to submit on time. Each hospital will have 14 days to back out of the offer after CMS reviews the hospital’s first submission of eligible claims. Further, a hospital may request an extension of the October 31, 2014, deadline. However, as CMS has not provided guidance on whether such requests will be routinely granted, we encourage interested hospitals to submit their claims by this date.

If you have any questions about this program or other Medicare claim issues, please contact one of the authors of this article.