For many years, CMS policy has been that, if an inpatient admission was denied for medical necessity reasons, the hospital could bill under Part B for only a limited set of services that, significantly, did not include observation services or any therapeutic procedures. Many hospitals that have appealed these denials have convinced the ALJs that, even if the admission was denied, the hospital should nonetheless be paid as if the patient was an outpatient, providing payment for the full range of outpatient services.

In response to these ALJ decisions, CMS has now taken steps to address this issue of how hospitals may bill for Part B services for those inpatient admissions that have been found to be medically unnecessary. On March 13, 2013, CMS issued both Ruling CMS-1455-R [PDF] and a proposed rule [PDF], which were published in the Federal Register on March 18, 2013. While these purport to provide a modicum of relief to hospitals, that relief is not as broad it might first appear.

The Ruling

The Ruling, which is effective immediately and until such time as a final rule is published, applies to situations where:

• a Medicare contractor has denied a claim because the inpatient admission is determined to be not reasonable and necessary; and
• the denial occurs while the Ruling is in effect, or prior to the effective date but for which either an appeal is pending or the timeframe for appeal has not expired.

For these situations, the hospital may submit a bill for Part B services that would have been payable had the beneficiary originally been treated as an outpatient, except for services that specifically require an outpatient status (e.g., observation, emergency department visits, and outpatient visits). The hospital may also bill for any pre-admission services that were rolled into the inpatient admission under the 3-day window rule. Any such Part B bill must be submitted within the following timeframes:

• if a hospital withdraws a pending appeal for an inpatient denial, within 180 days of the date of receipt of the dismissal notice;
• if a hospital does not withdraw a pending appeal for an inpatient denial, within 180 days of a final, binding unfavorable decision; or
• if a hospital receives a denial and there is no pending appeal and the hospital will not file such an appeal, within 180 days of the initial or revised determination.

The Ruling also restricts the ability of ALJs and the Medicare Appeals Council to award payment under Part B, by limiting their scope of review to the medical necessity of the Part A inpatient admission.

Notably, the Ruling does not apply to unnecessary admissions identified by the hospital through self-audit, presumably after billing.

The Proposed Rule

In its proposed rule, CMS purports to codify much of the policy set forth in the Ruling: hospitals that receive medical necessity denials from the Medicare contractor can rebill for an expanded list of Part B services, but that list does not include observation services, emergency department visits or other services that require an outpatient status. They will also be able to bill for services that were rolled into the admission under the 3-day window rule. In addition, if a hospital determines on its own, prior to billing but after a patient is discharged, that the admission was not medically necessary, it would be permitted to bill for the list of Part B services. Additionally, as with the Ruling, the proposed rule purports to limit the scope of review by ALJs and the Medicare Appeals Council to the medical necessity of the Part A admission. The ALJ and Medicare Appeals Council would not be permitted to award payment for outpatient Part B services.

A major difference between the proposed rule and the Ruling is that, under the proposed rule, the Part B claim must be submitted within one year of the date of service. Needless to say, the initial denial of a Part A claim may not take place within one year, nor is it conceivable that the hospital could obtain an ALJ decision on that denial within one year of the date of service. Thus a hospital must, in effect, choose between appealing the Part A denial or billing under Part B.

Ober|Kaler’s Comments

CMS’s Ruling and proposed rule were accompanied by agency statements that heralded the actions as good news for providers. According to these statements, CMS was acquiescing to the many ALJ and Appeals Council decisions that had ruled against the agency and had awarded Part B payments for a broad number of outpatient services following a Medicare contractor’s denial of a Part A admission as medically unnecessary. To be sure, there is some good news in the CMS Ruling and proposed rule in that CMS has expressed a willingness to make payment for a somewhat broader scope of Part B services than it has been willing to pay in the past. That said, the conditions that CMS has placed on providers’ obtaining this relief are numerous and significantly lessen the benefits that the revised policies confer. Providers would be well advised to study both documents carefully and to take the opportunity to comment on the content of the proposed rule. Comments are due by May 17, 2013.