Wachler & Associates Health Law Blog

As discussed in earlier posts, hospitals that participate in CMS’ upcoming Part A to Part B Rebilling Demonstration Program will be required to waive their right to appeal claims denied for lack of medical necessity for services provided in the inpatient setting. CMS’ rationale for this “all or nothing” approach is the concern that a participating hospital could appeal the denial of the Part A inpatient claim and at the same time resubmit the claim for Part B reimbursement. As any participating provider that intentionally engages in that type of billing practice would expose themselves to liability for double-billing, it is unrealistic for CMS to anticipate that participation in the demonstration program would encourage this behavior. During the RAC demonstration programs, in which hospitals were afforded the flexibility denied to them for the AB demonstration program, there was no evidence that hospitals tried to “game” the system.

Further, despite CMS’ overreaching concerns that hospitals will take advantage of a more flexible demonstration program that allowed case-by-case appeals, the agency’s concerns do not extend to the likelihood that RACs will take advantage of the demonstration program’s structure. CMS claims that the RACs will not know the hospitals that participate in the demonstration program, and therefore will not have an incentive to deny more claims from those hospitals knowing that they are immune from appeals. However, RACs will very likely know the participants because those hospitals will not submit appeals for the denied inpatient claims and the RACs will receive smaller contingency fees for those denied claims.

We strongly urge hospitals to participate in the CMS’ December 8 special Open Door Forum (details below). During the Open Door Forum, hospitals should express their dismay with the current structure of the demonstration program, specifically the waiver of any appeal rights for denied inpatient claims. In addition, hospitals must incorporate into their RAC appeals process the effort to obtain Part B payment for inpatient services denied as not medically necessary. Only through a concerted effort by the hospital industry will we convince CMS to modify the current rebilling system.

This afternoon, CMS conducted the first special Open Door Forum (ODF) on the Part A to Part B Rebilling Demonstration Program. The ODF involved a brief overview of the Demonstration Program followed by many questions by the ODF participants. Although the ODF provided some clarification on the Demonstration Program, CMS’ answers also gave rise to many concerns regarding the fairness of the Demonstration Program.

One of the most serious concerns is a Demonstration Program participant’s right to appeal a denial of an inpatient claim. According to CMS’ answers from callers’ questions, participation in the Demonstration Program is “all-or-nothing”. This means that if a participant’s claim is denied for lack of medical necessity for services provided in the inpatient setting, the participant’s only option is to resubmit the claim for outpatient reimbursement. Even if the participant disagrees with the contractor’s denial of the inpatient claim, the participant will not be allowed to appeal the inpatient denial. Clearly this limitation has very serious consequences for hospitals because it requires participants to waive all of their due process rights for these claims. First, between the RAC Demonstration Program and Permanent Program we have had success in overturning 90% of short-stay inpatient claims denied for services provided in the wrong setting. Accordingly, requiring a hospital to waive the right to challenge these denials appears to be a high price to pay to participate in the AB Demonstration Program. The limitation highlights the inequity of a system where a provider must choose between either appealing the denial of an inpatient claim, but being unable to rebill the claim for outpatient reimbursement or rebilling the claim for 90% reimbursement of the outpatient claim, but waiving all due process rights.

In a program where RACs are paid through a contingency fee based upon the dollar amount of claims they deny, it is concerning that RACs now have an incentive and unbridled discretion to deny inpatient claims where there will be no right to appeal. During the ODF, CMS insisted that the RACs will not be informed of the hospitals participating in the demonstration program and thus, will not have an incentive to deny more inpatient claims. However, RACs will likely be able to deduce the participants because the participants will not appeal any inpatient claim denials and RACs contingency fee for participants will be different from non-participants. Specifically the contingency fees that RACs will receive as a result of denials from participants will not be the contingency fee of the full inpatient claim or the outpatient claim, but of the difference between the full inpatient claim and outpatient claim. This differential will be unique to program participants. Therefore, it is likely that RACs will know the participants of the Demonstration Program and could target them because of the participants’ inability to appeal denied inpatient claims.