The Centers for Medicare & Medicaid Services (CMS) released a ruling and an interim rule that, effective immediately, will allow hospitals to rebill certain inpatient hospital services as outpatient services for one year after the date of service.  The proposed rulemaking and ruling came in response to a lawsuit filed in November 2012 by the American Hospital Association (AHA) and others alleging that CMS acted unlawfully by failing to pay hospitals for certain audited hospital claims because they were rendered in an inpatient setting, even though all agreed that the services were reasonable and medically necessary and reimbursable if billed on an outpatient basis.  American Hospital Association et al. v. Sebelius, Case No. 1:12-cv-1770 (D.D.C. Nov. 1, 2012). 

The lawsuit specifically addressed the difficulty that hospitals were experiencing with Medicare Recovery Audit Contractor (RAC) denials of inpatient claims where the RAC determined that an inpatient level of care was not medically necessary.  In those cases, the RAC refused to limit recoupment of the inpatient reimbursement by offsetting what the hospitals would have received had they billed the services as outpatient visits.  Because the services were usually provided years before the audit date and Medicare has very restrictive rules concerning changing a hospital patient’s admission status, hospitals faced the prospect of receiving no payment for the valuable services provided.  Accordingly, they sued to challenge the legality of the effective prohibition on rebilling services as outpatient claims.   

On March 13, 2013, CMS issued CMS Ruling 1455-R and an advance notice of its proposed rulemaking (CMS Proposed Rule 1455-P).  Although the ruling and the proposed rule are interim measures while CMS engages in formal rulemaking, both manifest CMS’ intention to allow hospitals to rebill Medicare for Part B covered services in limited situations.

The ruling, which is effective immediately and remains in effect until CMS issues final regulations on the subject, applies to any hospital inpatient claim that is denied by a Medicare auditor, such as a RAC, because the inpatient site of service was not medically necessary.  The ruling allows hospitals to choose either to pursue administrative appeals challenging the inpatient (Medicare Part A) reimbursement denial or withdraw the appeal and submit an outpatient claim for reimbursement.  Hospitals that pursue appeals but are ultimately unsuccessful in reversing the Part A claim denial still will have 180 days from receipt of the unfavorable decision to rebill as an outpatient service (under Medicare Part B).  But if the hospital chooses to withdraw its appeal, it has 180 days from its receipt of the dismissal notice to file a Part B claim.  The ruling applies as long as the denial was made: (1) while the ruling is in effect; (2) prior to March 13, 2013 and the time limit to file an appeal has not expired; or (3) prior to March 13, 2013 if an appeal is already pending.  The ruling does not apply to Part A hospital inpatient claims if the time to appeal expired prior to March 13, 2013 or to any inpatient admission that the hospital itself deemed  to be not reasonable and necessary (for example, through the hospital’s own case management or utilization review).

The proposed rule, which is not limited to claims denied by a Medicare RAC, would permit hospitals to bill for all reasonable and necessary services provided to an inpatient on a Part B inpatient claim, as opposed to the current policy that permits hospitals to bill for only a limited list of Part B inpatient ancillary services.  Unlike the ruling, however, the proposed rule would apply Medicare’s existing timely filing deadline—one year from the date of service—which will significantly reduce the number of claims a hospital can rebill, particularly for Medicare RAC denials that have dates of service up to three years before audit.

© 2013 Perkins Coie LLP