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CMS Rule Change Affects Incorrect Medicare Part A Payments

CMS issued a new rule on March 13, 2013, allowing providers to be paid for services billed under Medicare Part A, which should have been billed under Part B. However, a notice of proposed rulemaking issued the same day states that those claims must still be submitted within a strict one-year window that renders the new rule ineffective. 

It has been CMS’ policy that if a provider incorrectly billed under Part A for services that should have been billed under Part B (e.g., if an inpatient procedure should have been performed on an outpatient basis), the provider forfeited its right to receive any payment for services rendered. CMS told providers that they could not get paid even though they performed a medically necessary service covered by Medicare.

Medicare Recovery Audit Contractors (“RACs”)—private companies that contract with the federal government to audit Medicare payments—seized on this policy and aggressively pursued providers on determinations of whether inpatient admissions were medically necessary. Since RACs are paid on a contingency fee basis, these claims were highly lucrative ones to pursue given that the entire payment for the service was at stake.

In November 2012, the American Hospital Association (“AHA”) directly challenged CMS’ policy by bringing a lawsuit in federal court. The AHA’s lawsuit alleged that CMS’ policy was unlawful because it violated various federal laws, including the Medicare Act itself. As an example of the injustice caused by CMS’ policy, the AHA’s lawsuit cited the experience of Munson Medical Center, a 391-bed hospital in Traverse, Michigan. According to the AHA’s lawsuit, between 2007 and 2012, Munson provided 1,526 patient records to a RAC to review the medical necessity of inpatient admissions. The RAC determined that at least 844 patients should not have been admitted as inpatients, and demanded that Munson repay $6,485,000 (of which $810,625 would go to the RAC as its contingency fee). The RAC demanded the full repayment despite the fact that it had determined that many of the services were medically necessary.

CMS’ new rule takes one step forward by changing the longstanding unfair policy, but then takes two steps back by enforcing the timely filing restrictions for resubmission under Part B. Claims must be filed within one year from the date of service to be timely under Part B. Applying the one-year limitation to Part A claims that are resubmitted under Part B renders the rule change nearly meaningless because RAC audit denials and the appeals that follow regularly take place more than one year after the date of service. In response to the announced rule change, the AHA stated that it will continue to pursue its lawsuit.

Providers should be aware of the new rule and use it to challenge RAC denials. We will keep you apprised of developments in the AHA’s lawsuit and how it may impact strategies for dealing with RAC audits.