AHA Files Lawsuit Against HHS Regarding Full Part B Reimbursement

November 2, 2012

On November 1, 2012, the American Hospital Association (AHA), along with four hospitals, filed a lawsuit against the U.S. Department of Health and Human Services (HHS) in the U.S. District Court for the District of Columbia. The lawsuit, which names as the defendant Kathleen Sebelius in her official capacity as the Secretary of HHS, alleges that the Medicare program has engaged in an unlawful government practice in its refusal to reimburse hospitals for full Part B reimbursement where an Part A inpatient admission is denied by a Recovery Audit Contractor because the inpatient services were provided in the wrong setting, i.e. the services should have been provided in an outpatient setting.

Since the Recovery Audit Contractor Demonstration Program, Wachler & Associates has worked with the AHA to play an active role in the efforts to obtain full Part B reimbursement for hospitals with Part A inpatient admissions denied as not medically necessary by Recovery Audit Contractors (RACs). From our own experience, we have obtained success on behalf of our hospital clients through the administrative law judge hearing stage of appeal. Many administrative law judges have recognized that hospitals are entitled to full Part B reimbursement where inpatient admissions are denied as not medically necessary. As such, administrative law judges specifically order full Part B reimbursement for hospitals. The roadblock following ALJs orders, however, was that Medicare Administrative Contractors (MACs) would refuse to effectuate payment. In an almost ironic turn of events, in a July 13, 2012 memorandum that our firm obtained from a MAC, the Centers for Medicare & Medicaid Services (CMS), while professing that it still believed that hospitals were not entitled to full Part B reimbursement in these situations, directed all MACs and other fiscal intermediary contractors to effectuate ALJ orders for full Part B reimbursement. Although CMS's July 13 memorandum was promising for hospitals with ALJ orders for full Part B reimbursement, the fact remains that to obtain an ALJ order for full Part B reimbursement a hospital must proceed through the arduous Medicare appeals process. Therefore, the lawsuit recently filed by the AHA is an important step towards challenging the core of CMS's policy that hospitals are not entitled to full Part B reimbursement where an impatient admission is denied because the services were provided in the wrong setting.

The lawsuit filed by the AHA alleges that CMS's policy against full Part B reimbursement, or as coined in the complaint CMS's "Payment Denial Policy", violates requirements of the Federal Administrative Procedures Act as well as the requirement in the Medicare Act to pay for medically necessary hospital services. The complaint, released today by the AHA, articulately outlines CMS's refusal to provide hospitals with full Part B reimbursement and the effect CMS' refusal has on hospitals and patient care. The complaint states, "CMS simply refuses to pay hospitals for services that it acknowledges are covered under Medicare Part B and that it acknowledges were reasonable and necessary in the particular case." The complaint continues, "[b]oth the uncertainty and the actual loss of Medicare funds ultimately may adversely affect patient care." Furthermore, AHA's complaint also accurately explains the uncertainty of CMS's exact justification for its "Payment Denial Policy." The complaint states that CMS has made no effort to articulate a statutory justification or any justification for its policy.

The aggressiveness of RAC audits, the uncertainty of appropriate reimbursement, CMS's failure to articulate a justification for its policy, and the effect on patient care when hospitals do not receive accurate payment, all underscore the importance of the concentrated efforts to obtain full Part B reimbursement for hospitals. AHA's complaint is an important step towards highlighting the broad implications of CMS "Payment Denial Policy" and, hopefully, obtaining a long-term solution for hospitals and Medicare beneficiaries.

For more information on the effort to obtain full Part B reimbursement for hospitals, or assistance with a RAC audit, please contact a Wachler & Associates attorney at 248-544-0888.