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CMS Issues Much Anticipated Final Rules on Payment of Medicare Part B Inpatient Services and Payment of Hospital Inpatient Services under Medicare Part A

On August 2, 2013, the Centers for Medicare & Medicaid Services (“CMS”) released its much-anticipated final rules, CMS-1455-F and CMS-1599-F, finalizing two previously issued proposals that addressed payment policies related to patient status in short-stay hospital cases: (1) payment of Medicare Part B inpatient services; and (2) admission and medical review criteria for payment of hospital inpatient services under Medicare Part A. The effective date of the final rule is October 1, 2013.

Notwithstanding these final rules, CMS stated that hospitals will be permitted to follow the Part B billing timeframes established in CMS-1455R Ruling regarding appeals and the submission of Part B claims after the effective date of the final rule, provided (1) the Part A inpatient claim denial was one to which the Ruling originally applied; or (2) the Part A inpatient claim has a date of admission before October 1, 2013, and is denied after September 30, 2013, on the grounds that the medical care was reasonable and necessary, but the inpatient admission was not.

Payment of Medicare Part B Inpatient Services

First, CMS finalized its March 13, 2013 Proposed Rule CMS-1455-P. This rule states that when a Medicare Part A claim for hospital inpatient services is denied because the inpatient admission was determined to be not medically reasonable and necessary, the hospital may be paid for the Part B services that would have been reasonable and necessary if the beneficiary had been treated as a hospital outpatient rather than admitted as an inpatient, provided the beneficiary is enrolled in Medicare Part B. CMS excluded observation services, outpatient diabetes self-management training (DSMT), and hospital outpatient visits from payment as Part B inpatient services when the inpatient admission is determined to be not reasonable and necessary for Part A payment and the hospital rebills Part B. CMS reiterated that hospitals may not be reimbursed for services specifically required for outpatient status.

However, CMS stated that claims for Part B services must still be filed within 1 year from the date of service. Despite receiving over 300 comments requesting that CMS create an exception to the 1-calendar year time limit to file claims, CMS declined to do so, stating that the final “2-midnights” presumption and benchmark, discussed below, would offer more clarity to aid hospitals in billing Part A claims.

Admission and Medical Review Criteria for Payment of Hospital Inpatient Services Under Medicare Part A

CMS also finalized its ruling revising and clarifying the definition of an appropriate hospital inpatient admission which must be met by providers to receive payment under Medicare Part A. As of October 1, 2013, treatment will be generally deemed appropriate for inpatient hospital admission and payment under Medicare Part A when the physician expects the patient to require a stay that crosses at least 2 midnights and admits the patient to the hospital as an inpatient based upon that expectation. CMS stated that it was finalizing two distinct, though related, medical review policies: a 2-midnight presumption and a 2-midnight benchmark.

Under the 2-midnight presumption, inpatient hospital claims with lengths of stay greater than 2 midnights after the formal admission following the order will be presumed to be appropriate for Part A payment. CMS stated that these admissions will not be the focus of medical review efforts absent evidence of systematic gaming, abuse, or delays in the provision of care in an attempt to qualify for the 2-midnight presumption. However, CMS also noted that review contractors will still assess claims where the beneficiary plan of care after admission crosses 2 midnights: (1) to ensure the services provided were medically necessary; (2)to ensure that the stay at the hospital was medically necessary; (3) to validate provider coding and documentation as reflective of the medical evidence; (4) when the CERT Contractor is directed to do so under the Improper Payments Elimination and Recovery Improvement Act of 2012; or (5) If directed by CMS or other authoritative governmental entity (including but not limited to the HHS Office of Inspector General and Government Accountability Office).

Under the 2-midnight benchmark, if the physician admits the beneficiary as an inpatient but the beneficiary is in the hospital for less than 2 midnights after the order is written, CMS and its medical review contractors will not presume that the inpatient hospital status was reasonable and necessary for payment purposes. In reviewing the medical record for Part A reimbursement for inpatient stays lasting less than 2 midnights to determine whether payment under Part A is appropriate, Medicare review contractors will (1) evaluate the physician order for inpatient admission to the hospital, along with the other required elements of the physician certification, (2) review the medical documentation supporting the expectation that care would span at least 2 midnights, and (3) evaluate the medical documentation supporting a decision that it was reasonable and necessary to keep the patient at the hospital to receive such care. CMS added that, upon medical review, the time spent as an outpatient will be counted toward meeting the 2-midnight benchmark that the physician is expected to apply to determine the appropriateness of the decision to admit. In other words, even though the inpatient admission only lasted 1-Medicare utilization day, medical reviewers will consider the fact that the beneficiary received services in the hospital for greater than 2-midnights following the onset of care when making the determination of whether the inpatient stay was reasonable and necessary. However, CMS noted that inpatient-only procedures currently performed as inpatient 1-day procedures will continue to be provided as inpatient 1-day procedures. Therefore, this rule will not result in any change in status or reimbursement.

What is the Next Move for Hospitals?

Wachler & Associates will continue to review the final rule and monitor any further developments as October 1, 2013 approaches. Prior to the effective date of October 1, 2013, hospitals should consider investing in compliance efforts such as regulation analysis, training, and policy revision to ensure compliance with this final rule. For dates of service after October 1, 2013, the clinical and legal arguments on appeal will require revised analysis and templates to address the new criteria. If you need help developing a compliance plan or reviewing and refining your existing audit defense strategies in light of the final rule, please contact an experienced healthcare attorney at 248-544-0888.