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Medicare Appeals Council requires RACs to use covered Medicare Part B services to off-set a Medicare Part A overpayment

In a decision issued February 10, 2010, the Medicare Appeals Council reached a decision on an appeal from the RAC Demonstration Project. The Recovery Audit Contractor (RAC) initially found that the provider had received an overpayment for the inpatient services covered under Medicare Part A, but the beneficiary met the criteria for outpatient observation. Nevertheless, the RAC denied the entire claim. The provider ultimately appealed to an Administrative Law Judge (ALJ). The ALJ’s decision was “partially favorable.” The ALJ denied Medicare Part A coverage for the inpatient services, but found that the “observation and underlying care” services under Medicare Part B were warranted. The Medicare Appeals Council followed the ALJ’s decision, stating that the Centers for Medicare and Medicaid Services’ (CMS) Medicare Benefits Policy Manual clearly indicates that the payment may be made for covered hospital services under Part B, if a Part A claim is denied for one of several reasons. The Council required the RAC to work with the provider to arrange for billing under Part B, and offset any Part A overpayment.

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