Wachler & Associates Health Law Blog

On May 1, Recovery Audit Contractor (“RAC”) for Region B, CGI Federal, Inc., (“CGI”) filed a lawsuit against the United States Department Health and Human Services (“HHS”) in the United States Court for Federal Claims.

In the lawsuit, CGI seeks an injunction against the HHS’s award of new RAC contracts and to eliminate the new payment terms that prohibit RACs from being paid until after the second level of appeal. The lawsuit comes after CGI’s pre-award bid protests, where CGI asked for a change to the new payment terms, were denied by the Government Accountability Office (“GAO”).

Towards the end of 2013 and the beginning of 2014, CMS sent out a request for quotes (RFQ) for new RAC contracts. The Statement of Work, which accompanied the RFQ, contained most of the changes to which CGI objects. CGI’s main objection is to the changes in the payment terms. Under the current system, RACs bill and receive their contingency fees after the first level of appeal of a claim determination, which takes roughly 120 days. Under the new model, RACs would not receive their contingency fees until after the second level of appeal, which could span anywhere from 120 to over 400 days.

Earlier this month, CMS released its first set of Medicare Provider Utilization and Payment Data for physicians and physician practices. As part of the Obama Administration’s efforts to make Medicare more transparent, CMS has prepared a public data set providing information on services and procedures provided to Medicare beneficiaries under Medicare Part B. This information includes the types and number of services and procedures provided by physicians, as well as the amount of payments each physician received from the Medicare program in calendar year 2012.

According the data, office/outpatient evaluation and management services (e.g., CPT codes 99213 and 99214) were the most frequently billed services by physicians and accounted for nearly $11 billion of the $77 billion in Medicare payments to physicians in 2012.

Physician evaluation and management (E/M) services have been an increasing focus of audits by CMS contractors – typically, Medicare Administrative Contractors (MACs) and Zone Program Integrity Contractors (ZPICs). Furthermore, with the moratorium on Recover Audit Contractors (RACs) ability to audit Part A hospital claims being extended to March 2015, we expect the RACs to shift their audit focus from Part A to Part B claims. Based on the changing audit landscape and the utilization and payment data recently released by CMS, physicians can only expect to be an even greater target of Medicare audits.

With the “doc-fix” bill extending the enforcement delay of the two-midnight rule to March 31, 2015, the American Hospital Association (AHA) has decided to use that time challenging the new inpatient admission rules. Earlier this week, AHA filed a lawsuit in the United States District Court for the District of Columbia challenging the “arbitrary standards and documentations requirements” of the new inpatient admission rules which “deprive hospitals of Medicare reimbursement to which they are entitled.”

Specifically, AHA is challenging the definition of “inpatient” under the two-midnight rule, alleging that CMS’s “inpatient” definition requiring a patient to spend two nights in the hospital is arbitrary and capricious because it bears no resemblance to the actual definition of “inpatient” and CMS has made no attempt to explain its reasoning for adopting such a meaning. Additionally, AHA is challenging the Final Rule’s application of the one year time limit to file a Part B claim when a Part A inpatient claim is denied as not being medically necessary and reasonable. Recovery audit contractors (RACs) typically conduct post-payment reviews of inpatient hospital admissions with dates of admission in which the one year rebilling deadline has already elapsed. Finally, AHA asserts that CMS’s new requirement that all short-stay inpatient admissions include a physician order for admission as a condition of Part A payment is unlawful. Through its lawsuit, AHA seeks for the court to vacate and set aside the two-midnight rule, the one year time limit, and the physician order policy.

Wachler & Associates will continue to monitor the current AHA lawsuit, as well as any further developments regarding CMS’s new inpatient admission policies. If you have any questions pertaining to the two-midnight rule or the physician certification and order requirements, please contact an experienced health care attorney at Wachler & Associates via phone at 248-544-0888 or via email at wapc@wachler.com.

On Wednesday, March 12, Moody’s Investor Services released a report predicting that Medicare’s new inpatient admissions policy, the “Two-Midnight rule”, will negatively affect hospitals’ bottom lines. The Two-Midnight rule instructs physicians and hospitals to use a two-midnight benchmark and order admission for patients expected to require hospital care crossing at least two midnights.

The Moody’s report stated that “on average, the [Two-Midnight] rule could cause revenue reduction averaging $3,000 to $4,000 per case.” The report suggests that these reduced reimbursement rates will be especially devastating since the cost of treating patients will remain the same. The report also suggests that the Two-Midnight rule will expedite the already increasing trend of more outpatient observation stays, which will put more pressure on hospital revenues. The impetus for this increasing trend of outpatient care observation stays has been the frequent challenges by RACs to the medical necessity requirement of short-stay admissions.

The report also concludes that under the Two-Midnight rule, hospitals with shorter lengths of stay will be most affected. The hospitals that are expected to be most affected are classified as ‘low acuity’ community hospitals. While these types of hospitals tend to have a larger number of cases resulting in shorter hospital stays, these stays typically still consume a large of amount of resources, such as diagnostic testing.

On April 1, 2014, President Barack Obama signed into law a bill (H.R. 4302) extending the enforcement delay of the two-midnight rule. Under the newly adopted law, Recovery Audit Contractors (RACs) will not conduct patient status reviews of inpatient hospital admissions on a post-payment basis until March 31, 2015. The two-midnight rule, which took effect October 1, 2013, provides that inpatient hospital admissions are generally appropriate when the physician expects the beneficiary will require medically necessary hospital services for 2 or more midnights. Since taking effect, hospitals’ inpatient admission claims under the two-midnight rule have been free from review by the RACs.

Prior to the extended enforcement delay to March 31, 2015, the enforcement of the two-midnight rule was previously delayed by CMS to March 31, 2014, and again to September 30, 2014. Also extended to March 31, 2015 under the new law is the Medicare Administrative Contactors’ (MACs) ability to conduct “Probe and Educate” reviews of a limited set – 10-25 claims depending on the size of the hospital – of inpatient admission claims for each hospital, which are conducted on a prepayment basis. When conducting “Probe and Educate” reviews, CMS has instructed the MACs to review hospital’s compliance with the admission order requirements, the certification requirements, and the two-midnight benchmark.

Until March 31, 2015, hospital inpatient admissions under the two-midnight rule will be subjected only to a limited number of prepayment claim reviews by the MACs. Thus, for inpatient claims with dates of admission October 1, 2013 through March 31, 2015, the RACs will not conduct prepayment reviews, and both the RACs and the MACs will not conduct post-payment reviews.

On Thursday, in a bipartisan effort, two senators unveiled a proposed bill that attempts to clarify the infamous two-midnight rule. Senator Robert Menendez, a Democrat from New Jersey and Senator Deb Fischer, a Republican from Nebraska are co-sponsors of the bill. Titled as Two-Midnight Rule Coordination and Improvement Act of 2014, the bill mirrors a similar one currently working its way through the House of Representatives and has the support of numerous hospital and doctor associations.

Most notably, the bill would require the Secretary of the Department of Health and Human Services to consult with interested stakeholders – such as hospitals, physicians, Medicare administrative contractors, recovery audit contractors, and other parties determined appropriate by the Secretary – to determine the criteria for short inpatient stays. Additionally, the bill would require CMS to develop a payment methodology for the shorter inpatient stays. Although, in developing the payment methodology, the bill does not require consultation with the same stakeholders used in developing the criteria for shorter inpatient stays, the bill strongly encourages CMS to consider the criteria that the stakeholders developed.

Equally important in the bill are the timing provisions relating to the implementation of the criteria for shorter inpatient stays. Most importantly, the proposed bill keeps the current enforcement delay in place. The bill would also provide an additional year long delay in the enforcement of the two-midnight rule if the criteria for shorter inpatient stays are not implemented during the IPPS annual notice and comment rulemaking process for fiscal year 2015. If the criteria are in place during the fiscal year 2015 rulemaking process (i.e., regulations are finalized in 2014), the bill authorizes RACs to begin their work at the time of implementation, but not prior to October, 1, 2014. This measure ensures that hospitals are not subject to audits until the criteria are made final.