Articles Tagged with “Medical Necessity”

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Ensuring comprehensive documentation procedures are in place has become increasingly vital for all providers. However, recently compliance plans have become even more important for sleep labs, sleep centers, hospital-based sleep service providers, and non-hospital-based sleep service providers seeking Medicare reimbursement. According to a FY 2013 Department of Health & Human Services (HHS) Office of Inspector General (OIG) report, Medicare payments for sleep study services have dramatically increased since 2001, growing four-fold from $62 million in 2001 to $235 million in 2011. As a result of increased Medicare spending for sleep-related procedures, there is a spotlight on the appropriateness of Medicare-billed services.

Sleep study services encompass issues such as studies for obstructive sleep apnea (the most common sleep disorder), full-night sleep diagnostic studies, split-night studies, and full-night titration studies. Medicare reimburses sleep study providers at prearranged and set rates for polysomnography (the most popular tool utilized to diagnose sleep disorders), applicable services from the inpatient prospective payment system, the outpatient prospective payment system, the Physician Fee Schedule, and a range of sleep studies.

Sleep study service providers receiving Medicare payments should be prepared for the OIG’s scrutiny throughout 2013 by ensuring that claims are made according to Medicare regulations. In order to ensure proper compliance for full Medicare reimbursement, sleep study service providers must follow certain documentation and procedural requirements. Among other requirements, all documentation must provide rationale for services that were provided, as well as rationale for how providers arrived at a billing status. Detailed documentation is more important than ever.

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Since the RAC Demonstration Program launched in 2005 and the final RAC program launched in 2008, Wachler & Associates, P.C. has been instrumental in the effort to obtain full Part B outpatient reimbursement for hospitals where a short-stay inpatient claim has been denied for lack of medical necessity. Although our legal arguments for Part B payment resonated with many administrative law judges (ALJs) and ALJs would issue orders for full Part B reimbursement, we have been trying to establish a precise process to effectuate the orders for full Part B reimbursement, including observation services. Last week, after our ongoing communication with Centers for Medicare & Medicaid Services (CMS) and a Medicare Administrative Contractor, we obtained a CMS memorandum which provides a very specific avenue for hospitals to obtain full Part B reimbursement in the event that an inpatient claim is denied as not being medically necessary and reasonable and the ALJ issues an order for outpatient observation services.

The CMS memorandum dated July 13, 2012, is from a number of officials from CMS to “All Fiscal Intermediaries (FIs), Carriers, and Part A and Part B Medicare Administrative Contractors (A/B MACs)”. The memorandum explains that there have been multiple ALJ decisions where the ALJ has upheld the contractors’ denials of the inpatient services as not reasonable and necessary, but then ordered the contractor to pay the hospital full Medicare Part B outpatient reimbursement, including observation. As a result of these ALJ orders, CMS issued mandatory instructions for claims administration contractors to follow in the event that an ALJ decision instructs CMS to make payments for Medicare Part B outpatient/observation services. Most importantly, the instructions require contractors to contact the provider to obtain a Part B claim within 30 calendar days of receipt of the effectuation notice from the Administrative QIC (AdQIC). The instructions note that an order for outpatient/observation services is only required if the ALJ did not specify payment for observation level of care. In instances where the ALJ’s specified coverage of “observation level of care,” observation charges may be added to the replacement claim, as the ALJ is specifically substituting the order to admit for the order for observation. The provider must send the replacement claim to the contractor within 180 days from the date the contractor contacts the provider or else the contractor must close the case and consider effectuation completed.

While the memorandum states that the Manuals do not provide support for this position, CMS recognizes that ALJs are issuing orders for Part B observation services and are directing the claims administration contractors to effectuate an adjusted payment to the hospital in accordance with these decisions. As such, CMS issued this memorandum to clearly instruct claims administration contractors how to effectuate an ALJ’s order for payment for Part B observation services.

Wachler & Associates believes that this is an extremely important advancement in the effort to obtain accurate payment for hospitals where an inpatient short-stay claim has been denied for lack of medical necessity. Although there is still more work to be done to solidify hospitals’ ability to obtain Part B reimbursement, this memo is the most clear indication that we have received from CMS that contractors are now required to effectuate an ALJ’s order for Part B reimbursement. Persuading an ALJ to order payment for observation and all underlying outpatient care is a legal, not a clinical, argument. We have a number of legal arguments and authorities that we rely upon to persuade a judge to issue a precise order for Part B reimbursement, including observation services and underlying outpatient care.
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The American Hospital Association (AHA) reported on August 10 that the Centers for Medicare and Medicaid Services (CMS) have approved “medical necessity review” audits for the Recovery Audit Contractor (RAC) program.  According to the AHA, the approved audits include 18 types of inpatient hospital claims and one type of durable medical equipment claim.  Although the report did not include the specific new audit issues, providers should expect to see these issues posted on RAC websites and may begin receiving additional documentation requests (ADRs) within the next two weeks. 

For more information on recovery audit contractors, please visit or contact a Wachler & Associates attorney at 248-544-0888.  
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