In today's audit landscape, hospitals' inpatient short-stay claims are receiving increased attention from the Centers for Medicare & Medicaid Services (CMS). On Nov. 15, 2011, CMS announced the launch of two demonstration programs that directly impact hospitals, specifically as it pertains to these claims. The first such program, called the Part A-to-Part B Rebilling Demonstration Program, is voluntary. The second program, the Recovery Auditor Pre-Payment Review Demonstration Program, however, is mandatory for providers in 11 states.[2] Whether included in either of these programs or not, hospitals must be aware of the most current audit developments affecting them and effective strategies to employ during the audit appeals process.

AB Rebilling Demonstration Program

The Part A-to-Part B Rebilling Demonstration Program reflects CMS's stated goal to reduce improper payments from the Medicare program, and it will involve the participation of up to 380 hospitals.[3] The program's participants, determined through a first-come, first-serve application process, will consist of 80 large hospitals (300 or more beds), 120 moderate-sized hospitals (100-299 beds) and 180 small hospitals (99 or fewer beds).[4] The program will run for three years, from Jan. 1, 2012 to Dec. 31, 2014. Enrollment for the program opened at 2 p.m. EST on Dec. 12, 2011.

The AB Rebilling Demonstration Program only will involve the rebilling of certain claims for Part B reimbursement. Specifically, it will center on short-stay inpatient claims (denied on or after Jan. 1, 2012) that are denied by a Medicare Administrative Contractor, a Zone Program Integrity Contractor, a Recovery Auditor or Comprehensive Error Rate Testing (CERT) when services are determined to have been provided in an incorrect setting. Under the program, these claims can be resubmitted as new claims for outpatient services provided. In addition, short-stay inpatient claims self-identified by a provider as being rendered in the incorrect setting after services were provided and billed may be resubmitted as new claims for outpatient services.[5]

Under the program, once a hospital rebills a claim for Part B reimbursement it will receive 90 percent of the total Part B payment (not including observation services), but still will be required to refund the difference of the beneficiary's co-pay and deductible due under Part A and Part B.[6] CMS expressed its rationale for the 90 percent provision during its Nov. 30, 2011 Special Open Door Forum. The agency noted that it did not want to provide 100 percent of Part B reimbursement because it did not want to incentivize inaccurate billing, fearing that full payment would encourage hospitals to "game" the system.

One of the most concerning aspects of the AB Rebilling Demonstration Program is the requirement that participants waive their right to appeal all inpatient short-stay claims denied for lack of medical necessity when services are determined to have been provided in an inappropriate setting.[7] This highlights the inequity of a system in which a provider must choose between either appealing the denial of an inpatient claim and being unable to rebill the claim for outpatient reimbursement or rebilling the claim for 90 percent reimbursement of the Part B outpatient portion, yet waiving all due process rights.

Recovery Audit Pre-Payment Review Demonstration Program

Again, unlike the AB Rebilling Demonstration Program, the Pre-Payment Review Demonstration Program is mandatory and will have a dramatic effect on providers in the 11 participating states because it allows Recovery Auditors (RACs) to conduct pre-payment reviews on providers' Medicare claims.

In states outside of the demonstration program, RACs only may conduct post-payment reviews of providers' Medicare claims. However, on Dec. 30, 2011 CMS announced that the implementation of the Recovery Audit Pre-Payment Review Demonstration Program was being delayed until further notice. There has been no indication that this delay will be indefinite, therefore it is still important for providers to understand the basics of the program.

The Recovery Audit Pre-Payment Review Demonstration Program will allow RACs to review claims before they are paid to ensure that providers are complying with all Medicare payment rules.[8] The 11 states CMS selected for the demonstration program included Florida, California, Michigan, Texas, New York, Louisiana, Illinois, Pennsylvania, Ohio, North Carolina and Missouri. Under the current plan CMS will roll out the demonstration program with a focus on inpatient short-stay claims, focusing on MS-DRG 312 Syncope & Collapse as the only claim initially subject to review. However as the program progresses, CMS will initiate pre-payment review of seven more DRGs. CMS likely will add even more claims, including physician claims, as the demonstration program proceeds. Furthermore, the program is being introduced in addition to, and not in replacement of, the current RAC Program. The limit on the number of medical records eligible to be reviewed by the contractors is the same as that which exists under the post-payment RAC program; therefore, the limits may be doubled for hospitals in the demonstration states.

Despite CMS's focus on the positives of the Recovery Audit Pre-Payment Review Demonstration Program, there are very serious implications for providers subject to its provisions.

Specifically, the program highlights the difficulty in balancing Medicare program integrity with the detrimental effects a pre-payment review has on Medicare providers. Pre-payment review is an aggressive and effective method for contractors to audit providers and prevent improper payments.  This method threatens providers, however, because it significantly impacts cash flow, and there are no substantive criteria or procedures in place to determine placement on (or removal from) pre-payment review lists. For hospitals in the demonstration program, they will have no choice but to experience pre-payment review and the possible devastating impacts it may have on their finances.