By Andrew B. Wachler, Esq. and Jennifer Colagiovanni, Esq.

On Nov. 15 CMS unveiled a demonstration program that may provide some relief to hospitals whose inpatient claims are being denied as not medically necessary because care was not provided in the appropriate setting.

At the same time CMS announced the launch of a demonstration program that allows Recovery Audit Contractors (RACs) to conduct prepayment review on certain types of claims in 11 states - a move that could have significant consequences for many providers.

The Part A-to-Part B Rebilling Demonstration Program will allow participating providers to receive 90 percent of a Part B payment for Part A inpatient claims when an inpatient admission is denied as unreasonable and unnecessary.

Currently, if a Part A inpatient claim is denied on the basis that service could have been provided in an outpatient setting under Medicare Part B, the claim is denied in full and hospitals are not permitted to re-bill for Part B payments. Hospital providers also currently are forced to engage in costly and time-consuming appeals processes in order to obtain an order for full Part B reimbursement for inpatient short-stay claims denied under Medicare Part A.

Under the Part B Rebilling Demonstration Program, providers will be able to obtain 90 percent of the payable Part B amount but will not be permitted to charge beneficiaries for any additional copay or out-of-pocket costs. Hospitals participating in the demonstration project will be able to resubmit claims for outpatient payments when claims are denied during the audit process or when improper payments are self-identified. Those hospitals also will agree to waive their appeal rights to claims re-billed for Part B reimbursement.

Call for Volunteers

The demonstration program will accept 380 volunteer participants on a first-come, first-serve basis. In its recent notice regarding two upcoming Special Open Door Forums, CMS indicated that the pool of hospital participants will be stratified by size into three categories: "small hospitals," including facilities with fewer than 100 beds, "moderate hospitals," including facilities with 100 to 299 beds, and "large hospitals," including facilities with 300 or more beds. CMS has not yet indicated the number of hospitals that will be allotted to each category. CMS's Q&A regarding the rebilling demonstration indicated that enrollment for the program is scheduled to begin at 2 p.m. EST on Dec. 12. CMS also has specified that it will provide more information regarding enrollment during the two identical Special Open Door Forums currently scheduled for 2 p.m. on Nov. 30 and Dec. 8. Hospital providers can listen to these forums by calling 1-866-501-5502 (reference conference identification #28779067).

Unanswered Questions

The limited information available about the rebilling demonstration has left many unanswered questions. First, it is unclear why CMS has limited the demonstration to only 380 hospitals, or even how that number was determined. Moreover, CMS has not indicated how it will balance the allotment of demonstration participants between differently sized and urban or rural hospitals. It also is unclear at this time whether any additional hospital allotments will be included in the three-year demonstration program - or if hospitals not included will be forced to wait the full three years, utilizing only the Medicare appeals process to obtain orders for outpatient reimbursement.

Waiving Appeal Rights?

One of the biggest questions that remain unanswered involves at what level a participating hospital is required to waive its appeal rights. Does a hospital agree to waive all appeals of Part A claims denied based on care being provided in an inappropriate setting when it agrees to participate in the demonstration, or does a participating hospital have the opportunity to choose which claims to resubmit for the 90 percent payment under Part B?

Furthermore, if the latter option exists, can this choice be made at any stage of the appeals process? While the demonstration is scheduled to begin on Jan. 1, 2012, it is also unclear whether participating hospitals will be able to waive further appeals on claims currently pending in the appeals process in order to re-bill or if the program only will apply to claims identified after the start of the demonstration.

CMS has indicated that it believes the demonstration program will lower appeal rates because participating hospitals will be able to resubmit claims for 90 percent of the Part B payments; again, hospitals currently have to appeal these claims through the Medicare appeals process in order to obtain an order for Part B reimbursement. Hospitals that are not part of the demonstration program will have to continue to utilize this process to obtain full Part B reimbursement.