Hospitals reject new Part B rebilling rule

(Story updated at 5 p.m. ET with comment from the American Hospital Association.)

Acting CMS Administrator Marilyn Tavenner issued a sweeping new rule late Wednesday designed to address hospitals' complaints that they have been collectively denied hundreds of millions of dollars by Medicare because of disputes over the differences between inpatient and outpatient care.

But criticisms of the short-term ruling surfaced immediately, because it was accompanied by a detailed notice of proposed rulemaking on the same topic that critics say is actually worse than the process that is in place today.

“It is not what hospitals want to see. It looks like it at first, but it is not,” said healthcare attorney Andrew Wachler, who has spoken with CMS officials about the rule changes and has worked closely with the agency in the past on what is known as the “Part B rebilling” dispute.

American Hospital Association President and CEO Richard Umbdenstock announced in a letter to members Thursday that the rule changes do not allay hospitals' concern about the payment policies, and that the trade group would continue to litigate the matter.

The CMS estimated the changes would cut $4.8 billion in Medicare payments to hospitals in the next five years.

Formerly, the CMS had a policy that if a hospital incorrectly billed Medicare for Part A hospitalization services, rather than less-expensive Part B physician care, that billing error would cost the hospital all payments for the services. Even though the services were necessary, the wrong setting of care in the bill caused the hospital to forfeit all reimbursement.

Medicare's recovery audit contractors, who are paid a percentage of the money they take back from hospitals retroactively, have particularly targeted these lucrative setting-of-care decisions, according to data compiled by the AHA.

But HHS' administrative law judges have been flouting the non-payment rule (PDF), saying that hospitals in some cases were entitled to less-expensive Part B payments when they incorrectly billed Part A for what were otherwise legitimate services. The AHA sued the CMS last year over the issue, after HHS' own judges ruled more than a dozen times that the non-payment policy contradicted the Medicare manual.

On Wednesday, Tavenner published a ruling in the Federal Register (PDF) that directs Medicare judges to allow hospitals to claim Part B inpatient costs in cases where the setting of care was initially wrong. The ruling says hospitals may also separately bill Medicare for some Part B outpatient services that would otherwise have been “bundled” into the Part A bill because they occurred within three days of the hospitalization.

Tavenner's ruling said the change is expected to affect thousands of hospital claims pending in the appeals process today.

However, Wachler said the notice of proposed rulemaking on the same issue (PDF) that was also announced Wednesday would actually make it tougher for hospitals to get paid in wrong-setting-of-care cases in the long run. That's because the rule imposes a one-year time limit for Part B claims, which would apply even if a Medicare recovery audit contractor (RAC) took longer than a year to appeal a claim.

“If the RAC waits a year to deny your claim, you are out for any Part B services. If you appeal, and one year lapses from the date of service, you cannot get any Part B services, and the judges can't order them,” he said. “The proposed rule is really a significant step backward from the current situation for hospitals.”

Umbdenstock said the hospital association had the same concerns (PDF) about the rule, and therefore would not drop its existing lawsuit.