It appears the federal government has made hospitals an offer too good to refuse.
The CMS paid out $1.3 billion to more than 1,900 hospitals, as of June 1, as part of its deal to clear out the Medicare payment-appeals process. It's a staggeringly high amount, indicating that most hospitals preferred quick, discounted Medicare reimbursements over remaining tied up with claims denials. But the fight over Medicare appeals has only intensified because broader reforms are still in a state of limbo.
Last August, the CMS told hospitals it would pay 68% of the value of inpatient claims that are caught in Medicare's hearings and appeals process. Medicare hires private recovery audit contractors, or RACs, to review hospital claims for improper payments. If hospitals disagree with RACs on a decision, they can appeal. A majority of RAC reviews focus on costly inpatient-status claims. Many audits determine that hospitals should have billed short patient stays at less-costly outpatient rates.
Acute-care and critical-access hospitals had until Oct. 31, 2014 to file paperwork and request the settlement, but they had to agree to drop all appeals. They faced a heavily backlogged process, which at one point had a two-year list of unanswered appeals. If hospitals agreed to the deal, the CMS cut them a check within 60 days.
The CMS said late Thursday that the 1,900 hospitals that accepted the $1.3 billion in settlement money represented 300,000 claims across all levels of appeals. The agency said the final settlement number "may change slightly, but not by much." It has not clarified how it arrived at the 68% settlement figure.
“CMS believes that this settlement alleviates the administrative burden and litigation risk for all parties willing and eligible to resolve their pending appeals through this method in exchange for timely payment,” the CMS said in a statement Friday. “We are pleased with the results of this effort.”
Hospitals and RACs have battled over appeals and audits for years. RACs—which are paid a fee for every successful audit—argue they are protecting Medicare dollars and are ensuring providers receive payment for appropriate services provided to patients.
However, hospitals have criticized the RAC process as overly burdensome and not nearly as accurate as advertised. The CMS has said 18% of all appealed claims have been overturned in favor of hospitals, but the American Hospital Association keeps its own self-reported data and finds that hospitals have won two-thirds of the time.
Further exacerbating the fraught hospital-RAC relationship is the federal two-midnight rule. The policy says hospital admissions are appropriate and will be paid only if a patient's stay spans at least two midnights. Hospitals believe the rule is arbitrary. Enforcement of that policy was delayed until Sept. 30 of last year as part of the sustainable growth-rate legislation. As such, RACs are currently forbidden from auditing hospital inpatient stays.
Both sides sharpened their rhetoric Friday. Lawrence Hughes, assistant general counsel at the American Hospital Association, said the government's settlement numbers “show that only a marginal dent has been made in the enormous appeals backlog.” He pushed for legislators to approve a House bill that would overhaul the RAC program.
“It is the overzealous denials by RACs that have led to the currently broken appeals system,” Hughes said.
The Council for Medicare Integrity slammed the CMS' actions. The trade group representing RACs said that the government should not have paid out the hospital settlements because they had “not been adjudicated for their merit.”
“We are concerned about the message that this sends to providers,” the council said in statement. “Game the system by appealing every claim denial, bring the appeals system to a standstill and then be paid regardless of the outcome of their case. This essentially incentivizes hospitals to continue to overwhelm the system with frivolous appeals.”
CGI Federal, Connolly, HealthDataInsights and Performant Recovery are the four Medicare RACs. In addition to the settlements and inpatient audit moratorium, RACs are facing a new contract-bidding process from the government.
Observers agree that an improved appeals process would benefit the healthcare system. “The backlog of appeals is unsustainable,” Emily Evans, a regulatory analyst with Obsidian Research Group, said in September. “You cannot continue the RAC program without coming to some resolution on the appeals process.”
