CMS may claw back millions of dollars in payments after the agency denied reimbursement rate cut exemptions for hospitals' off-campus outpatient facilities.
CMS rejected more than 60% of the mid-build exceptions, which would preserve hospitals' higher reimbursement rates if they had the documentation to prove their off-campus outpatient departments were being constructed when the Bipartisan Budget Act was passed in 2015.
Without the exception, these facilities' reimbursement rates drop to 40% of the full Outpatient Prospective Payments System rate; they would also be liable for overpayments issued starting Jan. 1, 2018, if they billed via OPPS. Conversely, hospitals that received the exception but were not reimbursed at the full OPPS rate may have been underpaid.
One of the clients of Christopher Kenny, a partner at King & Spalding, is facing seven-figure repayments, he said.
"I've seen some of the denials—the bases for many of them are very weak. Many of them ignore the plain facts," he said, describing it as a "raw deal." "They did everything right. Congress struck an initial compromise in 2015 that the Cures Act built off of. Now hospitals are receiving a very draconian outcome at no fault of their own in the midst of a terrible public health emergency."
The 202 of the 334 providers who were denied the exception were skeptical since the determinations came on the last day of Trump administration, more than two years after the due date established by the Cures Act. They also called the review process "flawed," noting that some of the Medicare Administrative Contractors cited the wrong documents in their audits.
At minimum, hospitals should not be liable for retroactive payments; the adjusted reimbursement rate should only be applied prospectively, providers' legal teams said.
CMS and CMS contractor Cahaba are reviewing potential audit errors and will correct them if appropriate, the agency said.
"CMS and the auditors had no idea what the construction contracts and arrangements look like, and it seems like they were way over their head," said Shannon DeBra, of counsel at Bricker & Eckler, noting that one of her clients received a mid-build exception denial even though they didn't submit an application. "They did ask questions in 2018 and seemed to indicate the applications were sufficient, but then there was radio silence for two years."
As of Jan. 19, providers had 240 days to address any overpayments, although there was no formal appeal process established, legal experts said. Some are asking CMS to reconsider the applications and for more documentation to support the denial; others are considering advocacy campaigns to sway Congress. Litigation would be a last-ditch effort.
The American Hospital Association said that it has substantial concerns about the timing of the audit determination letters and that CMS was legally obligated to have completed the audits more than two years ago. "We are looking into this further," the AHA said.
The AHA is amid a legal battle with the HHS regarding its site-neutral payment policy, which seeks to level payments for evaluation and management services delivered at hospital-owned outpatient departments and independent physician clinics. The CMS estimated that it was paying $75 to $85 more for those services in hospital outpatient settings versus physician offices, even though the physical location nor patient acuity changed. Patients footed about 20% of that.
Hospitals have argued that they need higher reimbursement rates via facility fees to offset their relatively higher costs associated with more rigorous survey requirements, more stringent health and safety rules, staffing costs, etc. CMS said the higher payments made under OPPS were incentivizing providers to convert physicians' offices to hospital outpatient departments.
There has been a recognition that the payment disparity was not justified, site-neutral advocates said, adding that CMS is starting to come to terms with keeping Medicare solvent.
A panel of appellate judges ruled in July that HHS' site-neutral payment policy for 2019 could go forward, overturning a lower court decision. Legal experts said they are preparing to take the case to the Supreme Court.
As HHS appealed the lower court's decision in favor of hospitals, it agreed to pay hospitals for doctor's visits in 2019. The AHA estimated that implementation of site-neutral payments cost providers about $380 million in 2019.
"(The) site-neutral (policy) leveled out payments for only one code (GO463)," DeBra said. "We eventually may get to a point where there is no payment differential, but now there is a recognition that there is higher overhead in hospitals."
Legal experts were hesitant to make a direct link between the agency's site-neutral push and the mid-build exception denials, although it could've been a factor, they said.
Site-neutral policy aside, the two-year lag in the exception determination put providers in a tough spot, said Regan Tankersley, an attorney at Hall Render.
"Do they bill using the PN modifier and risk being outside the timely claim filing window to correct claims if the mid-build exception was granted? Or do they bill using the PO modifier and risk overpayments if the exception was denied?" she asked. "It is especially frustrating for providers who failed on the attestation when it appears the (Medicare Administrative Contractors) may have initially rejected until the provider could furnish additional information."
While the law precludes administrative and judicial review of the audit determinations, it would not necessarily preclude a challenge to CMS' decision to retroactively apply the determination, said Kelly Cleary, a partner at Akin Gump. Nor would it preclude a provider from challenging the audits themselves, she said.
"The fact that it took CMS over two years to make these determinations public is perhaps the most remarkable aspect of this," Cleary said. "While CMS sat on the audit results, some providers were unknowingly accruing what CMS believes are overpayments. This is patently unfair, and could further compound the financial losses many providers have incurred as a result of the pandemic."