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The Centers for Medicare and Medicaid Services (CMS) recently asked the Medicare Appeals Council (Council) to review and overturn an Administrative Law Judge (ALJ) “partly favorable” decision for O’Connor Hospital, of San Jose, California. The case originated in 2007 during the Recovery Audit Contractor (RAC) Demonstration Project. In its request to have Council review the appeal, CMS attempted to argue that the Part B services were not separately billable under Part A, and therefore the ALJ had erred as a matter of law when it ordered CMS to pay the provider the difference between the covered and non-covered services.

On February 1, 2010, the Council posted their decision: they did not agree and stated that the position of CMS was essentially inconsistent with policies found in its own manuals.

On December 7, 2007, the RAC charged with auditing California providers denied Medicare coverage for a claim of inpatient hospitalization services, as furnished to a beneficiary on November 1, and 2, 2004, at O’Connor Hospital. The RAC found the services provided were not “reasonable and necessary” per the Social Security Act, and therefore the hospital had received an overpayment. Like virtually every other claim filed by a RAC during the demonstration, said overpayment finding was upheld at both of the first two levels of the appeals process.

The first level of appeal in the RAC program, when requested by the provider, is a Redetermination. This is an additional examination of the claim by the RAC, supposedly by personnel who are different from the personnel who made the initial determination. One might consider this as simply a chance to ask the RAC to be sure to check their paperwork. We are not aware of any denials being overturned at this level of appeal during the Demonstration project.

The second level of appeal, again when requested, is a Reconsideration. These are always conducted by a Qualified Independent Contractor (QIC), thereby allowing an independent review of medical necessity issues by a panel of physicians or other health care professionals. (This is a change from previous programs, but did not originate with the RAC. These reviews were instituted in Section 521 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), and replaced the Hearing Officer Hearing process for Medicare Part B claims, while creating a “new” second level of appeal for Medicare Part A claims.)

The provider took the claims to the next level of appeal, the Administrative Law Judge, or ALJ. There were four claims in question for four different beneficiaries at O’Connor. On September 16, 2009, the ALJ overturned the RAC denial for three of the four claims, thereby reversing the denial and granting Medicare coverage for the inpatient services, as filed. The fourth claim, however, was a more sticky situation.

While the ALJ agreed with the RAC and denied the coverage for the inpatient services provided as billed on the fourth claim, the ALJ nevertheless found that “the observation and underlying care are warranted.” In other words, yes, the inpatient admission was not warranted, but the observation and other outpatient services were warranted and should therefore be paid by CMS, even though the services were never billed as such. Or, put another way: “down-code” the claim to Part B services and pay those.

The net effect was to reduce the recoupment to simply the difference between the Part A and Part B services provided for the fourth claim only, compared to complete recoupment of all four inpatient claims, as the RAC originally decided.

Even without knowing the exact figures involved, this all suggests that CMS may have lost money on the entire process — they had to return all monies recouped, less the difference noted, but the RAC got to keep their entire commission/fee/bounty, per their contract with CMS.

Of course, while the provider got back almost all their reimbursements for the four claims, they still had to pay legal fees out of their own pocket. Considering the time involved, these were likely not insignificant.

Without reviewing all the documents here, we do wish to note a few things we think providers should consider about these decisions, regarding potential strategies for RAC appeals:

First: Bring these decisions to the attention of your legal counsel. Providers should bring both these  decisions to the attention of their legal counsel, and their RAC Team.

Second:  In Part A Medical Necessity Denials, fight for reimbursements for Part B services, if provided. Medical necessity reviews have not yet been approved for RACs, but they are likely to begin at any time. Although the O’Connor case was a result of a RAC Demonstration project denial, the Medicare Appeals Council decision is at least the second time that the Council has reminded CMS that they in fact have current policies in place that not only say that such claims should be paid as described in these cases (unbilled Part B services are sometimes payable when Part A is denied), but that CMS even instructs contractors to do exactly that. These cases offer good reason to believe the Council will render decisions in the future that are consistent with these two.

Third: In such cases, refile for Part B services as provided. The date for “refiling” a claim under such circumstances could be difficult to determine, but may depend upon what the Medicare Appeals Council considers as “new evidence” — which, at least in the case of the UMDNJ appeal, could be inferred from the fact that the contractor reached a denial decision and informed the provider of same, thereby supplying the provider with “new evidence.” Even without such a date for “reopening” the file, in the case of the O’Connor appeal, the Council found that the time limit is simply the end of the entire process, its “finality.”

Fourth: Familiarize yourself with these decisions. The Council cites several documents that are important to the decisions.

The documents cited can all be found HERE on www.myedutrax.com in our Documents Section.