In response to a ruling in the federal district case Alexander v. Azar, CMS recently issued a final rule establishing processes to appeal status changes for qualifying Medicare fee-for-service (FFS) beneficiaries admitted as inpatients but subsequently reclassified as outpatients receiving observation services. The rule establishes a retrospective process for cases going back to 2009 and creates a prospective appeal pathway for new cases. Hospitals and skilled nursing facilities (SNFs) may not appeal on a beneficiary’s behalf. However, the final rule does create a pathway for hospitals and SNFs to support patients who are appealing inappropriately paid or denied claims.
While the rule is expected to impact a relatively small number of beneficiaries, impacted hospitals and SNFs should develop a process to identify retrospective and prospective cases to help secure accurate payment for patient care in the appropriate setting.
Retrospective Appeals
The final rule estimates that more than 32,000 FFS beneficiaries are eligible for a retrospective appeal based on meeting the following criteria on or after January 1, 2009:
- The beneficiary was admitted as a hospital inpatient.
- The hospital subsequently reclassified the beneficiary as an outpatient receiving “observation services.”
- The beneficiary received or will receive an initial determination or Medicare Outpatient Observation Notice indicating that the observation services are not covered under Medicare Part A and either:
- The beneficiary was not enrolled in Part B coverage at the time of hospitalization, or
- The beneficiary stayed at the hospital for three or more consecutive days but was designated as an inpatient for fewer than three days, unless more than 30 days had passed after the hospital stay without the beneficiary being admitted to a SNF.
CMS will use an existing appeals contractor to serve as a single processor for retrospective claims. This contractor also will determine the beneficiary’s eligibility for an appeal based on the criteria described above. Like the existing claims appeals processes, Medicare Administrative Contractors (MACs) will perform the first level of appeal, followed by Qualified Independent Contractor (QIC) reconsiderations, Administrative Law Judge (ALJ) hearings, Medicare Appeals Council review, and finally, judicial review. Eligible beneficiaries will have 365 calendar days from the final rule’s implementation date to collect documentation and file an appeal request.
Prospective Appeals
The prospective appeals process applies to reclassifications that occur after the final rule went into effect. It is available to beneficiaries who, after being admitted as an inpatient, are reclassified by the hospital as an outpatient while still in the hospital, receive observation services following the reclassification, and meet one of the following criteria:
- Their stay in the hospital was at least three days, but they were an inpatient for fewer than three days.
- They did not have Medicare Part B coverage (these eligible beneficiaries would not need to remain in the hospital for at least three days to be eligible for an appeal).
CMS estimates Quality Improvement Organizations (QIOs) will process approximately 8,000 appeals annually. The final rule creates both an expedited and a standard appeals process.
- Expedited Process: The final rule creates an expedited process for eligible FFS beneficiaries to appeal the decision to reclassify their status while they are still in the hospital. A timely expedited appeal submitted to the QIO will be decided within one calendar day of receiving all relevant requested information, while an untimely submission will be decided within two calendar days of receiving the requested information. Hospitals may not bill the beneficiary until after the QIO has issued its expedited determination or a decision in response to a timely reconsideration request. The billing protection does not extend coverage to beneficiaries during an appeal.
- Standard Process: Beneficiaries who do not file an expedited appeal can file a standard appeal of the hospital’s reclassification decision. This process is similar to an expedited appeal but without the accelerated timeline for the beneficiary to file and the QIO to render a decision.
Other Implications for Hospitals & SNFs
The rule also clarifies the following related to the finalized appeal process:
Timely Filing
The time frame for providers to submit a claim following a favorable decision is extended from 180 to 365 calendar days.
Part B Refund
If a hospital chooses to submit a Part A claim, it must refund any payments received for the Part B outpatient claim (including patient cost sharing) before submitting the claim for inpatient services.
Refund Patient Payments
A favorable decision for any beneficiary not enrolled in Part B at the time of hospitalization will require the hospital to refund any payments collected for outpatient services, even if the hospital chooses not to submit a Part A claim for the inpatient services.
CMS projects that the appeals process will begin to be implemented in early 2025. Implementation dates will be announced on cms.gov and/or medicare.gov.
Along with the recent announcement of the revised process for Medicare Advantage complaints, this new CMS rule offers another avenue for providers to address payment discrepancies and other challenges with payors. It is imperative that providers take advantage of these opportunities to utilize the available denial/appeals processes as they work to improve their revenue cycle.
If you have questions or need assistance with the appeals process, please reach out to a professional at Forvis Mazars.