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The Centers for Medicare and Medicaid Services has announced a major change in how it will reimburse hospitals for treatment of certain Medicare patients.

In the past, Medicare has paid, under Part B, only for a limited set of ancillary services provided to patients admitted to the hospital if a claims review contractor later rules that admission was not medically reasonable and necessary and denies the Part A inpatient claim. Medicare Recovery Audit Contractors routinely overturn previously paid inpatient claims on that basis. The American Hospital Association and four delivery systems in late 2012 sued the government, alleging the practice violates the Medicare Act.

Now, CMS in a notice and proposed rule being published on March 18, proposes that a hospital “may be paid for all the Part B services (except for services that specifically require an outpatient status) that would have been reasonable and necessary had the beneficiary been treated as a hospital outpatient rather than admitted as an inpatient, if the beneficiary is enrolled in Medicare Part B,” according to the rule.

However, the new policy would cover only claims for Part B services filed within one year of the date of service. That provision does not sit well with the AHA, which issued the following statement:

“While CMS’ interim ruling is a victory for hospitals, its long-term proposed solution is not. That’s why it’s essential that the AHA continue with our litigation.

“CMS has conceded that its current policy of refusing to reimburse hospitals for reasonable and necessary care when the only dispute is the setting—not whether—care should have been delivered is contrary to the law. That is a central issue in our lawsuit.

“We’re pleased CMS will allow hospitals to rebill claims under Part B. Unfortunately, the proposed rule than threatens to undermine the progress made on this important issue. Under the proposal, hospitals will be able to rebill CMS only within the narrow time frame of one year from when patient services were provided. Since the Recovery Audit Contractor typically reviews claims that are more than a year old, the practical effect would be that hospitals would again not be fairly reimbursed for the care they provide Medicare patients.

“We will continue to work with CMS on this issue and also urge the agency to reimburse hospital claims they previously denied. Hospitals should be fairly reimbursed for the care they provide to our nation’s seniors.”

A feature story in the March issue of Health Data Management explores how providers deal with the RAC program and how fair it is.