The Centers for Medicare and Medicaid Services (CMS) made an offer to settle currently pending RAC appeals for partial payment of 68 percent of the net claim amount if a hospital agrees to withdraw all of its RAC appeals. The Oct. 31, 2014, deadline to accept CMS' settlement offer is approaching soon. While quick, partial payment on all pending RAC appeals is intriguing, hospitals must weigh the pros and cons of this deal. Please see the full list of CMS' updated FAQs for details on the eligibility requirements and the submission process.

To Settle or Not to Settle?

As a threshold matter, a provider must consider whether it is eligible for CMS' settlement offer. Two types of hospitals — Acute Care Hospitals and Critical Access Hospitals — are eligible to submit a settlement request. Additionally, a RAC denial is eligible for resolution through settlement if it is under appeal or within the time to appeal at any level, so long as all other criteria are met. CMS has also clarified that this is an all-or-nothing settlement — a provider cannot pick and choose certain RAC claims to settle but instead all RAC claims associated with the provider's Medicare number must be included in the settlement.

To decide whether or not to accept CMS' 68 percent settlement offer, a hospital should consider its success in litigating claims, potential loss of interest awards, and financial needs.

• Win Rate for Litigating Claims vs. Certainty of Settlement: A hospital must weigh its likelihood of prevailing on appeal compared to the guaranteed recovery of 68 percent under the settlement proposal. Historically, providers win a small portion of RAC appeals at Levels 1 and 2, but that changes drastically at Level 3. Polsinelli's appeals at Level 3 have been favorable for providers more than 80 percent of the time. And when a provider obtains a favorable decision, it recovers the full amount of the claim. Considering that experience, accepting a 68 percent recovery is worse that appealing all RAC denials through Level 3. But each appeal is decided independently, and there is no guarantee that the current win rate for appeals will persist.

• Interest: Additionally, if a hospital accepts CMS' settlement, it will forfeit any interest on previously recouped funds. After RAC denials, providers have the option to avoid immediate recoupment (but face the risk of recoupment plus interest on unfavorable appeals) or to return payment to the Medicare contractor immediately then recover the original Medicare payment plus interest in a favorable appeal. Considering the lengthy appeals process, particularly at Level 3 appeals, interest amounts may be meaningful. If a hospital has made immediate return of payments after RAC denials and hopes for interest awards on top of appeal recoveries — forget it. Sixty-eight percent of the claim is the entire recovery in CMS' settlement offer, and no interest will be added to it.

• Timing: Significant backlogs in the appeals process and current financial considerations should also be top of mind for a hospital weighing CMS' offer. If a hospital chooses to take CMS' settlement, the hospital will receive 68 percent of the disputed claims within 60 days, according to CMS estimates. On the other hand, continuing with RAC appeals will take an extended time — possibly years — for the hospital to receive decisions on each claim and payment on favorable appeals. Depending on a hospital's cash-flow situation, the quickness of payment through the settlement may be a significant inducement to settle, or a non-factor.

What Should Providers Do?

A hospital should self-evaluate its current financial situation to determine if it is viable to maintain appeals in hopes for full recovery, possibly plus interest, on favorable appeals versus accepting CMS' settlement offer for a partial, 68 percent recovery in a much shorter time frame.

If a hospital chooses to settle with CMS, follow the procedures set forth at CMS' website for submitting acceptance of the settlement with a spreadsheet of all eligible RAC claims by Oct. 31, 2014. If a hospital is not able to meet the deadline, contact CMS to request an extension.