CMS Ruling On Part B Rebilling After RAC Audits

by Polsinelli

On March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) issued a ruling contrary to its traditional billing policy regarding payment of Part B inpatient services following denial of a Part A claim. Ruling CMS-1455-R came about in response to an increasing number of Administrative Law Judge (ALJ) and Medicare Appeals Council decisions relating to RAC audit appeals which, while upholding Part A denials based on determinations that inpatient admissions were not reasonable and necessary, ordered payment under Part B as if services were rendered at an outpatient or "observation level" of care. The Ruling allows providers to submit Part B inpatient claims for a more expansive range of services upon denial of Part A claims during RAC appeals.

Under the Ruling, a hospital may submit Part B inpatient claims for services beyond those listed in the Medicare Benefit Policy Manual (MBPM) when:

  1. A Medicare review contractor denies the Part A inpatient claim upon finding that the inpatient admission was not reasonable and necessary;
  2. The Part B services would have been payable to the hospital if the beneficiary was treated initially as an outpatient; and
  3. The billed services do not require outpatient status, e.g. outpatient visits, emergency department visits, and observation services.

The Ruling allows hospitals to submit Part B claims for payment provided the hospital withdraws its appeal on the corresponding Part A claim. The Ruling applies to Medicare claims denied by RAC auditors after March 13, 2013, or Medicare claims in a pending RAC appeal at any level as of March 13, 2013. Going forward from this Ruling, the scope of RAC appeals will be limited to review of Part A inpatient claims, and ALJs are not to order Part B payment or remand for consideration of Part B payment.

Lastly, the Ruling sets forth the time period within which a provider must bill the Part B claims. Generally speaking, hospitals must submit Part B claims within 180 days of receipt of an appeal dismissal notice, final or binding unfavorable appeal decision, or determination of a Part A inpatient claim for which there is no pending appeal and for which the hospital does not appeal. Further, Part B inpatient and outpatient claims filed later than one year after the date of service will not be rejected as untimely, provided the denied Part A inpatient claim was timely filed.

CMS Proposed Rule

Concurrent with the Ruling, CMS released a proposed rule on Part B inpatient billing that would apply on a prospective basis. Following a Part A claims denial due to inpatient admissions that are not reasonable and necessary, the proposed rule similarly allows payment for reasonable and necessary Part B services had the beneficiary been treated as an outpatient. Likewise, the proposed rule excludes payment for services that require outpatient status. However, unlike the Ruling, the proposed rule also applies when a hospital determines after discharge that a beneficiary's inpatient admission was not reasonable and necessary. Further, the proposed rule continues to apply timely filing restrictions on Part B billing for inpatient services; contrary to the Ruling, any Part B services must be filed within one year from the date of service.

What Providers Should Know

  • Providers should keep this Ruling in mind when reviewing RAC denials to make strategic decisions, that is, the choice between 1) pursuing Part A payments by arguing that inpatient admission was reasonable and necessary versus 2) dropping the appeal and re-billing the claim as Part B inpatient.
  • Because hospitals still cannot bill for observation services when an inpatient admission is denied, the Ruling will not significantly affect medical services billing but may affect billing for procedures.

For questions, please contact:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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