AHA and Hospitals Sue HHS Over Claims Denials Involving Patient Status

by Baker Donelson

[author: Leslie Demaree Goldsmith]

In a suit recently filed [PDF] in the United States District Court for the District of Columbia, the American Hospital Association (AHA) and several hospitals, assert that the Medicare Program improperly denied payment to hospitals for reasonable and necessary services provided to hospital patients who Medicare contractors found were improperly admitted as hospital inpatients.The plaintiffs claim that these Medicare denials issued by Recovery Audit Contractors (RACs) are both procedurally and substantively flawed.

From a procedural standpoint, the plaintiffs assert that although Medicare requires that the complex medical decision on whether to admit a patient be made by a physician, RACs rarely use physician reviewers to overturn the physician’s admission. In addition, RACS receive financial incentives (a percentage of funds recovered by the Medicare program for the denials) that provide improper motives for the RAC denials.

Substantively, the plaintiffs assert that the payment denials result in inadequate payment for the services rendered. The RAC denials are determinations that the patients should have been treated as outpatients rather than inpatients. The hospitals in this situation must return the entire Part A (inpatient) payment. They are then entitled to receive payment under Part B. However, Medicare policy prohibits payment for most items and services that were billed under Part A when it is determined the patient should have been treated on an outpatient basis. The policy allows hospitals to receive payment for only a few ancillary items, like splints and cast, that typically amount to a small percentage of the total care of cost. The hospitals argue that since the RACs have not found the care to be unreasonable or unnecessary, it is inappropriate not to pay the hospitals fully for the care as an outpatient service, i.e., the same amount the hospital would have received if it had deemed the patient an outpatient rather than an inpatient at admission.

The complaint alleges this payment policy by Medicare violates the Administrative Procedure Act and asks the court to declare the policy invalid and order Medicare to pay hospitals the full Part B reimbursement at issue.

On the same day this suit was filed, November 1, 2012, CMS issued its Outpatient PPS Final Rule [PDF], discussing some aspects of the problem. In its proposed Outpatient PPS rule, CMS had requested comments on this issue of inpatient versus outpatient status. In the final rule CMS summarized the comments it received, which addressed the Part A to Part B Rebilling Demonstration Project, the need to clarify Medicare admission criteria, the role of hospital utilization review, prior authorization alternatives, time-based criteria for inpatient admissions, and payment alignment for equivalent outpatient and short inpatient hospital stays. CMS, however, declined to provide any response to the public comments, stating that it would take the comments into consideration as it moves forward to determine future actions to provide more clarity and consensus regarding patient status for purposes of Medicare payment.

Ober|Kaler’s Comments

This is an issue that has been brewing for years, with stakeholders in the provider community repeatedly trying to get CMS to revise its payment rules. Providers are between a proverbial rock and a hard place. Determining whether to admit a patient as an inpatient or treat them as an outpatient is a complex medical decision. It is not clear cut. There is no conservative, safe course that hospitals can choose. If they bill the grey area cases as outpatients, the hospitals likely will have increased observation outlier cases, which may subject them to scrutiny for improperly outpatient billing. In addition, outpatients are subjected to higher copayments and may not qualify for subsequent skilled nursing stays. On the other hand, if hospitals bill the grey area cases as inpatients, they likely will have increased inpatient short stays and come under scrutiny for billing the higher inpatient amount. Until greater clarity is provided by CMS, hospital billing departments should work closely with their compliance departments to ensure the hospitals are doing all they can to monitor the situation and comply to the best of their ability with the Medicare guidance as it currently stands.

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.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.