Department of Health and Human Services (HHS) under greater fire from American Hospital Association (AHA), hospitals, and other entities for RAC audits

          On November 1, 2012, the AHA, along with four hospitals (collectively the “Plaintiffs”), filed a lawsuit against HHS in the U.S. District Court for the District of Columbia. The lawsuit, which names as the defendant Kathleen Sebelius in her official capacity as the Secretary of HHS, alleges that the Medicare program, through the Center for  Medicare and Medicaid Services (CMS) has engaged in an unlawful government practice in its refusal to reimburse hospitals for reasonable and medically necessary services. This includes full Part B reimbursement where a Part A inpatient admission is denied by a Recovery Audit Contractor because the inpatient services were provided in the wrong setting, i.e. the services should have been provided in an outpatient setting.

RAC Audits, and particularly CMS' decision to deny payment altogether when it deems that inpatient criteria has not been met, have been a source of great uncertainty for hospital patient care and financial planning ever since the RAC Demonstration Project was implemented in 2005. Visit the Midwest Legal Partners page on RAC and the audit program by clicking here. The lawsuit cites four cases - one from each hospital involved in the lawsuit - where CMS did not dispute that outpatient payment was appropriate, yet continued to deny all reimbursement through several levels of appeal. Despite at least four decisions by the Medicare Department Appeals Board Medicare Appeals Council ("MAC") - the final agency decision-maker - holding that payment for Part B services was appropriate, CMS continues to deny Part B payment after a denial of reimbursement for Part A-billed services, citing as its Payment Denial Policy (Medicare Benefit Policy Manual ("BPM") Chapter 6 § 10) as its only justification. Notably, that provision of the BPM was promulgated without notice and rulemaking, and with no accompanying explanation.

To obtain an ALJ order for full Part B reimbursement, a hospital must proceed through the onerous Medicare appeals process. This 5-step process is also outlined in our RAC page. This is why the lawsuit recently filed by the AHA is an important step towards challenging the core of CMS's policy that hospitals are not entitled to full Part B reimbursement where an impatient admission is denied because the services were provided in the wrong setting.

The lawsuit filed by the AHA alleges that CMS's Payment Denial Policy violates requirements of the Federal Administrative Procedures Act as well as the requirement in the Medicare Act to pay for medically necessary hospital services. The complaint outlines CMS's refusal to provide hospitals with full Part B reimbursement and the effect CMS' refusal has on hospitals and patient care. "CMS simply refuses to pay hospitals for services that it acknowledges are covered under Medicare Part B and that it acknowledges were reasonable and necessary in the particular case." The complaint continues, "both the uncertainty and the actual loss of Medicare funds ultimately may adversely affect patient care." Furthermore, AHA's complaint also accurately explains the uncertainty of CMS's exact justification for its "Payment Denial Policy."

The aggressiveness of RAC audits, the uncertainty of appropriate reimbursement, CMS's failure to articulate a justification for its policy, and the effect on patient care when hospitals do not receive accurate payment, all underscore the importance of the concentrated efforts to obtain full Part B reimbursement for hospitals. AHA's complaint is an important step towards highlighting the broad implications of CMS "Payment Denial Policy" and, hopefully, obtaining a long-term solution for hospitals and Medicare beneficiaries.

The complaint can be read online at:

www.aha.org/content/12/121101-aha-hhs-medicare-com.pdf

It should also be noted that this complaint was filed just days after AHA sent a letter to the Office of Inspector General (OIG) Daniel Levinson on October 24, 2012 urging reform of RACs.

For one, the AHA urges that more provider education is needed to improve the rates of payment errors. According to the RACTrac survey, more than half of the respondents indicated that they have received no education from CMS on avoiding payment errors. The letter stresses that program integrity could be strengthened with provider education, and that such errors would be reduced.

According to the AHA's RACTrac survey data, 75% of appealed RAC denials are reversed. The AHA asserts that because the RACs are paid on a contingency fee basis, there is a strong financial incentive to deny more claims and increase contingency payments. While this is hardly old news and has often been the case, there was less empirical data at the beginning of this program to justify such a claim. The implication is that RACs are not monitored effectively and are thus allowed to inappropriately deny claims to increase contingency payments. Some parts of the letter were more explicit than implicit in this allegation. "Denying payment for an entire inpatient stay is far more lucrative for the contractors than identifying an incorrect payment amount or an unnecessary medical service." This letter, along with the most recent complaint, as well as the legislation recently proposed on reforming the RAC program, are the latest developments adding increased pressure on the government and its hired auditors in the implementation of this program.