American Hospital Assn. sues over retroactive Medicare pay denials

Hospitals say auditors violate federal law by asserting long after the fact that inpatient care should have been provided at an outpatient facility.

By — Posted Nov. 19, 2012

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The American Hospital Assn. says the Centers for Medicare & Medicaid Services is second-guessing doctors’ decisions to admit hospital patients and illegally recouping past payments for necessary medical care.

A federal lawsuit filed Nov. 1 by the AHA and health centers in three states claims that CMS auditors are using an unfair policy to determine the setting in which medical treatment should have been provided. In such instances, CMS agrees that the care in question was reasonable but requires that payment for the services be returned because the treatment was delivered on an inpatient rather than outpatient basis, the AHA says in its suit.

The recovery audit contractor “years later agrees the care was medically necessary but says the care should have been provided on an outpatient basis, and CMS’ policy denies the hospital the opportunity to re-bill,” AHA spokeswoman Marie Watteau said in an email. “The impact is that [health professionals] don’t get paid for reasonable and necessary services they actually have provided. We have been talking with CMS for some time about the issue and [have] reached an impasse.”

At this article’s deadline, messages left with the Dept. of Health and Human Services had not been returned. CMS declined to comment, saying it does not speak about pending litigation.

The AHA sued HHS in U.S. District Court for the District of Columbia. The plaintiffs said the government is violating federal law that requires Medicare to pay hospitals for reasonable and medically necessary services provided to patients.

However, in recent years, CMS has adopted a policy that prohibits payments for most services if RACs conclude that patients should have been treated on an outpatient basis, the suit said. CMS then demands that hospitals pay back the money that went toward the patient’s care.

“Though they operate with nothing but a cold paper record, [RACs] now regularly overrule physicians’ expert medical judgments long after the fact, determining that particular Medicare patients — patients whom they have never even seen — should not have been admitted to the hospital to receive inpatient care,” the suit said.

RAC overpayment determinations can be appealed. However, “it is very costly and time-consuming for hospitals to go through the appeals process, and oftentimes hospitals do not have the resources to do so,” Watteau said. “About 40% of RAC denials are appealed, and of those, 75% are successfully overturned on appeal.”

The AHA is asking the court to declare the CMS payment policy unlawful and order the government to repay the health centers. Livonia, Mich.-based Trinity Health, a plaintiff in the suit, said in a statement that it hopes the judge’s ruling will clarify how health care bills should be paid.

“Medicare laws entitle hospitals to be paid for reasonable and necessary treatment, but Medicare is not fulfilling its obligation, and hospitals are not getting paid for services they provide,” said Trinity spokeswoman Carol Tingwall. “We want to resolve this confusion, either in court or in earnest discussions with the government, to address this Medicare problem and keep costs down,”

Second RAC lawsuit ongoing

The AHA suit is one of two recent legal challenges against HHS related to retrospective claim reviews by RACs.

A panel of the 9th U.S. Circuit Court of Appeals in August threw out a hospital’s lawsuit that sought to fight the reopening of an old Medicare claim. The court ruled that health professionals cannot challenge auditors’ decisions to review Medicare claims that are more than a year old. Federal rules do not allow an administrative or judicial remedy through which doctors can fight the reopening of such cases, judges said.

On Nov. 5, the Litigation Center of the American Medical Association and the State Medical Societies issued a friend-of-the-court brief urging the appeals court to reconsider its decision.

Because of the ruling, physicians and other health professionals “are now at risk that any payment can be reopened at any time for any reason, or for no reason at all, no matter how much time has passed,” said the Litigation Center brief, which was joined by nine state medical societies. “The regulatory limits on reopenings were adopted for good reasons, but those limits cannot accomplish their purposes if providers cannot rely on them and contractors are free to disregard them at their whim.”

The case involves a 2009 lawsuit brought by Escondido, Calif.-based Palomar Medical Center against HHS. Palomar challenged auditors’ reopening of a claim 20 months after initial payment. After a review, a recovery audit contractor determined that Palomar was overpaid for the claim because the medical services were determined to be “not reasonable and necessary,” according to court documents.

Palomar has gone through several rounds of appeals at the administrative and court levels challenging the RAC’s good-cause reasoning for examining the claim. Thus far, HHS has been successful in arguing that the reopening of a claim deemed to have good cause is not subject to appeal.

In its Palomar brief, the Litigation Center briefly mentions the AHA litigation and the details of that suit, saying, “The problems associated with the RAC program potentially extend beyond RACs’ application of the good-cause requirement.”

The American Medical Association is not involved with the AHA litigation but is monitoring the case closely.

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