Featured Health Business Daily Story, May 14, 2012

RACs Deny Admissions for Inpatient-Only Procedures; CMS Says There’s More to It

Reprinted from REPORT ON MEDICARE COMPLIANCE, the nation's leading source of news and strategic information on Medicare compliance, Stark and other big-dollar issues of concern to health care compliance officers.

By Nina Youngstrom, Managing Editor
April 30, 2012Volume 21Issue 16

Some admissions for procedures on the Medicare inpatient-only list are being rejected as medically unnecessary by recovery audit contractors (RACs). That may seem like an oxymoron because Medicare doesn’t pay for procedures on the list unless they are performed on an inpatient basis. But apparently hospitals may face claims denials — in some cases perhaps because RACs don’t know the procedures are on the inpatient-only list or hospitals don’t realize they are not — and in some cases unfairly.

Whatever the reason, hospitals that appeal these cases may have to do more than invoke the inpatient-only list; they may have to establish the medical necessity of the procedure and/or the admission, and show that placing the patient in observation would have been inappropriate.

Bay Regional Medical Center in Michigan, for example, recently won its appeal of a RAC denial for admitting a Medicare patient for an inpatient-only procedure. But it was hard won, says Compliance Officer Mike Jamrog. The hospital went all the way to an administrative law judge after the RAC denied the claim and its denial was upheld two more times. Ultimately, the ALJ agreed with the necessity of the procedure and the patient’s admission based on medical records and the hospital’s phone testimony from the utilization review specialist and a physician adviser, and noted the procedure’s presence on the inpatient-only list. But the case sticks in Jamrog’s craw, notwithstanding the victory.

“It was so black-and-white we couldn’t understand why we had to take it to the third level,” he says. “You can’t tell us this procedure is on the inpatient-only list because it is so severe and then turn around and say ‘you shouldn’t have done it at that site and now you won’t get paid for it.’”

According to the ALJ decision, the RAC in January 2011 denied an inpatient claim for a patient admitted to Bay Regional Medical Center for an elective surgery, popliteal to posterior tibial bypass using saphenous vein graft, which involves using a vein to fix a defective artery. The RAC declared that the patient could have been safely treated on the outpatient side. The hospital appealed, and on redetermination, the MAC denied the appeal because the outpatient setting was safe enough for this patient. At the next level, the QIC also denied the appeal, saying “the patient was medically stable on presentation for an elective surgery and remained stable without any post-procedure complications.”

With Jamrog as cheerleader, the UR specialist and physician adviser presented an appeal to the ALJ that was both regulatory and clinical. The UR specialist pointed out that the surgical procedure is on the inpatient-only list (CPT 35151, repair defect of artery). If the hospital had billed for outpatient/observation instead, it would not have been paid by Medicare. In addition, the physician adviser “opined that the beneficiary required an inpatient admission post-surgery because this was a very serious surgery,” the ALJ wrote. The vascular surgeon takes a vein from the leg and grafts it to a defective artery; “a stent and balloon would not have worked,” the physician told the ALJ. “The operative report asserts that the procedure included a vertical incision from the knee to the ankle.”

When making their decisions, ALJs are not bound by any Medicare policy or CMS program guidance except national coverage determinations. In other words, the ALJ’s hands are not tied by the inpatient-only list, which contains the CPT/HCPCS codes that are reimbursed by Medicare only when the services are provided on an inpatient basis. The list is Addenda E to the inpatient prospective payment system regulation and is updated annually, which means procedures are added and deleted on a regular basis, says Washington, D.C., attorney Al Shay, with Morgan, Lewis & Bockius. However, ALJs may consider CMS rulings and manuals because they provide guidance in administering Medicare, the decision notes.

Admission Is a Complex Medical Judgment

In tackling the Bay Regional Medical Center case, the ALJ relied in part on Chapter One, Section 10 of the Medicare Benefit Policy Manual (Pub. 100-2), which addresses the reasons for hospital admission covered by Medicare. “Physicians should use a 24-hour period as a benchmark…and treat other patients on an outpatient basis. However, the decision to admit a patient is a complex medical judgment that can be made only after the physician has considered a number of factors,” including the severity of the patient’s signs and symptoms, the medical predictability of something bad happening to the patient, whether diagnostic studies can be done on an outpatient basis, and “the availability of diagnostic procedures at the time when and at the location where the patient presents.”

The ALJ also cited the Medicare Program Integrity Manual (Pub. 100-8), which states that “review of the medical record must indicate that inpatient hospital care was medically necessary, reasonable and appropriate for the diagnosis and condition of the beneficiary at any time during the stay.”

After weighing the evidence, the ALJ first determined the hospital satisfied “the necessary criteria for the services provided.” The ALJ also concluded that the physician’s decision to admit the patient “was consistent with Medicare guidelines” and that observation was not the right site of service. The ALJ was persuaded in part by the fact that the beneficiary had major surgery to fix a blocked artery. “The beneficiary’s intensity of services showed why the inpatient level of care was appropriate and could not have been provided in an outpatient setting,” the decision states. If documentation supports the attending physician’s decision, the ALJ will defer to it. Also, the ALJ noted, the procedure is on the inpatient-only list. The ALJ then directed Medicare to pay the hospital’s claim.

Apparently, the message from this case and others is that a procedure’s presence on the inpatient-only list is not a bulletproof vest. RACs may still deny the claims, and even when hospitals win their appeals, it may require additional proof of medical necessity. “The ALJ used the medical record evidence to confirm the severity of the patient’s condition and need for the surgery, which was complicated. The fact that the procedure was on the inpatient-only list was further support that the admission was appropriate,” Shay says.

What’s troublesome is that the RAC denied it in the first place and was supported by the MAC and QIC, according to Jamrog, Shay and others. “No one does cardiovascular surgery of this type on an outpatient basis,” Shay says.

But sometimes things are more complicated than they seem.

Connie Leonard, director of the CMS Division of Recovery Audit Operations, tells RMC that RACs don’t start audits with the idea they will deny procedures on the inpatient-only list. “In some of the cases we have reviewed, the provider has thought that the issue was on the inpatient-only list when it really wasn’t. There currently is not a crosswalk from the inpatient-only list to the applicable DRGs. This may cause difficulty for providers when they are billing. There are also issues where a provider billed for a procedure on the inpatient-only list but when the recovery auditor reviewed the claim, they determined that the medical record had documentation of another procedure being completed that was not on the inpatient-only list.”

CMS Wants to Hear From Providers

Leonard says that providers can appeal these denials. “We encourage providers to contact CMS if they feel this situation occurs. We also are reviewing how a crosswalk could be created for recovery auditor review to ensure consistency. At this time I am not sure if this will be possible.”

But there is frustration in some quarters with the HHS appeals process. For one thing, decisions don’t set any precedence, says Robert Jacobs, president of Health/ROI in Lake Success, N.Y. An ALJ can take a stand on a medical necessity issue or inpatient-only procedures, but it won’t help anyone but the hospital appealing the case, he says. And there is so much variation in ALJs’ perceptions of the laws and whether they defer to attending physicians, so outcomes are unpredictable. Although ALJs are perceived as a more deliberative, less biased appeals body than MACs and QICs, they have recently been taking “a more stringent view of one- and two-day inpatient stays,” says Ellen Scott, appeals management director for Health/ROI. “They are not as willing to overturn [RAC] decisions.”

Given what has transpired, Bay Regional Medical Center now immediately checks all RAC denials to see whether the procedures are on the inpatient-only list, Jamrog says. If they are, “it’s a high priority case” — all the way to the ALJ, he says.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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