The American Hospital Association continues to fight the federal government’s misuse of Medicare hospital reimbursement “audits.”
The American Hospital Association v. Sebelius, No. 1:12-cv-1770-CKK (D.D.C. No. 2012) challenges the federal government’s misuse of Medicare hospital reimbursement “audits.” Specifically, the lawsuit challenges the federal government’s denial of hospital Medicare reimbursement based on “audits” that second-guess the admitting physician’s judgment that a patient should be hospitalized. Yielding to the lawsuits’ pressure, the government formally announced audit policy changes. The AHA finds the “fix” inadequate and fights on.
The challenged “audits” are conducted by Recovery Audit Contractors (RACs).
A long time—usually years—after patients have received treatment in a hospital, a RAC swoops in, demands thousands of pages of records on hundreds of patients, and “audits” whether the services could have been performed outpatient. This audit, of course, second-guesses the judgment made by the actual admitting doctor.
The RAC audit conclusion is based solely on a record review performed months or years after the services were provided.
If the RAC auditor feels that a patient could have been treated outpatient, the RAC overrules the patient’s admitting physician, denies the hospital’s reimbursement claim, demands return of all payments the hospital received for treating the patient, and forbids the hospital from recovering even for services that would have been required if the patient had been treated outpatient.
The reliability of the RAC audits is reasonably questioned.
A RAC denial can be appealed. The byzantine administrative appeal process is costly and time consuming for the hospital and the government.
Since the RAC program began administrative appeals have sky-rocketed. The already slow appeal process is further burdened and appeal resolutions take substantially longer.
And appeal results raise considerable doubt about the reliability of RAC audits.
The AHA tracks appeals as best it can, and asserts that the RAC audit is rejected in 72% of resolved appeals. If accurate, this powerfully suggests that the RAC audit procedure is fundamentally flawed. How can a reliable process reach incorrect conclusions 72% of the time?
RACs are paid for denying hospital reimbursement claims.
RACs are private companies. According to the AHA, RACs contract with the government on a contingent basis. When a RAC auditor denies a hospital’s claim, the RAC gets a cut of the money that the hospital must refund. Obviously, this incentive-to-deny bias helps account for the startling RAC error rate on appeal.
The revenue received by the government and the RACs from RAC audits suggests a motive for using an unreliable process.
Enormous sums of money are in play. The AHA attempts to capture data, and asserts that RAC audit denials have required hospitals to refund hundreds of millions of dollars. The actual amount is far, far greater.
A RAC audit denial leaves the hospital uncompensated even for services that would have been required in an outpatient setting.
The AHA asserts that the government adopted a Payment Denial Policy. Under this policy, a RAC conclusion that the patient could have been treated in an outpatient setting requires the hospital to forfeit its entire reimbursement with the exception of a few ancillary services. The hospital cannot recover even for services that would have been required if the patient was treated in an outpatient setting.
The government and the RAC take all the money for all the services a hospital provided for a patient, including the services that the patient would have needed even if an outpatient.
An illustration from the AHA complaint helps understand just how mean-spirited the Payment Denial Policy actually is. A patient required surgery. The admitting physician judged that this surgery on this patient should be performed in the hospital. At the time, Medicare approved the hospitalization and the procedure. The patient received the services, and the hospital was reimbursed $20,000. Two years later, a RAC audit is conducted, the auditor looks only at the medical records, feels that the treatment could have been performed outpatient, and denies the claim. The hospital must repay the full $20,000 even though many of the same services would have been required outpatient. The hospital forfeits it full reimbursement, receiving nothing although it admittedly provided necessary services. By contrast, the RAC takes its cut of the money, and the government keeps the rest.
Needless to say, the program works well for the government and the RACs. The AHA alleges that it is unlawful.
The American Hospital Association can already claim partial and substantial victory, but decides to continue its lawsuit
The government’s deadline to file the administrative record in the AHA’s lawsuit was March 15, 2013. Two days before, the government blinked.
It issued two public documents that the AHA characterizes as “repudiating the Payment Denial Policy.” The characterization is apt.
Given the government’s 11th hour retreat, the American Hospital Association was allowed to evaluate the developments, and file an amended claim if it so desired. AHA continues the fight. It amended its complaint April 19, 2013.
The American Hospital Association’s amended complaint asserts that the government, though admitting error, fails to provide adequate relief.
March 13, 2013, the Centers for Medicare & Medicaid Services (CMS) issued Administrative Ruling CMS-1445-R (the Administrative Ruling). The Administrative Ruling does reverse its challenged Payment Denial Policy. The Administrative Ruling is temporary, and will be replaced by a formal rule.
The proposed rule is now available for review and comment– Medicare Program: Part B Inpatient Billing in Hospitals, 78 Fed. Reg. 16,632 (March 18, 2013) (Proposed Rule). Comments on the Proposed Rule must be received by 5 P.M. May 17, 2013.
After evaluating the Administrative Ruling and the Proposed Rule, the AHA found them inadequate, and detailed the inadequacies in its April 19, 2013, amended complaint.
The AHA critiques the Administrative Ruling.
The Administrative Ruling provides a limited opportunity for hospitals to rebill claims as outpatient claims if a RAC audit denied the inpatient claim. In theory, this allows a hospital to reimbursement for its services that would have been required even in an outpatient setting. In practice, the AHA asserts that this relief is denied to the bulk of claims for past services.
Limitations would, the AHA asserts, eliminate rebilling for the vast majority past RAC denials. Moreover, the Administrative Ruling is temporary, and can be revoked. In fact, the AHA argues that the government attempts that revocation in its Proposed Rule.
The AHA critiques the Proposed Rule.
The AHA asserts that the Proposed Rule will render the rebilling “an empty promise.” While appearing to permit rebilling, the Proposed Rule “would treat Part B rebilling requests as ‘new claims’ . . . and apply the one-year time limit found in 42 U.S.C. § 1395n(a)(1) to those claims.” The time clock would start from the date when the care was provided. The AHA argues that application of the one-year time limit may well eliminate almost all opportunities to rebill.
RAC audit denials routinely occur more than a year following the hospitals rendering service. By then, the rebilling deadline would expire. So, by the time a hospital learns of a RAC denial, it will be too late to rebill.
The AHA claims that the government’s plan to limit rebilling to one year following the service rendered is arbitrary and capricious.
The government, the AHA asserts, cannot characterize rebilling as a “new claim.” It is a supplemental claim and not subject to the one-year limit. Regardless, the AHA argues, the government must waive the one year limit.
The AHA seeks declaratory relief.
The AHA, Missouri Baptist Sullivan Hospital, Munson Medical Center, Lancaster General Hospital, Trinity Health Corporation and Dignity Health seek, among other things, the following types of declaratory relief:
A declaration that the hospitals are entitled to reimbursement under the outpatient provisions of Medicare for services it provided inpatient to the extent that those services are reimbursable under the outpatient Medicare provisions.
A declaration that the government’s cannot limit rebilling to a period of one year from the date of service or must waive that limit, because the limit is arbitrary and capricious, or barred by equitable estoppel, or both.
Conclusion: The significance of the American Hospital Association lawsuit is magnified by the question of the federal government’s administrative abilities to assume even greater responsibility for managing American healthcare.
The AHA lawsuit has greater significance than the specific issues it addresses and the specific relief it seeks. The federal government’s role in managing American healthcare is rapidly growing. This increased role is attack by many for many different reasons.
But a foundational issue is evaluating the limits of the federal government’s administrative abilities to effectively and fairly manage healthcare.
The AHA lawsuit is limited to Medicare—a program long administered by the federal government. Nevertheless, it has already shed light on questionable practices employed by the government.
The entire RAC audit program is arguably systemically unfair, and designed to lead to improper results. And the administrative appeal process is too costly and too overburdened to provide meaningful relief.
A powerful organization, like the American Hospital Association, may in rare circumstances be able to muster the resources to take on the government. But such battles must tax the resources of even the AHA and almost certainly are not undertaken as a matter of routine.
Individual hospitals, companies, doctors, and patients are practically very limited in their abilities to challenge the government or one of its private contractors regardless of the merit of their claims.
It’s not just a matter of time and money. The fear of retaliation is certainly reasonable.
The American healthcare system needs retooling. The federal government is essential to any effective retooling, but its role must not exceed its capacity to perform.
Within the last week, Senator Max Baucus castigated the Secretary of Health and Human Services for inadequate implementation of Obamacare. He predicted a “train wreck.” Mr. Baucus was an architect of the act and remains a staunch supporter.
In context, the AHA lawsuit, which reveals significant weaknesses in the government’s administration of a relatively old act, makes weaknesses in implementing a massive new act almost expected. At least two things seem necessary. Congress and the administration must rapidly evaluate and improve the government’s administrative performance in healthcare management. Second, a stakeholder in the American healthcare system—and that really means all of us—must exercise increased vigilance over the management of our healthcare system.
For example, the deadline to comment on the Proposed Rule that the government poses as a “fix” for the problems addressed by the AHA lawsuit is May 17, 2013. Like the right to vote, the right to comment is meaningless if not exercised.
© Jack Edward Urquhart April 26, 2013