RAC Medical Necessity Denials Are On Their Way

On August 6, 2010, CMS gave its approval to CGI, the Recovery Audit Contractor (RAC) for Region B, to review the medical necessity of inpatient admissions. Other RAC contractors followed suit shortly thereafter. One of the specific issues approved relates to the medical necessity of an inpatient admission for Chest Pain, MS-DRG 313, a DRG frequently associated with a high error rate.

Sixty days later it’s time for the denials to start rolling in.

So what do you do if the RAC determines that an inpatient admission was not medically necessary? Or worse yet, what if you agree with the RAC’s conclusion?

Even if an inpatient admission was not medically necessary, there are still a couple of arguments that you can raise on appeal. Below we’ll explain the limitation of liability defense, which can be argued in the alternative on almost every medical necessity denial. Next week we’ll discuss another alternative argument, which is to ask for an amount that you would have received had you appropriately billed for outpatient services in the first place.

Prior to 1972, if Medicare denied coverage for certain services, or recovered money from a provider for services rendered to a Medicare beneficiary, the hospital could recoup its payment from the Medicare beneficiary. Only the beneficiary had a right to appeal coverage determinations. So the question at the time was whether Medicare or the beneficiary would pay for the service provided. One way or another, the provider would get paid.

In 1972 Congress amended Section 1879 of the Social Security Act to limit the recovery of overpayments from both providers and Medicare beneficiaries. According to Section 1879, if an overpayment is related to a finding that a particular service was not reasonable and necessary, then neither the provider nor the Medicare beneficiary is liable for the overpayment as long as neither of them knew or should have known that the services were not reasonable and necessary. In the Claims Processing Manual, CMS refers to this section of the Act as “the limitation of liability provision.” Medicare Claims Processing Manual, CMS Pub. 100-4, Ch. 30, § 20.

Section 1879(a) requires that payment be made to the provider, even if such payment would otherwise be denied, as long as two criteria are met:

a) the basis for the denial is that the items or services were not reasonable and necessary; and
b) the provider “did not know, and could not reasonably have been expected to know, that payment would not be made for such items or services.”

Denial of an inpatient admission as not medically necessary satisfies the first criteria. But how does a provider establish the second criteria?

Actual Notice
First, you need to establish that you did not have actual notice that this service would not be covered as an inpatient admission. The regulation provides examples of actual notice: a) a provider is notified by a QIO, intermediary or carrier that an item or service would not be covered; or b) the provider’s utilization review committee or the beneficiary’s attending physician tells the provider that the item or service would not be covered. 42 C.F.R. § 411.406 (b-d); see also Medicare Claims Processing Manual, CMS Pub. 100-4, Ch. 30, § 40.1.2

The first example would be extremely rare. So, the usual argument that the provider would make is that no Medicare contractor informed them that this specific service would not be covered as an inpatient admission.

The second example may be more likely, but still rare. Chances are a hospital would not bill a claim as an inpatient admission if either the hospital’s utilization review committee, or the beneficiary’s attending physician, told the hospital that the admission would not be medically necessary. In fact, in most cases the provider could argue that the attending physician wrote an order for an inpatient admission and believed that this was an appropriate admission.

Constructive Notice
The more challenging argument is to establish that the provider should not have known that this service would not be covered as a valid inpatient admission. According to regulation, a provider is considered to have known that the services would not be covered based on proof of any one of the following:

  1. Its receipt of CMS notices, including manual issuances, bulletins, or other written guides or directives from intermediaries, carriers, or QIOs, including notification of QIO screening criteria specific to the condition of the beneficiary for whom the furnished services are at issue and of medical procedures subject to preadmission review by a QIO.
  2. Federal Register publications containing notice of national coverage decisions or of other specifications regarding noncoverage of an item or service.
  3. Its knowledge of what are considered acceptable standards of practice by the local medical community.

Id. at § 411.406(e); see also Medicare Claims Processing Manual, CMS Pub. 100-4, Ch. 30, § 40.1.2.

Looking at the first two criteria, in an appeal a provider could list the lack of specific guidance on something like the medical necessity of a chest pain admission (if true):

  • No national coverage decision explaining when an inpatient admission for Chest Pain would be considered medically necessary;
  • No local coverage decision explaining when an inpatient admission for Chest Pain would be considered medically necessary
  • No CMS guidance on this issue
  • No guidance from the Fiscal Intermediary or MAC on this issue
  • No guidance from a QIO on this issue

Assuming this is all true, then the last remaining argument has to do with the provider’s knowledge of acceptable standards of practice in the local medical community. In December of 1995 CMS clarified what it considered “acceptable standards of practice by the local medical community.”

Medicare contractors, in determining what “acceptable standards of practice” exist within the local medical community, rely on published medical literature, a consensus of expert medical opinion, and consultations with their medical staff, medical associations, including local medical societies, and other health experts. “Published medical literature” refers generally to scientific data or research studies that have been published in peer-reviewed medical journals or other specialty journals that are well recognized by the medical profession, such as the New England Journal of Medicine and the Journal of the American Medical Association. By way of example, consensus of expert medical opinion might include recommendations that are derived from technology assessment processes conducted by organizations such as the Blue Cross and Blue Shield Association or the American College of Physicians, or findings published by the Institute of Medicine.

CMS Ruling 95-1; see also Medicare Claims Processing Manual, CMS Pub. 100-4, Ch. 30, § 40.1.3.

Although the word “local” is used, most of the examples provided refer to published medical literature. But a source of acceptable standards of practice could include “consultations with their medical staff.”

The most persuasive evidence to support these criteria would be scientific studies supporting admission to a hospital to address a patient’s condition. In the alternative, statements from the admitting physician or other physicians on the medical staff that an inpatient admission is consistent with the standards of care in the community may suffice.

Clearly the best defense to a medical necessity denial is a persuasive argument by a physician or other clinician as to why the patient’s severity of illness required the intensity of service afforded by an inpatient admission. But even if the RAC disagrees, if you can show that you did not know, or should not have known that Medicare would not consider an inpatient admission medically necessary in a case such as the one at issue, you may be successful on a limitation of liability argument.

Check back with us next week to find out why a provider should, at the very least, request payment for what it would have received had it correctly billed for an outpatient service in the first place.

Today’s post was contributed by Steve Lokensgard.

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