Council Denies CMS Appeal

The Medicare Appeals Council (Council) disagreed with the Centers for Medicare and Medicaid Services (CMS) when asked by CMS to review and overturn a September 2009 decision by an Administrative Law Judge (ALJ). The case concerns an ALJ decision that agreed with a Demonstration Project RAC to deny Medicare coverage for inpatient hospitalization services as billed in November 2004 by O’Connor Hospital of San Jose, California, based on a lack of medical necessity, but went on to find that the “observation and underlying care” was nevertheless warranted, and therefore such services that were provided (normally only billed under Part B) must be reimbursed by CMS, thereby offsetting some of the overpayment resulting from the inpatient denial (originally billed under Part A).

In their memorandum referring the ALJ decision for review by the Council, CMS argued that the ALJ had erred as a matter of law by ordering Medicare payment for “the observation and underlying care” because those services are not separately billable under Part A. Council flatly disagreed and effectively ordered CMS to pay for the Part B services rendered even though they were never billed as such.

In its Action and Order dated February 1, 2010, the Council cites several documents demonstrating that in fact CMS itself not only considered that such cases might arise, but even provided guidance in its policy manuals on exactly how to handle such a case, including instruction to take additional action as necessary:

“Where the [contractor] determines that a Part A overpayment has been made to a provider on behalf of a beneficieary, it shall ascertain whether the beneficiary is entitled to any Part B payment for the services in question. (See Medicare Benefit Policy, Chapter 6.) If it appears that Part B benefits are payable, it shall arrange for billings under part B. It shall use any Part B benefit as an offset against the Part A overpayment.” — from Medicare Financial Management Manual, CMS Pub. 100-06, Ch. 3 at § 170.1.

Administrative Appeals Judge Clausen Krzywicki signed the order, citing multiple passages from CMS Manuals and ordered the contractor to recalculate its determination, offsetting the recoupment for the Part A payment with appropriate reimbursement of whatever Part B services were performed by the provider, even though there was never a Part B claim filed, to date. The final paragraph ends with this statement:

“Consistent with the CMS manual provisions discussed above, the contractor shall work with the provider to take whatever actions are necessary to arrange for biling under Part B, and thus, offset any Part A overpayment. The contractor shall issue a new initial determination upon effectuation. 42 C.F.R. § 405.1046(c).”

Find the Action and Order by Council in our Documents Section, HERE.