CMS Offers Partial Payment for Certain Part A Hospital Claims Under Appeal

CMS is offering to pay hospitals 68 percent of the allowable amount for all claims that are currently in the appeals process in which the inpatient status of the patient is being appealed, according to a CMS web post. CMS hopes that this will alleviate the long backlog of cases awaiting a hearing before an administrative law judge (ALJ). The majority of these cases involve recovery audit contractors’ (RACs’) decisions that an inpatient claim was not reasonable or necessary, as the service could have been better provided in an outpatient setting. The American Hospital Association (AHA) believes that nearly $1.5 billion in claims are currently being appealed because of this issue.


Hospitals have until October 31, 2014 to email CMS a signed administrative agreement and an Excel spreadsheet of the claims on appeal that would be eligible for the settlement. Directions for submitting the email are available on a CMS website. Eligible hospitals include acute care hospitals paid under the inpatient prospective payment system (IPPS) or that receive periodic interim payments (PIP), hospitals operating under a waiver in Maryland, and critical access hospitals. Claims from psychiatric hospitals, inpatient rehabilitation facilities, long-term care hospitals, cancer hospitals, and children’s hospitals are not eligible for the settlement

CMS will review the administrative agreement and the claims spreadsheet. It will pay 68 percent of the allowable amount for each claim on the spreadsheet that it can verify is currently being appealed for inpatient status. For those claims, CMS will sign the administrative agreement, make a payment, and the appeals will be dismissed. Hospitals will get a chance to discuss with CMS the claims it could not verify to be on appeal for inpatient status. An additional agreement will be signed and an additional payment will be made for those claims if the discussion leads to the conclusion that those claims, as well, were on appeal for inpatient status.


It is estimated that there are currently 375,000 appeals waiting to be heard, according to a memo from Nancy Griswold, Chief Administrative Law Judge for HHS’ Office of Medicare Hearings and Appeals (OMHA). “In just under two years, the OMHA backlog has grown from pending appeals involving 92,000 claims for services and entitlements to appeals involving over 460,000 claims for services and entitlements,” said Griswold. In a January 14, 2014 letter to the CMS Administrator, the AHA claimed that nearly 70 percent of appeals of Part A claims are overturned in the hospitals’ favor.

Two-Midnight Rule

Only claims with dates of admission prior to October 1, 2013 will be eligible for the settlement offer, as CMS believes that the institution of the two-midnight rule in the Final rule updating the IPPS payment system for Fiscal Year 2014 has alleviated the problem. In that Final rule, CMS instructed RACs not to dispute any inpatient claims if the inpatient stay is more than one beneficiary day or spans two midnights. In either case, the inpatient stay is reasonable and necessary. The starting point for the two-midnight clock is when the patient is moved from any outpatient area of the hospital to an inpatient bed, and the patient’s physician or other qualified practitioner orders an inpatient stay.