CMS Settlement RAC Update – August 2014 – CMS Urges Hospitals to Settle Claims

The 68% Pyramid – CMS urges hospitals with CMS Settlment RAC- 68 cents on the dollar

In August 2014, CMS proposed a claims for cms settlement RAC appeals backlog, that includes over 800,000 hospital appeals from 2010 to 2013, per a 2013 CMS memo from Chief Administrative Law Judge Nancy Griswold. Reed Abelson, a reporter for the New York Times, indicated that the cms settlement rac disputes have been taking 18 months or longer to be resolved.

According to FierceHealthFinance, hospitals appeal about half of all short inpatient claim disputes denied by recovery auditor contractors, or RACs. In the 2013 CMS memo from ALJ Judge Nancy Griswold, she stated that CMS’s claims caseload increased by 184%, but that no additional resources were dedicated to appeals.

Deal or No Deal?

So in the words of Howie Mandel, my 81 year old mother’s favorite game show host, CMS is asking eligible hospitals “Deal or No Deal” on suitcase number 68.   The cms RAC settlement offers to pay hospitals 68% on the dollar of what they have billed the government to settle pending appeals challenging Medicare’s denials of reimbursement for short-term care.

The vast majority of the pending appeals are derived directly from government auditors’ determinations that beneficiaries were designated as hospital inpatients, when in fact they should have been assigned outpatient status. In an unprecedented effort to effectively reduce the overwhelming volume of these “suspect” inpatient status claims, CMS is now offering an administrative agreement resolve. CMS will pay 68 percent of the net payable value of a denied eligible claim, if the eligible hospitals will sign off on the administrative agreement as that this will be the full and final administrative and legal resolution of all claims.

It’s All About The Denial

CMS held a ‘Town Hall” teleconference on Sept. 9, 2014, where they delineated the criteria of what they consider to be a “denied claim.” CMS indicated that in order to be considered part of the 68%, a claim must be denied based on “patient status.” CMS provided examples in order to clarify that a denial on grounds that the services were reasonable and necessary but could have been provided in an alternate care setting is a “patient status” denial.

A settlement request is comprised of the hospital’s signed administrative agreement and spreadsheet of eligible claims. Hospitals are cautioned to submit a separate signed settlement agreement and eligible claim spreadsheet for each 6-digit provider number. Eligible hospitals will find complete settlement instructions, the administrative agreement and a template eligible claim spreadsheet on CMS’ Inpatient Hospital Reviews website by clicking on the following link:

However, it gets a bit sticky as CMS considers the following types of denials as ineligible:

  • Denials on grounds for lack of medical necessity in any setting
  • Coding denials or lack of documentation denials are not “patient status” denials and are ineligible for the agreement
  • The claim was denied by an entity which conducted a review on behalf of CMS (for example, a Medicare Administrative Contractor (“MAC”), Recovery Audit Contractor (“RAC”)
  • Comprehensive Error Rate Testing Contractor (“CERT”), or Zone Program Integrity Contractor (“ZPIC”)
  • The claim was not for items or services furnished to a Medicare Part C enrollee
  • The claim was denied based upon an inappropriate setting determination (a “patient status” denial)
  • The first day of admission was before Oct. 1, 2013
  • The hospital timely appealed the denial
  • As of the date the administrative agreement is executed by the hospital and submitted to CMS the claim was either (1) still pending at the MAC, QIC, ALJ, or DAB; or (2) the hospital had not yet exhausted its appeal rights at the MAC, QIC, ALJ, or DAB level
  • The hospital did not receive payment and/or bill for the service as a Part B claim


CMS did indicate during the recent teleconference, that in its next teleconference it would further clarify the following:

  • Whether ineligible claims are those which were rebilled for Part B payment
  • Claims in which Part B payment has actually been received

The 68% Deadline Approaches

Hospitals will have until Oct. 31, 2014, to decide if they wish to participate in the proposed settlement, but in case hospital leadership is at a crossroads come the October deadline, they may request an extension. Hospitals should note that the settlement payments would apply specifically to patient admission dates prior to Oct. 1, 2013, thus excluding any payments for beneficiaries enrolled in Medicare Part C.

Special Note: Per CMS “an eligible claim must have been denied because of patient admission status and cannot have been withdrawn and resubmitted for a Part B payment.”

CMS opted to define what the 68% “net payable amount” is and includes and excludes the following:

  • Included DRG value and add-ons
  • Excluded deductibles, co-insurance, and out-of-pocket obligations included in “allowable” amounts

An eligible hospital may elect the settlement and CMS will issue payment in the form of a one lump-sum payment (per 6-digit provider number or per owner/operator of multiple settling hospitals). Additionally, to add some sugar to the pot, CMS has agreed to provide “timely” payment, by ensuring that payments will be issued to eligible hospitals no later than 60 days from the date of the last signatory to the agreement.

Of Interest

CMS cautions hospitals that the 68% payment will be considered payment in full by Medicare. CMS did make one concession and that is, CMS will pay interest to a hospital for the period beginning on day 61 if CMS does not make good on the lump payment by the 60th day, through the date CMS does make payment to the hospital in accordance with the settlement agreement, in case of an unforeseen delay.

What Determines Eligibility Status?

Hospitals eligible for the settlement include acute-care hospitals and critical access hospitals. The hospitals that are not eligible for the settlement are:

  • LTAC/Long-term care and inpatient rehabilitation facilities.
  • Children’s hospitals
  • Psychiatric hospitals paid under the IPFPPS/Inpatient Psychiatric Facilities Prospective Payment System
  • Cancer hospitals

What is the buy in

Chip Kahn, the President of the Federation of American Hospitals recently stated that “I anticipate that many FAH members will take advantage of this voluntary settlement.”

Additionally, Mark Polston, who is a partner at the health care law firm King & Spalding, which is currently representing some eligible hospitals appealing Medicare claim denials, stated that “CMS’s settlement offer, is a big step forward to get rid of a major problem.”  He also added, that hospitals “will have to consider whether this is a good deal for them” and will need to consider how quickly CMS would pay them if they decide to participate (source: Abelson, New York Times, 8/29; Shinkman, FierceHealthFinance, 8/30).

Final Thoughts

In all honesty, if I was an eligible entity for the proposed settlement, I would fill out the paperwork STAT, because 68% of something is far better than a 100% of nothing in my book and hospitals would unload attorney fees as well and potentially receive a refund on paid interest to boot.

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