On March 13, The CMS released a proposed rule, potentially allowing Medicare to pay for additional hospital inpatient services under Medicare Part B.   Proposed Rule (CMS-1455-P) and the related Administrator’s Ruling (CMS-1455-R) sets forth that, "if the beneficiary is enrolled in Part B, Medicare would pay for all reasonable and necessary Part B hospital inpatient services when a Part A inpatient admission is denied as not reasonable and necessary, instead of just the limited list of Part B inpatient services currently allowed in these circumstances."  The key phrase is "reasonable and necessary" and relates to the medical necessity threshold inherent in Medicare’s reimbursement policy.  Currently, CMS is soliciting comments through May 17, 2013.

From a practical standpoint, what does this mean? A major area of concern, as the American Hospital Association has voiced, is the problem of a recovery auditor’s finding that an inpatient stay was unwarranted, but the medical necessity was not denied; meaning that the treatment was appropriate, but it occurred in an inpatient setting under Medicare Part A, when it should have transpired in an outpatient setting, such as an ambulatory surgery center, under Part B. The problem being that hospitals were not receiving any reimbursement for the treatment given, not even the lesser Part B amount.

With the proposed rule, as long as the treatment is found to be "reasonable and necessary" but merely occurred in the inappropriate setting, hospitals would be reimbursed under the Part B rate. In considering this, CMS also addressed the claims appeals process and the impact on a Medicare beneficiary’s co-payment. Under current policy, a hospital cannot change a patient’s status from inpatient to outpatient, once the patient has been discharged. The proposed policy would still preclude hospitals from changing the beneficiary’s status to outpatient post-discharge; however, "it would be able to bill for all reasonable and necessary services – except those that can only be furnished to an outpatient – on a Part B inpatient claim." Until the proposed rule is finalized, the CMS Administrator’s Ruling authorizes hospitals to receive payment from Medicare for all Part B inpatient services that would have been reasonable and necessary had the beneficiary been treated as an outpatient instead of an inpatient.

This proposed rule is significant and providers need to be aware of the nuances now and be on the look out for the final rule. The impact on the revenue cycle can be significant. Therefore, this is an excellent time for physicians to assess their claims processes, medical necessity requirements, and ways to improve patient quality of care. Doing so can yield positive outcomes across the entire spectrum of care for both the patient and the provider.