[Federal Register Volume 78, Number 52 (Monday, March 18, 2013)]
[Proposed Rules]
[Pages 16632-16646]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06163]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 414 and 419

[CMS-1455-P]
RIN 0938-AR73


Medicare Program; Part B Inpatient Billing in Hospitals

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: The proposed rule would revise Medicare Part B billing 
policies when a Part A claim for an hospital inpatient admission is 
denied as not medically reasonable and necessary.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on May 17, 2013.

ADDRESSES: In commenting, please refer to file code CMS-1455-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
document to http://www.regulations.gov. Follow the ``Submit a comment'' 
instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1455-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1455-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ann Marshall, (410) 786-3059, for 
issues related to payment of Part B inpatient and Part B outpatient 
services.
    David Danek, (617) 565-2682, for issues related to hospital or 
beneficiary appeals.
    Fred Grabau, (410) 786-0206, for issues related to time limits for 
filing claims.
    Twi Jackson, (410) 786-1159, for information on all other issues.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Summary and Background

A. Executive Summary

1. Purpose
    In the Calendar Year (CY) 2013 Hospital Outpatient Prospective 
Payment System (OPPS)/Ambulatory Surgical Center (ASC) proposed rule 
(July 30, 2012, 77 FR 45155 through 45157) and final rule with comment 
period (November 15, 2012, 77 FR 68426 through 68433), we expressed our 
ongoing concern about recent increases in the length of time that 
Medicare beneficiaries spend as hospital outpatients receiving 
observation services. (In this proposed rule, ``hospital'' means 
hospital as defined at section 1861(e) of the Social Security Act (the 
Act), but includes critical access hospitals (CAHs) unless otherwise 
specified. Although the term ``hospital'' does not generally include 
CAHs, section 1861(e) of the Act provides that the term ``hospital''

[[Page 16633]]

includes CAHs if the context otherwise requires. In this case, we 
believe it is appropriate to propose to apply the same policies 
regarding payment for inpatient services under Part B in CAHs as apply 
in hospitals).
    Observation services include short-term ongoing treatment and 
assessment for the purpose of determining whether a beneficiary can be 
discharged from the hospital or will require further treatment as an 
inpatient (Section 20.6, Chapter 6 of the Medicare Benefit Policy 
Manual (Pub. 100-02)). Beneficiaries who are treated for extended 
periods of time as outpatients receiving observation services may incur 
greater financial liability than if they were admitted as inpatients. 
They may incur financial liability for Medicare Part B copayments; the 
cost of self-administered drugs that are not covered under Part B; and 
the cost of post-hospital Skilled Nursing Facility (SNF) care, because 
section 1861(i) of the Act requires a prior 3-day hospital inpatient 
stay (toward which time spent receiving outpatient observation services 
does not count) for coverage of post-hospital SNF care under Medicare 
Part A. In the CY 2013 OPPS/ASC proposed and final rules, we discussed 
how the trend towards the provision of extended observation services 
may be attributable in part to hospitals' concerns about Medicare Part 
A to Part B billing policies when a hospital inpatient claim is denied 
because the inpatient admission was deemed not medically necessary. 
Under longstanding Medicare policy, in these situations hospitals can 
only receive payment for a limited set of largely ancillary inpatient 
services under Part B.
    In the CY 2013 OPPS/ASC proposed rule (77 FR 45155 through 45157) 
and final rule with comment period (77 FR 68426 through 68433), we 
solicited and described the public comments received on potential 
clarifications or changes to our policies regarding patient status that 
may be appropriate to provide more clarity and consensus among 
providers, beneficiaries, and other stakeholders regarding the 
relationship between inpatient admission decisions and appropriate 
Medicare payment. We also provided an update on the Part A to Part B 
Rebilling (Part A/B) Demonstration that was slated to be in effect for 
CYs 2012 through 2014 and was designed to assist us in evaluating these 
issues. Having further considered the concerns raised in these comments 
as well as our experience with the Part A/B Demonstration, we are 
proposing to revise our Part B inpatient billing policy.
2. Summary of the Major Proposed Provisions
    We propose that when a Medicare Part A claim for inpatient hospital 
services is denied because the inpatient admission was deemed not to be 
reasonable and necessary, or when a hospital determines under Sec.  
482.30(d) or Sec.  485.641 after a beneficiary is discharged that his 
or her inpatient admission was not reasonable and necessary, the 
hospital may be paid for all the Part B services (except for services 
that specifically require an outpatient status) that would have been 
reasonable and necessary had the beneficiary been treated as a hospital 
outpatient rather than admitted as an inpatient, if the beneficiary is 
enrolled in Medicare Part B. We propose to continue applying the timely 
filing restriction to the billing of all Part B inpatient services, 
under which claims for Part B services must be filed within 1 year from 
the date of service. In this proposed rule, we also describe the 
beneficiary liability and other impacts of our proposals.
3. Summary of Costs and Benefits--Proposed Part B Inpatient Payment 
Policy
    We estimate that the proposals in this proposed rule would result 
in an approximately $4.8 billion decrease in Medicare program 
expenditures over 5 years. In section V. of this proposed rule we set 
forth a detailed analysis of the regulatory and federalism impacts that 
the proposed changes would have on affected entities and beneficiaries.

B. Legislative and Regulatory Authority/Prior Rulemaking

    Under section 1832 of the Act, when Part A payment cannot be made 
for a hospital inpatient claim because the inpatient admission is 
determined not reasonable and necessary under section 1862(a)(1)(A) of 
the Act, we believe Medicare should pay all for Part B services (except 
for services that specifically require an outpatient status) that would 
have been reasonable and necessary if the hospital had treated the 
beneficiary as a hospital outpatient rather than treating the 
beneficiary as an inpatient. We have previously addressed this issue in 
prior rulemaking through the proposed and final rules titled 
Prospective Payment System for Hospital Outpatient Services, (September 
8, 1998, 63 FR 47560; and April 7, 2000, 65 FR 18444; respectively); 
the proposed and final rule titled, Changes to the Hospital Outpatient 
Prospective Payment System for Calendar Year 2002, (August 24, 2001, 66 
FR 44698 through 44699) and (November 30, 2001, 66 FR 59891 through 
59893 and 59915); and the final rule, titled Payment Policies Under the 
Physician Fee Schedule and Other Revisions to Part B for CY 2011; 
(November 29, 2010, 75 FR 73449 and 73627).

II. Proposed Payment of Medicare Part B Inpatient Services

A. Background

    In the CY 2013 OPPS/ASC proposed rule and final rule with comment 
period (77 FR 45155 through 45157 and 77 FR 68426 through 68433, 
respectively), we discussed that when a Medicare beneficiary arrives at 
a hospital in need of medical or surgical care, the physician or other 
qualified practitioner may admit the beneficiary for inpatient care or 
treat him or her as an outpatient. In some cases, when the physician or 
other qualified practitioner admits the beneficiary and the hospital 
provides inpatient care, a Medicare claims review contractor, such as a 
Medicare Administrative Contractor (MAC), a Recovery Audit Contractor 
(RAC), or a Comprehensive Error Rate Testing (CERT) Contractor, 
subsequently determines that the inpatient admission was not reasonable 
and necessary under section 1862(a)(1)(A) of the Act, and therefore 
denies the associated hospital Part A claim for payment. To date, under 
Medicare's longstanding policy, in these cases hospitals may bill a 
subsequent Part B inpatient claim for only a limited set of medical and 
other health services, referred to as ``Part B inpatient'' or ``Part B 
only'' services, even if additional services furnished would have been 
medically necessary had the beneficiary been treated as an outpatient. 
Under current Medicare policy, these Part B inpatient claims are 
considered new claims subject to the time limits for filing claims 
described at sections 1814(a)(1), 1835(a), and 1842(b)(3)(B) of the Act 
and 42 CFR 424.44 (see section II.G. of this proposed rule). We do not 
consider these claims to be adjustments to the originally submitted 
Part A claim.
    Medicare's policy to pay only a limited set of medical and other 
health services as inpatient services under Part B when payment cannot 
be made under Part A has been in place for many years. As early as 
1968, the Medicare manuals provided for payment under Part B of only a 
limited list of ancillary medical and other health services furnished 
to inpatients of participating hospitals (see Section 3110 of the 
Medicare Intermediary Manual and Section 2255C of the Medicare Carriers 
Manual,

[[Page 16634]]

replaced by Section 10, Chapter 6 of the Medicare Benefit Policy Manual 
(MBPM) (Pub. 100-02)), and under current policy, we continue to provide 
that the payable Part B inpatient services include only a limited set 
of ancillary services (66 FR 44698 through 44699; 66 FR 59891 through 
59893, and 59915). Hospitals are required to submit a Part B inpatient 
claim (Type of Bill (TOB) 12x, or 85x for CAHs) within the usual timely 
filing requirements in order to be paid for these Part B inpatient 
services (75 FR 73449 and 73627).
    We have provided in manual guidance that the limited set of Part B 
inpatient services could be paid if there was no Part A coverage for 
the following reasons:
     In prospective payment system (PPS) hospitals--
    ++ No Part A prospective payment is made at all for the hospital 
stay because of patient exhaustion of benefit days before admission;
    ++ The admission was disapproved as not reasonable and necessary 
(and waiver of liability payment was not made);
    ++ The day or days of the otherwise covered stay during which the 
services were provided were not reasonable and necessary (and no 
payment was made under waiver of liability);
    ++ The patient was not otherwise eligible for or entitled to 
coverage under Part A; or
    ++ For discharges before October 1997;

    --No Part A day outlier payment is made for one or more outlier 
days due to patient exhaustion of benefit days after admission but 
before the case's arrival at outlier status, or because outlier days 
are otherwise not covered and waiver of liability payment is not made; 
or

    --If only day outlier payment is denied under Part A, Part B 
payment may be made for only the services covered under Part B and 
furnished on the denied outlier days.
     In non-PPS hospitals, Part B payment may be made for 
services on any day for which Part A payment is denied (that is, 
benefit days are exhausted; services are not at the hospital level of 
care; or patient is not otherwise eligible or entitled to payment under 
Part A) (Section 10, Chapter 6 of the MBPM).
    The services payable are as follows:
     Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests.
     X-ray, radium, and radioactive isotope therapy, including 
materials and services of technicians.
     Surgical dressings, and splints, casts, and other devices 
used for reduction of fractures and dislocations.
     Prosthetic devices (other than dental) which replace all 
or part of an internal body organ (including contiguous tissue), or all 
or part of the function of a permanently inoperative or malfunctioning 
internal body organ, including replacement or repairs of such devices.
     Leg, arm, back, and neck braces, trusses, and artificial 
legs, arms, and eyes including adjustments, repairs, and replacements 
required because of breakage, wear, loss, or a change in the patient's 
physical condition.
     Outpatient physical therapy, outpatient speech-language 
pathology services, and outpatient occupational therapy (see the 
Medicare Benefit Policy Manual, Chapter 15, ``Covered Medical and Other 
Health Services,'' Sec.  220 and Sec.  230).
     Screening mammography services.
     Screening pap smears.
     Influenza, pneumococcal pneumonia, and hepatitis B 
vaccines.
     Colorectal screening.
     Bone mass measurements.
     Diabetes self-management.
     Prostate screening.
     Ambulance services.
     Hemophilia clotting factors for hemophilia patients 
competent to use these factors without supervision).
     Immunosuppressive drugs.
     Oral anti-cancer drugs.
     Oral drug prescribed for use as an acute anti-emetic used 
as part of an anti-cancer chemotherapeutic regimen.
     Epoetin Alfa (EPO).
    To enable beneficiaries to make informed financial and other 
decisions prior to hospital discharge, Medicare allows the hospital to 
change a beneficiary's inpatient status to outpatient (using condition 
code 44 on a Part B outpatient claim) and bill all reasonable and 
necessary services that it provided to Part B as outpatient services, 
but only if these conditions are met: (1) The change in patient status 
is made prior to discharge; (2) the hospital has not submitted a 
Medicare claim for the admission; (3) both the practitioner responsible 
for the care of the patient and the utilization review committee concur 
with the decision; and (4) the concurrence is documented in the medical 
record (See Section 50.3, Chapter 1 of the Medicare Claims Processing 
Manual (MCPM) (Pub. 100-04); MLN Matters article SE0622, Clarification 
of Medicare Payment Policy When Inpatient Admission Is Determined Not 
To Be Medically Necessary, Including the Use of Condition Code 44: 
``Inpatient Admission Changed to Outpatient,'' September 2004). The 
hospital conditions of participation (CoPs) provide similar patient 
protections. For example, in accordance with 42 CFR 482.13(b), patients 
have the right to participate in the development and implementation of 
their plan of care and treatment, to make informed decisions, and to 
accept or refuse treatment. Informed discharge planning between the 
patient and the physician is important for patient autonomy and for 
achieving efficient outcomes.
    Hospitals have expressed concern that the policy allowing only 
limited billing for Part B inpatient services provides inadequate 
payment for resources they expended to take care of beneficiaries in 
need of medically necessary hospital care, although not necessarily 
inpatient care. Also, hospitals have indicated that often they do not 
have the necessary staff (for example, utilization review staff or case 
managers) available after normal business hours to confirm physicians' 
decisions to admit beneficiaries. Thus, for short-stay admissions, the 
hospitals may be unable to complete a timely review and change 
beneficiaries' status from inpatient to outpatient prior to discharge 
in accordance with the condition code 44 requirements.
    In the CY 2013 OPPS/ASC proposed rule (77 FR 45156), we discussed 
that we have heard from various stakeholders that hospitals appear to 
be responding to the financial risk of admitting Medicare beneficiaries 
for inpatient stays that may later be determined not reasonable and 
necessary and denied upon contractor review by electing to treat 
beneficiaries as outpatients receiving observation services, often for 
longer periods of time, rather than admitting them as inpatients. In 
recent years, the number of cases of Medicare beneficiaries receiving 
observation services for more than 48 hours, while still small, has 
increased from approximately 3 percent in 2006 to approximately 8 
percent in 2011. This trend is concerning because of its effect on 
Medicare beneficiaries. There could be significant financial 
implications for Medicare beneficiaries of being treated as outpatients 
rather than being admitted as inpatients, and we have published 
educational materials for beneficiaries to inform them of their 
respective liabilities.\1\ As

[[Page 16635]]

we discuss later in this proposed rule, the statute provides different 
cost sharing responsibilities for beneficiaries for Part A and Part B 
services. In addition, section 1861(i) of the Act requires a 3-day 
hospital inpatient stay (towards which any time spent receiving 
outpatient observation services prior to the calendar day of admission 
does not count) in order for a beneficiary to qualify for coverage of 
subsequent post-hospital care in a SNF. Therefore, treating 
beneficiaries as outpatients rather than inpatients or expanding the 
number of payable Part B inpatient services could impact the financial 
liability of some beneficiaries.
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    \1\ CMS Pamphlets: ``Are You a Hospital Inpatient or Outpatient? 
If You Have Medicare--Ask!'', CMS Product No. 11435, Revised, 
February 2011; ``How Medicare Covers Self-Administered Drugs Given 
in Hospital Outpatient Settings,'' CMS Product No. 11333, Revised, 
February 2011.
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    In light of concerns related to the impact of extended time as an 
outpatient on Medicare beneficiaries and the impact on hospitals of 
denials of hospital inpatient claims, we implemented a demonstration, 
the Part A to Part B (A/B) Rebilling Demonstration, for hospitals. The 
demonstration was initially slated to last for 3 years, from CYs 2012 
through 2014. The demonstration allows a limited number of hospitals to 
rebill for additional Part B inpatient services outside the usual 
timely filing requirement, when Part A inpatient short-stay claims are 
denied because the inpatient admissions were determined not reasonable 
and necessary. Under the demonstration, hospitals may be eligible to 
receive 90 percent of payment for all Part B services that would have 
been reasonable and necessary had the beneficiaries been treated as 
outpatients rather than admitted as inpatients. We also solicited 
public comments in the CY 2013 OPPS/ASC proposed rule on various policy 
clarifications or changes that have been suggested by stakeholders to 
address these issues, including revising our Part B inpatient billing 
policy (77 FR 45155 through 45157).
    In an increasing number of cases, hospitals that have appealed Part 
A inpatient claims that were denied because the inpatient admission was 
not reasonable and necessary have received partially favorable 
decisions from the Medicare Appeals Council or Administrative Law 
Judges (ALJs). While upholding the Medicare review contractor's 
determination that the inpatient admission was not reasonable and 
necessary, the Medicare Appeals Council and ALJ decisions have ordered 
payment of the services as if they were rendered at an outpatient or 
``observation level'' of care. These decisions effectively require 
Medicare to issue payment for all Part B services that would have been 
payable had the beneficiary originally been treated as an outpatient 
(rather than an inpatient), instead of payment for only the limited set 
of Part B inpatient services that are designated in the MBPM. Moreover, 
these decisions have required such payment regardless of whether the 
subsequent hospital claim for payment under Part B is submitted within 
the otherwise applicable time limit for filing Part B claims. These 
Medicare Appeals Council and ALJ decisions providing for payment of all 
reasonable and necessary Part B services under the circumstances 
described previously are contrary to our longstanding policies that 
permit billing for only a limited list of Part B inpatient services and 
require that the services be billed within the usual timely filing 
restrictions (See Section 10, Chapter 6 of the MBPM (Pub. 100-02); 63 
FR 47560; 65 FR 18444; 66 FR 44698 through 44699; 66 FR 59891 through 
59893, and 59915; and 75 FR 73449, 73627). While decisions issued by 
the Medicare Appeals Council and ALJs do not establish Medicare payment 
policy, we are bound to effectuate each individual decision. The 
increasing number of these types of decisions has created numerous 
operational difficulties.
    After reviewing the public comments we received in response to the 
CY 2013 OPPS/ASC proposed rule, considering the most efficient way to 
effectuate the Medicare Appeals Council and ALJ decisions referenced 
earlier in this section, and further assessing our Part B inpatient 
payment policy, we are concurrently issuing this proposed rule and CMS 
Ruling 1455-R (hereinafter referred to as the Ruling). The Ruling 
establishes a standard process for effectuating these Medicare Appeals 
Council and ALJ decisions and handling claims and appeals while CMS 
considers how to best address this issue going forward. The Ruling also 
addresses the scope of administrative review in these and other, 
similar cases. Until this proposed rule is finalized, CMS, through the 
Ruling, acquiesces in the approach taken in the aforementioned Medicare 
Appeals Council and ALJ decisions on the issue of subsequent Part B 
billing following the denial of a Part A hospital inpatient claim on 
the basis that the inpatient admission was not reasonable and 
necessary. The Ruling is intended as an interim measure until we can 
finalize a policy to address the issues raised by these decisions going 
forward.
    Specifically, the Ruling provides that when a Part A claim for a 
hospital inpatient admission is denied by a Medicare review contractor 
because the inpatient admission was determined not reasonable and 
necessary, the hospital may submit a subsequent Part B inpatient claim 
for more services than just those listed in section 10, Chapter 6 of 
the MBPM, to the extent the services furnished were reasonable and 
necessary. The hospital may submit a Part B inpatient claim for payment 
for the Part B services that would have been payable to the hospital 
had the beneficiary originally been treated as an outpatient rather 
than admitted as an inpatient, except when those services specifically 
require an outpatient status. The Ruling only applies to denials of 
claims for inpatient admissions that were not reasonable and necessary; 
it does not apply to any other circumstances in which there is no 
payment under Part A, such as when a beneficiary exhausts Part A 
benefits for hospital services or is not entitled to Part A. Under the 
Ruling, Part B inpatient and Part B outpatient claims that are filed 
later than 1 calendar year after the date of service will not be 
rejected as untimely by Medicare's claims processing system as long as 
the corresponding denied Part A inpatient claim was filed timely in 
accordance with 42 CFR 424.44, consistent with the directives of the 
Medicare Appeals Council and ALJ decisions to which we are acquiescing.
    The Ruling also provides that the A/B Rebilling Demonstration will 
be discontinued. We will communicate to hospitals and contractors the 
details regarding termination of the demonstration and implementation 
of Part B billing under the Ruling in future transmittals. As described 
in the Ruling, the Ruling is effective on its date of issuance. It 
applies to Part A hospital inpatient claims that were denied by a 
Medicare review contractor because the inpatient admission was 
determined not reasonable and necessary, as long as the denial was 
made: (1) While the Ruling is in effect; (2) prior to the effective 
date of the Ruling, but for which the timeframe to file an appeal has 
not expired; or (3) prior to the effective date of the Ruling, but for 
which an appeal is pending. The Ruling does not apply to Part A 
hospital inpatient claim denials for which the timeframe to appeal 
expired, and it does not apply to inpatient admissions determined by 
the hospital to be not reasonable and necessary (for example, through 
utilization review or other self-audit). The policy announced in the 
Ruling supersedes any other statements of policy on the issue of Part B 
inpatient billing following the denial by a

[[Page 16636]]

Medicare review contractor of a Part A inpatient hospital claim because 
the inpatient admission was not reasonable and necessary (although 
hospital outpatient services would have been reasonable and necessary), 
and it remains in effect until the effective date of the regulations 
that finalize this proposed rule. This proposed rule proposes revisions 
to our Part B payment policy that would apply prospectively from the 
effective date of the final regulations and would differ in some 
respects from the provisions of the Ruling, the purpose of which is to 
effectuate the Medicare Appeals Council and ALJ decisions.

B. Proposed Payable Part B Inpatient Services

    Having reviewed the statutory and regulatory basis of our current 
Part B inpatient payment policy, we believe that, under section 1832 of 
the Act, Medicare should pay all Part B services that would have been 
reasonable and necessary (except for services that require an 
outpatient status) if the hospital had treated the beneficiary as a 
hospital outpatient rather than treating the beneficiary as an 
inpatient, when Part A payment cannot be made for a hospital inpatient 
claim because the inpatient admission is determined not reasonable and 
necessary under section 1862(a)(1)(A) of the Act. Therefore, in this 
section, we propose to revise our current policy to allow payment for 
additional Part B inpatient services than Medicare currently allows 
when CMS, a Medicare review contractor, or a hospital determines after 
discharge that payment cannot be made under Part A because a hospital 
inpatient admission was not reasonable and necessary, provided the 
statutorily required timeframe for submitting claims is not expired, as 
discussed in section II.G. of this proposed rule. The hospital could 
re-code the reasonable and necessary services that were furnished as 
Part B services, and bill them on a Part B inpatient claim. This 
proposed policy would only apply to denials of claims for inpatient 
admissions that are not reasonable and necessary, and would not apply 
to any other circumstances in which there is no payment under Part A, 
such as when a beneficiary exhausts Part A benefits for hospital 
services or is not entitled to Part A.
    Specifically, we propose to revise our Part B inpatient billing 
policy to allow payment of all hospital services that were furnished 
and would have been reasonable and necessary if the beneficiary had 
been treated as an outpatient, rather than admitted to the hospital as 
an inpatient, except for those services specifically requiring an 
outpatient status. We would exclude services that by statute, Medicare 
definition, or standard Healthcare Common Procedure Coding System 
(HCPCS) code are defined as outpatient services, including outpatient 
diabetes self-management training services (DSMT) defined in section 
1861(qq) of the Act; outpatient physical therapy services, outpatient 
speech-language pathology services, and outpatient occupational therapy 
services (PT/SLP/OT or ``therapy'' services) defined in section 
1833(a)(8) of the Act; and outpatient visits, emergency department 
visits, and observation services (G0378, Hospital observation service, 
per hour; and G0379, Direct referral for hospital observation care). 
These services are, by definition, provided to hospital outpatients and 
not inpatients. Hospitals could only submit claims for Part B inpatient 
services that were furnished to an inpatient in accordance with their 
Medicare and standard Healthcare Common Procedure Coding System (HCPCS) 
code definitions, and in accordance with Medicare coverage and payment 
rules.
    In accordance with section 1833(e) of the Act, hospitals would be 
required to furnish information as may be necessary in order to 
determine the amounts due for the services billed on a Part B inpatient 
claim for services rendered during the inpatient stay. We would 
implement this provision in proposed new 42 CFR 414.5, entitled, 
``Hospital inpatient services paid under Medicare Part B when a Part A 
hospital inpatient claim is denied because the inpatient admission was 
not reasonable and necessary, but hospital outpatient services would 
have been reasonable and necessary in treating the beneficiary.'' The 
claim for inpatient Part B services would have to be submitted within 
the timely filing period (we discuss the time limits for filing claims 
in section II.G. of this proposed rule). To ensure the accuracy and 
appropriateness of payment under Part A, we propose that this policy 
would apply when CMS or a Medicare review contractor determines that 
the hospital inpatient admission was not reasonable and necessary, and 
also when a hospital determines under Medicare's utilization review 
requirements in sections 1861(e)(6)(1) and 1861(k) of the Act and 42 
CFR 482.30 (42 CFR 485.641 for CAHs) that a beneficiary should have 
received hospital outpatient rather than hospital inpatient services, 
but the beneficiary has already been discharged from the hospital 
(hereinafter referred to as hospital ``self-audit'' for purposes of 
this preamble). In this circumstance, we would continue requiring the 
hospital to submit a ``no pay/provider liable'' Part A claim indicating 
that the provider is liable under section 1879 of the Act for the cost 
of the Part A services (see section 40.2.2(E), Chapter 3 of the MCPM). 
Submission of this Part A claim indicates that the provider is assuming 
financial liability for the denied items or services on the Part A 
claim consistent with section 1879 of the Act (and acknowledging that 
the beneficiary is not financially liable under section 1879 of the 
Act) for the cost of the Part A items and services. The claim also 
ensures accurate cost reporting, reporting of utilization of inpatient 
days, and triggers refund requirements of the Part A cost sharing under 
sections 1866(a) and 1879(b) of the Act and 42 CFR 411.402 of the 
regulations (see sections II.E. and F. of this proposed rule). 
Submitting the provider-liable Part A claim also cancels any claim that 
may have already been submitted by the hospital for payment under Part 
A. The hospital could then submit an inpatient claim for payment under 
Part B for all services that would have been reasonable and necessary 
if the beneficiary had been treated as a hospital outpatient rather 
than admitted as a hospital inpatient, except for those services 
specifically requiring an outpatient status. This claim would have to 
be submitted within the timely filing period (we discuss the time 
limits for filing claims in section II.G. of this proposed rule). We 
believe that providing for additional payment under Part B when a 
hospital determines itself that an inpatient admission was not 
reasonable and necessary but hospital outpatient services would have 
been reasonable and necessary would reduce improper payments under Part 
A, and would reduce the administrative costs of appeals for both 
hospitals and the Medicare program.
1. Part B Inpatient Services Paid Under the Hospital OPPS
    We propose payment of services that are paid under the OPPS (except 
those requiring an outpatient status) under proposed new Sec.  
414.5(a)(1), ``If a Medicare Part A claim for inpatient hospital 
services is denied because the inpatient admission was not reasonable 
and necessary, or if a hospital determines under Sec.  482.30(d) or 
Sec.  485.641 after a beneficiary is discharged that the beneficiary's 
inpatient admission was not reasonable and necessary, the hospital may 
be paid for the following Part B inpatient services that would have 
been

[[Page 16637]]

reasonable and necessary if the beneficiary had been treated as a 
hospital outpatient rather than admitted as an inpatient, provided the 
beneficiary is enrolled in Medicare Part B: (1) Services described in 
Sec.  419.21(a) that do not require an outpatient status.'' We would 
exclude payment of services under the OPPS such as observation services 
and clinic visits that, by definition, require an outpatient status.
2. Services Excluded From Payment Under the OPPS
    For the proposed Part B inpatient services furnished by the 
hospital that are not paid under the OPPS, but rather under some other 
Part B payment methodology, we propose that when the inpatient 
admission is determined not reasonable and necessary, Part B payment 
would be made pursuant to the respective Part B fee schedules or 
prospectively determined rates for which payment is made for these 
services when provided to hospital outpatients (see 65 FR 18442 and 
18443). As provided in 42 CFR 419.22, the services for which payment is 
made under other payment methodologies are as follows:
     Ambulance services, as described in section 1861(v)(1)(U) 
of the Act, or, if applicable, the fee schedule established under 
section 1834(l) of the Act;
     Except as provided in 42 CFR 419.2(b)(11), prosthetic 
devices, prosthetics, prosthetic supplies, and orthotic devices;
     Except as provided in 42 CFR 419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home;
     Clinical diagnostic laboratory services;
     Effective December 8, 2003, screening mammography services 
and effective January 1, 2005, diagnostic mammography services (which 
would become paragraph (r) under our proposed redesignation, discussed 
in section II.C. of this proposed rule); and
     Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in 42 CFR 410.15 
(which would become subparagraph (s) under our proposed re-designation, 
discussed in section II.C. of this proposed rule).
    We propose to provide payment of these OPPS-excluded services in 42 
CFR 414.5(a)(2) through (a)(7) as follows:
     Ambulance services, as described in section 1861(v)(1)(U) 
of the Act, or, if applicable, the fee schedule established under 
section 1834(l) of Act.
     Except as provided in Sec.  419.2(b)(11), prosthetic 
devices, prosthetics, prosthetic supplies, and orthotic devices.
     Except as provided in Sec.  419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home.
     Clinical diagnostic laboratory services.
     Effective December 8, 2003, screening mammography services 
and effective January 1, 2005, diagnostic mammography services.
     Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec.  410.15 of 
this chapter.
    In our review of the current regulations governing payment of Part 
B inpatient services, we noted an oversight in 42 CFR 419.22 that 
outpatient DSMT services which are described in section 1861(qq) of the 
Act and 42 CFR 414.63 and are paid under the Medicare Physician Fee 
Schedule (MPFS), were never excluded from OPPS payment along with all 
other physician services. Since the statute defines these services as 
outpatient services, Sec.  414.63(e)(2) stipulates that outpatient DSMT 
services can be paid only if the beneficiary ``[i]s not receiving 
services as an inpatient in a hospital, SNF, hospice, or nursing 
home.'' Therefore, under our proposal these services would not be 
payable Part B inpatient services. However, pursuant to our review of 
the regulations, we propose a technical correction to clarify that 
outpatient DSMT services are excluded from OPPS payment. This 
correction would appear in Sec.  419.22(u).
    In addition, we noted a typographical error in paragraph (j), which 
should cross reference Sec.  419.2(b)(11) rather than Sec.  
419.22(b)(11). We propose a technical correction to delete the 
erroneous ``Sec.  419.22(b)(11)'' and replace with ``Sec.  
419.2(b)(11)''. Also we noted that Sec.  419.22(h) excludes 
``outpatient'' therapy services from coverage under the OPPS. Section 
1833(t)(1)(B)(iv) of the Act specifically states that ``the term 
`covered OPD services'* * *(iv) does not include any therapy services 
described in subsection (a)(8)'' and section 1833(a)(8) describes 
outpatient therapy services furnished by a hospital to a hospital 
outpatient or a hospital inpatient who is entitled to benefits under 
Part A but has either exhausted or is not so entitled to such benefits. 
In order to more clearly follow the statutory language defining covered 
OPD services, we propose to replace the words ``outpatient therapy'' 
with ``therapy'' in Sec.  419.22(h) so that it reads, ``Therapy 
services described in section 1833(a)(8) of the Act.''
    We further noted that the headings of Sec.  419.21 and Sec.  419.22 
describe the ``hospital outpatient'' services that are subject to (in 
Sec.  419.21) or excluded from payment under (in Sec.  419.22) the 
OPPS. To more appropriately describe the services that are payable 
under these regulations under the OPPS, we propose to amend the titles 
of these sections by removing the term ``outpatient.'' The title of 
Sec.  419.21 would then read, ``Hospital services subject to the 
outpatient prospective payment system.'' The title of Sec.  419.22 
would then read, ``Hospital services excluded from payment under the 
hospital outpatient prospective payment system.''

C. Billing for Part B Outpatient Services in the Three-Day Payment 
Window

    The proposals in this proposed rule would not change the 3-day 
payment window policy, which requires payment for certain outpatient 
services provided to a beneficiary on the date of an inpatient 
admission or during the 3 calendar days (or 1 calendar day for a 
hospital that is not paid under the Inpatient Prospective Payment 
System (non-IPPS)) prior to the date of an inpatient admission to be 
bundled (that is, included) with the payment for the beneficiary's 
inpatient admission, if those outpatient services are provided by the 
admitting hospital or an entity that is wholly owned or wholly operated 
by the admitting hospital (Section 40.3, Chapter 3 and Section 10.12, 
Chapter 4 of the Medicare Claims Processing Manual (Pub. 100.04)). The 
current policy applies to all diagnostic outpatient services and non-
diagnostic (that is, therapeutic) services that are related to the 
inpatient stay. As stated in Section 10.12, Chapter 4 of the Medicare 
Claims Processing Manual, in the event that there is no Part A coverage 
for the inpatient stay, services provided to the beneficiary prior to 
the point of admission may be separately billed to Part B as the 
outpatient services that they were. This policy would continue to apply 
where Part A payment is not available. The Part B outpatient claims for 
the outpatient services provided in the 3-day (or 1-day for a non-IPPS 
hospital) payment window would be subject to the usual timely filing 
restrictions and not be considered adjustment claims (see section II.G. 
in this proposed rule).
    Hospitals may only submit claims for Part B outpatient services 
that are reasonable and necessary in accordance with Medicare coverage 
and payment rules. In accordance with section 1833(e) of the Act, 
hospitals must furnish information as may be necessary

[[Page 16638]]

in order to determine the amounts due for the services billed on a Part 
B outpatient claim for services rendered in the 3-day payment window 
prior to the inpatient admission.

D. Applicability--Types of Hospitals

    We propose that all hospitals billing Part A services be eligible 
to bill the proposed Part B inpatient services, including short-term 
acute care hospitals paid under the IPPS, hospitals paid under the 
OPPS, long-term care hospitals (LTCHs), inpatient psychiatric 
facilities (IPFs), inpatient rehabilitation facilities (IRFs), CAHs, 
children's hospitals, cancer hospitals, and Maryland waiver hospitals. 
We propose that hospitals paid under the OPPS would continue billing 
the OPPS for Part B inpatient services. Hospitals that are excluded 
from payment under the OPPS in 42 CFR 419.20(b) would be eligible to 
bill Part B inpatient services under their non-OPPS Part B payment 
methodologies.
    In the CY 2002 OPPS proposed rule (66 FR 44698 through 44699) and 
final rule (66 FR 59891 through 59893), we recognized that certain 
hospitals do not submit claims for outpatient services under Medicare 
Part B, either because they do not have outpatient departments or 
because they have outpatient departments but submit no claims to 
Medicare Part B (for example, state psychiatric hospitals). When the 
OPPS was implemented, the only claims these hospitals would ever have 
submitted for Part B payment would have been for the ancillary services 
designated as `Part B Only' services. These hospitals were concerned 
about the administrative burden and prohibitive costs they would incur 
if they were to change their billing systems to accommodate OPPS 
requirements solely to receive payment for Part B Only (Part B 
inpatient) services. Under our current policy of limited Part B 
inpatient billing following a reasonable and necessary Part A claim 
denial, the cost to these hospitals of implementing claims systems to 
bill Part B inpatient services to the OPPS would have been greater than 
the payments they would have received for the services. In response to 
this concern, we revised 42 CFR 419.22 by adding paragraph (r), which 
provides that services defined in 42 CFR 419.21(b) that are furnished 
to inpatients of hospitals that do not submit claims for outpatient 
services under Medicare Part B are excluded from payment under the 
OPPS. We provided an exception under which, rather than billing Part B 
inpatient services under the OPPS, hospitals would bill these services 
under the hospital's pre-OPPS payment methodology, for example at 
reasonable cost or the per diem payment rate, unless the services were 
subject to a payment methodology that was established prior to the 
OPPS. As described in section II.B. of this proposed rule, services 
subject to pre-OPPS payment methodologies include PT/SLP/OT services; 
ambulance services; devices and supplies paid under the Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) fee schedule; 
clinical diagnostic laboratory services; screening and diagnostic 
mammography services; and the annual wellness visit providing 
personalized plan prevention services.
    We are soliciting public comments from these hospitals regarding 
the types of Part B inpatient services they anticipate billing Medicare 
under our proposal for payment of additional Part B services. If under 
our proposed policies, the Part B inpatient services payable to these 
hospitals would largely be limited to the ancillary services they 
currently bill Medicare, these hospitals would continue billing Part B 
inpatient services under the current exception. However, if we receive 
public comments indicating that hospitals subject to the exception in 
42 CFR 419.22(r) would be eligible and seek payment for additional Part 
B inpatient services under this proposed rule, we would consider 
finalizing a policy to require these hospitals to bill the OPPS since 
unlike under existing policy, their eligible payments would likely 
outweigh the cost of implementing billing systems specific to the OPPS. 
To reflect such a policy, we would delete 42 CFR 419.22(r) and 
redesignate Sec.  419.22(s) and Sec.  419.22(t) as Sec.  419.22(r) and 
Sec.  419.22(s), respectively.

E. Beneficiary Liability Under Section 1879 of the Act

    As discussed earlier in this proposed rule, our policy previously 
allowed for billing of only a limited set of Part B inpatient services 
rather than all Part B services following the reasonable and necessary 
denial of a Part A inpatient claim. We recognize the proposal would 
allow billing for additional Part B inpatient services, which could 
create a unique liability issue for Medicare beneficiaries that did not 
previously exist.
    When a Part A inpatient admission is denied as not reasonable and 
necessary under section 1862(a)(1)(A) of the Act, or a hospital submits 
a ``provider liable/no-pay'' claim (following a self-audit as described 
in section II.B. of this proposed rule) indicating that the hospital 
has determined that an inpatient admission is not reasonable and 
necessary, a determination of financial liability for the non-covered 
inpatient admission is made in accordance with section 1879 of the Act. 
The Medicare contractor determines whether the hospital and the 
beneficiary knew, or could have reasonably been expected to know, that 
the services were not covered. If neither the hospital nor the 
beneficiary knew, or could reasonably have been expected to know, that 
the services were not covered, then Medicare makes payment for the 
denied services. However, because hospitals are expected to have 
knowledge of our coverage and payment rules, hospitals are often 
determined liable under section 1879 of the Act for the cost of the 
non-covered items and services furnished. In addition, unless the 
beneficiary had knowledge of non-coverage in advance of the provision 
of services (typically through a Hospital Issued Notice of Non-Coverage 
(HINN)), the beneficiary will not be financially liable for the denied 
Part A services in accordance with section 1879 of the Act.
    Following a denial of a Part A inpatient admission as not 
reasonable and necessary and a determination that the beneficiary was 
not financially liable in accordance with section 1879 of the Act, the 
hospital is required to refund any amounts paid by the beneficiary 
(such as deductible and copayment amounts) for the services billed 
under Part A. (See, 42 CFR 411.402.) The beneficiary would have no out-
of-pocket cost in this scenario. However, under the Part B inpatient 
billing policy proposed in this rule, if the hospital subsequently 
submits a timely Part B claim after the Part A claim is denied, the 
financial protections afforded under section 1879 of the Act to limit 
liability for the denied Part A claim cannot also be applied to limit 
liability for the covered services filed on the Part B claim. The 
beneficiary (who may previously have had no out-of-pocket costs for the 
denied Part A claim) is responsible for applicable deductible and 
copayment amounts for Medicare covered services, and for the cost of 
items or services never covered (or always excluded from coverage) 
under Part B of the program. (The beneficiary's responsibility for 
payment of deductible, cost-sharing, and items excluded from coverage 
under Part B is discussed further in section II.F. of this proposed 
rule.) If, however, a hospital does not bill under Part B in a timely 
manner, in accordance with section 1866(a)(1)(A)(i) of the Act, the 
hospital may not charge the beneficiary for any costs related to

[[Page 16639]]

the Part B items and services furnished, if the beneficiary would 
otherwise be entitled to have Part B payment made on his/her behalf. 
Finally, in instances where the beneficiary is not enrolled in Medicare 
Part B, we encourage hospitals and beneficiaries to recognize the 
importance of billing supplemental insurers and pursuing an appeal of 
the Part A inpatient claim denial, as appropriate.
    We do not believe that the existing beneficiary liability notices 
used in the Medicare fee-for-service program (the HINN and Advance 
Beneficiary Notice of Noncoverage (ABN)) are applicable or relevant for 
the Part B inpatient billing process described in this proposed rule to 
alert beneficiaries to the possible change in deductible and cost-
sharing if a Part A inpatient claim is denied and a Part B claim is 
subsequently submitted. These notices must be given prior to the 
provision of an item or service that is expected to be denied, and 
cannot be issued retroactively (that is, after the receipt of the post-
payment Part A inpatient claim denial). We would conduct an educational 
campaign and issue materials that address various aspects of this 
rulemaking, including raising beneficiary awareness that certain denied 
Part A inpatient hospital services may be covered under Part B of the 
program. We welcome public comment on recommendations for notification 
to beneficiaries in these situations, consistent with our current 
notice policies. (For additional information on beneficiary notices, 
see the CMS Web site at http://www.cms.gov/Medicare/Medicare-General-Information/BNI/index.html).

F. Applicable Beneficiary Liability: Hospital Services

    As we note in section II.E. and section V. of this proposed rule, 
increasing the number of billable Part B inpatient services could 
affect beneficiary liability. In accordance with statute, beneficiary 
cost-sharing under Part A is different (and, in some cases, may be 
less) than under Part B. The CY 2013 Part A inpatient deductible and 
coinsurance amounts, which are set in accordance with statute, were 
recently announced in a notice published in the November 21, 2012 
Federal Register (77 FR 69848 through 69850). Under Part A, a 
beneficiary pays a one-time deductible for all hospital inpatient 
services provided during the first 60 days in the hospital of the 
benefit period; therefore, an inpatient deductible does not necessarily 
apply to all hospitalizations. Part A coinsurance only applies after 
the 60th day in the hospital. A beneficiary would be entitled to 
refunds of any amounts he or she paid to the hospital for the Part A 
claim if the hospital, but not the beneficiary, is held financially 
responsible for denied services under section 1879 of the Act (42 CFR 
411.402.) However, under our proposed policy, beneficiaries would 
continue to be liable for their usual Part B financial liability.
    Beneficiaries would be liable for Part B copayments for each 
hospital Part B outpatient or Part B inpatient service and for the full 
cost of drugs that are usually self-administered, which section 
1861(s)(2)(B) of the Act does not include. We note that self-
administered drugs are typically covered under Medicare Part D, and 
beneficiaries who have Part D coverage may submit a claim to their Part 
D plan for reimbursement of these costs. If a beneficiary must receive 
the self-administered drug from a hospital, rather than a community 
pharmacy, he or she would likely be subject to higher out-of-pocket 
costs due to the hospital pharmacy's status as a non-network pharmacy. 
Hospital billing systems, Part D reimbursement rates, and drug 
utilization review requirements make it difficult for hospitals to 
participate as a Part D network provider for these drugs. Therefore, if 
coverage is available, consistent with 42 CFR 423.124(b), beneficiaries 
would be responsible for the difference between the Part D plan's plan 
allowance and the hospitals' charges, and the difference may be 
significant. Thus under our proposed Part B billing policy, some 
beneficiaries who are entitled to coverage under both Part A and Part B 
may have a greater financial liability for hospital services compared 
to current policy, as they would be liable for additional Part B 
services billed when the inpatient admission is determined not 
reasonable and necessary. We are soliciting comment on whether we 
should consider additional policies to mitigate or prevent this 
potential additional liability for beneficiaries.
    Most supplemental insurers or benefit programs (this includes but 
is not limited to Medigap plans that market Medicare supplemental 
insurance policies, employer retiree plans, FEHBP, TRICARE, and 
Medicaid) participate in Medicare's coordination of benefits (COB) or 
claims crossover process. Such payers sign national agreements with 
Medicare to facilitate the automatic transfer of Medicare-adjudicated 
professional as well as facility claims to them. Most, if not all of 
these supplemental insurers elect to receive Medicare crossover claims 
if there is cost-sharing (that is, deductible or co-insurance amounts 
remains for the beneficiary to pay). The vast majority of insurers that 
pay after Medicare currently accept Part B physician claims as well as 
outpatient-oriented hospital claims as part of the Medicare crossover 
process. Therefore, if we finalize our proposal to allow for hospital 
billing of additional Part B services using claims whose National 
Uniform Billing Committee (NUBC) approved type of bill (TOB) 
designation is 12x (Hospital-Inpatient Part B), the vast majority of 
providers will find that their patients' claims will be automatically 
transferred to their supplemental insurance programs for further 
payment consideration. Additionally, to ensure that supplemental payers 
would coordinate benefits with Medicare successfully and pay benefits 
appropriately, Medicare would communicate with all supplemental payers 
to ensure they know: (1) What additional services beyond those 
traditionally termed ``ancillary'' would now be included under the TOB 
12x designation; and (2) what new cost sharing this change in billing 
and payment methodology will impose. The Medicare crossover process 
currently in place will ensure that, for the most part, providers are 
not inconvenienced by having to bill their patients' supplemental 
insurance plans or programs for balances owed following Medicare's 
payment.

G. Time Limits for Filing Claims

    Sections 1814(a)(1), 1835(a), and 1842(b)(3)(B) of the Act 
establish time limits for filing Medicare Part A and B claims. Section 
424.44 of the regulations implements those sections of the Act and 
requires that all claims for services furnished on or after January 1, 
2010 be filed within 1 calendar year after the date of service unless 
an exception applies. In the November 29, 2010 final rule with comment 
period (75 FR 73627) titled, ``Medicare Program; Payment Policies Under 
the Physician Fee Schedule and Other Revisions to Part B for CY 2011'' 
modifying Sec.  424.44, commenters requested that we create an 
exception to the time limits for filing claims so that hospitals are 
permitted to file inpatient Part B only claims for any inpatient cases 
that are retrospectively reviewed by a Medicare Recovery Audit 
Contractor (RAC) or other review entity and determined not to be 
medically necessary in an inpatient setting. Commenters requested that 
an exception be created at Sec.  424.44(b) to allow for the billing of 
Part B inpatient and Part B outpatient claims when there is no coverage 
under Part A for a hospital stay. For the reasons discussed

[[Page 16640]]

in the November 29, 2010 final rule, we declined to create such an 
exception and we continue to believe that was the correct decision.
    Under CMS Ruling 1455-R (published concurrently elsewhere in this 
issue of the Federal Register), we adopted (although we did not 
endorse) the views of the Medicare Appeals Council and many ALJs that 
subsequent Part B rebilling is allowed after the timely filing period 
has expired. The Ruling states that subsequent Part B inpatient and 
Part B outpatient claims that are filed later than 1 calendar year 
after the date of service are not to be rejected as untimely by 
Medicare's claims processing system as long as the original 
corresponding Part A inpatient claim was filed timely pursuant to 42 
CFR 424.44. The Ruling remains in effect until the effective date of 
final regulations that result from this proposed rule. At that time, 
the final rule would supersede the Ruling's treatment of claims that 
providers file later than 1-calendar year after the date of service.
    Accordingly, we propose a new Sec.  414.5(b) that would require 
that claims for billed Part B inpatient services be rejected as 
untimely when those Part B claims are filed later than 1 calendar year 
after the date of service. Our proposal treats these Part B claims as 
new claims subject to the timely filing requirements, instead of as 
adjustment claims. This is consistent with longstanding Medicare policy 
because an adjustment claim supplements information on a claim that was 
previously submitted without changing the fundamental nature of that 
original claim. In these Part B claim situations, however, the 
fundamental nature of the originally filed claim is changed completely 
(from a Part A claim to a Part B claim).
    Therefore, in order to remove any ambiguity, if this rule is 
finalized as proposed, billed Part B inpatient claims would be rejected 
as untimely when those Part B claims are filed later than 1-calendar 
year after the date of service. Moreover, because it is the 
responsibility of providers to correctly submit claims to Medicare by 
coding services appropriately, it is important to note that the 
exception located at Sec.  424.44(b)(1), which extends the time for 
filing a claim if failure to meet the deadline was caused by error or 
misrepresentation of an employee, contractor or agent of HHS (commonly 
referred to as the ``administrative error'' exception), would not apply 
in situations where a provider bills the originally submitted Part A 
claim incorrectly. Finally, we remind providers that in accordance with 
42 CFR 405.926(n), determinations that a provider failed to submit a 
claim timely are not appealable.

H. Appeals Procedures

    If a hospital is dissatisfied with an initial or revised 
determination by a Medicare contractor to deny a Part A claim for an 
inpatient admission as not reasonable and necessary, the hospital may 
either submit Part B inpatient or outpatient claims (consistent with 
this proposed rule) or file a request for appeal of the denied Part A 
claim in accordance with the procedures in 42 CFR Part 405 subpart I. 
In order to prevent duplicate billing and payment, a hospital may not 
have simultaneous requests for payment for the same services provided 
to a single beneficiary on the same dates of service. (See IOM Pub. 
100-4, Chapter 1, section 120.) This includes requests for payment 
under both Part A and Part B. Thus, if a hospital chooses to submit a 
Part B claim for payment following the denial of an inpatient admission 
on a Part A claim, then the hospital cannot also maintain its request 
for payment for the same services on the Part A claim (including an 
appeal of the Part A claim). In this situation, before the hospital 
submits a Part B claim, it must ensure that there is no pending appeal 
request on the Part A claim. (A pending appeal means an appeal for 
which there is no final or binding decision or dismissal.) If the 
hospital has filed a Part A appeal, the appeal must be withdrawn, or 
the decision must be final or binding, before the Part B claim can be 
processed. If a hospital submits a Part B claim for payment without 
withdrawing its appeal request, the Part B claim would be denied as a 
duplicate. In addition, once a Part B claim is filed, there would be no 
further appeal rights available with respect to the Part A claim. 
However, the hospital and beneficiary would have appeal rights with 
respect to an initial determination made on the Part B claim under 
existing policies set forth at 42 CFR part 405 subpart I.
    Additionally, if a beneficiary files an appeal of a Part A 
inpatient admission denial, a hospital cannot utilize the Part B 
billing process proposed in this rule to extinguish a beneficiary's 
appeal rights. Therefore, the hospital's submission of a Part B claim 
would not affect a beneficiary's pending appeal or right to appeal the 
Part A claim. If a beneficiary has a pending Part A appeal for an 
inpatient admission denial, then any claims rebilled under Part B by 
the hospital would be denied as duplicates by the Medicare contractor. 
As explained previously, in order for the Part B claim(s) to be 
processed, the Part A appeal must be final or binding or dismissed. For 
example, if a beneficiary receives an unfavorable reconsideration on a 
Part A inpatient claim and does not file a timely request for hearing 
before an ALJ, the reconsideration decision becomes binding. At that 
point, the hospital could submit a Part B claim, provided it is filed 
within 12 months from the date of service. (See proposed 42 CFR 
414.5(b) and 42 CFR 424.44).
    As discussed in sections II.E and F. of this proposed rule, 
beneficiaries who are not enrolled in Medicare Part B may be liable for 
the cost of items and services associated with a hospital stay when 
billed under the Part B billing process proposed in this rule. We 
believe that some beneficiaries who are not enrolled in Medicare Part B 
may have other health insurance that might pay for some or all of the 
Part B items and services. If a beneficiary is not enrolled in Part B 
of the program, we strongly encourage the hospital to submit a Part B 
claim to Medicare before billing the beneficiary so that, when 
appropriate, the beneficiary's supplemental insurer receives the claim.
    We are also clarifying in this proposed rule the scope of review 
with respect to appeals of Part A inpatient admission denials in the 
context of the Part B billing policy. As explained in CMS Ruling 1455-
R, a large number of recent appeal decisions for Part A inpatient 
admission claim denials by Medicare review contractors have affirmed 
the Part A inpatient admission denial, but ordered that payment be 
issued as if services were provided at the outpatient or 
``observation'' level of care under Part B of the Medicare program. 
These decisions ordered payment under Part B (or consideration of 
payment for services furnished that the contractor determined to be 
covered and payable under Part B) even though a Part B claim had not 
been submitted for payment. Hospitals are solely responsible for 
submitting claims for items and services provided to beneficiaries and 
determining whether submission of a Part A or Part B claim is 
appropriate. Once a hospital submits a claim, the Medicare contractor 
can make an initial determination and determine any payable amount (42 
CFR 405.904(a)(2)). Under existing Medicare policy, if such a 
determination is appealed, an appeals adjudicator's scope of review is 
limited to the claim(s) that are before them on appeal, and such 
adjudicators may not order payment for items or services that have not 
yet been billed or have not yet received an initial determination. (See 
42 CFR 405.920,

[[Page 16641]]

405.940, 405.948, 405.954, 405.960, 405.968, 405.974, 405.1000, 
405.1032, 405.1100, and 405.1128.) For example, if a hospital submits 
an appeal of a determination that a Part A inpatient admission was not 
reasonable and necessary, the only issue before the adjudicator is the 
propriety of the Part A claim, not an issue involving any potential 
Part B claim the hospital has not yet filed. In making a decision on 
that Part A claim, an appeals adjudicator may not develop information, 
or make a finding, with respect to a Part B claim that does not exist.
    Thus, under the billing processes described in this proposed rule, 
if a hospital appeals a Part A inpatient admission denial and receives 
a decision indicating that payment may not be made under Part A, 
appeals adjudicators may not order payment for items and services not 
yet billed under Part B. Rather, payment for items and services that 
may be covered under Part B may only be made in response to a Part B 
claim submitted by the hospital that is timely filed under proposed 42 
CFR 414.5(b) and 42 CFR 424.44.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):
    With regard to the proposed payment of Medicare Part B inpatient 
services as discussed in section II.B. of this proposed rule, the 
medical recordkeeping requirement associated with the services billed 
on Part B inpatient claims during the inpatient stay is exempt from the 
PRA in accordance with 5 CFR 1320.3(b)(2). The same holds for 
recordkeeping associated with the services billed on a Part B 
outpatient claim for services rendered in the 3-day payment window 
prior to the inpatient admission. We believe that the time, effort, and 
financial resources necessary to comply with the aforementioned 
recordkeeping requirements would be incurred by persons in the normal 
course of their activities; and therefore, considered to be usual and 
customary business practices.
    With regard to the appeals of proposed payment of Medicare Part B 
inpatient services, the appeals information collection activity 
discussed in section II.H. of this proposed rule is exempt from the 
requirements of the Paperwork Reduction Act since it is associated with 
an administrative action (5 CFR 1320.4(a)(2) and (c)).
    The aforementioned provisions would not impose any new or revised 
reporting or recordkeeping requirements and would not impose any new or 
revised burden estimates.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
[CMS-1455-P], Fax: (202) 395-6974; or Email: OIRA_submission@omb.eop.gov.

IV. Response to Comment

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

    This proposed rule is needed to address Medicare Part A to Part B 
billing policies when a hospital inpatient claim is denied because the 
inpatient admission was not reasonable and necessary.

B. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(UMRA) (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Contract with America Advancement 
Act of 1996 (Pub. L. 104-121) (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated as an ``economically'' 
significant rule under section 3(f)(1) of Executive Order 12866 and a 
major rule under the Contract with America Advancement Act of 1996 
(Pub. L. 104 121). Accordingly, the proposed rule has been reviewed by 
the Office of Management and Budget. We have prepared a regulatory 
impact analysis that, to the best of our ability, presents the costs 
and benefits of this proposed rule. In this proposed rule, we are 
soliciting public comments on the regulatory impact analysis provided. 
The RFA requires agencies to analyze options for regulatory relief of 
small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
most hospitals are small entities as that term is used in the RFA. For 
purposes of the RFA, most hospitals are considered small businesses 
according to the Small Business Administration's size standards with 
total revenues of $34.5 million or less in any single year. We estimate 
that this proposed rule may have a significant impact on approximately 
2,053 hospitals with voluntary ownership. For details, see the Small 
Business Administration's ``Table of Small Business Size Standards'' at 
http://www.sba.gov/content/table-small-business-size-standards.

[[Page 16642]]

    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has 100 or fewer beds. We estimate that this 
proposed rule may have a significant impact on approximately 708 small 
rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2013, that 
threshold level is currently approximately $141 million. This proposed 
rule does mandate requirements for the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and a subsequent 
final rule) that imposes substantial direct costs on state and local 
governments, preempts state law, or otherwise has federalism 
implications. We have examined the provisions included in this proposed 
rule in accordance with Executive Order 13132, federalism, and have 
determined that they will not have a substantial direct effect on 
state, local or tribal governments, preempt state law, or otherwise 
have a federalism implication. As reflected in Table 1 of this proposed 
rule, we estimate that Medicare expenditures will increase for services 
furnished in governmental hospitals (including state and local 
governmental hospitals). The analyses we have provided in this section 
of the proposed rule, in conjunction with the remainder of this 
document, demonstrate that this proposed rule is consistent with the 
regulatory philosophy and principles identified in Executive Order 
12866, the RFA, and section 1102(b) of the Act.

C. Estimated Impacts of the Proposed Part B Inpatient Payment Policy

1. Estimated Impact on Medicare Program Expenditures
    In this section, we provide the estimated impact of our proposal to 
provide payment for additional Part B inpatient services on Medicare 
benefit expenditures over the next 5 years. Column (3) of Table 1 shows 
the estimated impacts of this proposal, relative to an estimated 
increase in baseline expenditures that will result from the 
effectuation of recent decisions by the Medicare Appeals Council and 
ALJs on Medicare Part A to Part B ``rebilling'' (in this section 
referred to as the ``appeal decisions'').
    In section II.A. of this proposed rule, we discuss that in an 
increasing number of cases, hospitals that have appealed Part A 
inpatient claim denials to the ALJs and the Medicare Appeals Council 
have received decisions upholding the Medicare review contractor's 
determination that the inpatient admission was not reasonable and 
necessary, but ordering payment of the services as if they were 
rendered at an outpatient or ``observation level'' of care. These 
decisions effectively require Medicare to issue payment for all Part B 
services that would have been payable had the beneficiary originally 
been treated as an outpatient instead of limiting payment to only the 
set of Part B inpatient services designated in the Medicare Benefit 
Policy Manual. Further, the decisions have required payment regardless 
of whether the subsequent hospital bill for payment under Part B is 
submitted within the otherwise applicable time limit for filing Part B 
claims. The ALJ and Medicare Appeals Council decisions providing for 
payment of all reasonable and necessary Part B services under these 
circumstances are contrary to CMS' longstanding policies that permit 
billing for only a limited list of Part B inpatient services and 
require that the services be billed within the usual timely filing 
restrictions. While these appeal decisions do not establish Medicare 
payment policy, CMS' contractors are bound to effectuate each 
individual decision. Column (1) shows the estimated impacts of CMS' 
instructions to contractors for effectuating the decisions that have 
been issued. To resolve the discrepancy between current Medicare policy 
and the decisions being made by the Medicare Appeals Council and ALJs, 
we are issuing CMS Ruling 1455-R concurrent with this proposed rule. As 
we describe in section II.A. of this proposed rule, the Ruling provides 
a standard process for effectuation of these appeal decisions through 
payment of additional Part B inpatient (rather than Part B outpatient 
or ``observation'') services than current policy allows, in order to 
address the approach taken by ALJs and the Medicare Appeals Council for 
Part A hospital claims denied because an inpatient admission was not 
reasonable and necessary, but ordering payment of services as if they 
were rendered at an outpatient or ``observation level'' of care. Under 
the Ruling, we will not apply the timely filing limitations in 42 CFR 
424.44 to the subsequent claims for Part B services, but rather will 
afford the hospital 180 days from the date of receipt of a final or 
binding appeal decision, or 180 days from the date of receipt of the 
Part A initial determination or revised determination if there is no 
pending appeal, to file its Part B claim(s). Under the Ruling, 
hospitals are not required to appeal a claim denial prior to billing 
Part B; therefore, there is an added cost for the Ruling (shown in 
Column (2)) in addition to the cost of effectuating the appeal 
decisions (Column (1)).
    The Ruling is in effect until this proposed rule titled, ``Medicare 
Program; Part B Inpatient Billing in Hospitals''--is finalized, which 
will supersede the Ruling. The Ruling permits Part B inpatient billing 
as described previously for Part A hospital inpatient claims that were 
denied by a Medicare review contractor because the inpatient admission 
was determined not reasonable and necessary, as long as the denial was 
made: (1) While the Ruling is in effect; (2) prior to the effective 
date of the Ruling, but for which the timeframe to file an appeal has 
not expired; or (3) prior to the effective date of the Ruling, but for 
which an appeal is pending. In this proposed rule, we propose revisions 
to our Part B inpatient payment policy which would apply prospectively 
from the effective date of the finalized regulation for this proposed 
rule, and would differ in some respects from provisions of the Ruling, 
the purpose of which is to effectuate the appeal decisions. The key 
differences between the Ruling and the proposed policy are: (1) The 
proposed policy would apply the current timely filing restriction to 
the subsequent Part B inpatient claims rebilled after the Part A claim 
denial (that is, covered the Part B inpatient claims would only be paid 
if they are billed within 12 months of the date of service, which, as 
described previously, is not the case for the subsequent Part B 
inpatient claims rebilled under the Ruling); and (2) the proposed 
policy would apply when hospitals determine through self-audit that an 
inpatient admission is not reasonable and necessary (also subject to 
the timely filing limits).
    The estimates for each column of Table 1 assume that the policy in 
the preceding column is already in place. Specifically, the estimated 
cost for the Ruling is relative to a baseline that includes the effect 
of the appeal decisions. Similarly, the estimated costs under this 
proposed rule are in relation to a baseline that includes both the

[[Page 16643]]

appeal decisions and the Ruling in place. We assumed short-stay 
inpatient utilization would increase by 1 percent as a result of the 
appeal decisions because hospitals would be able to rebill after an 
appeal. (There are currently no controls in place to monitor hospitals 
for changes in their inpatient growth trend and/or error rate.) In 
addition, we assumed short-stay inpatient utilization would increase by 
an additional 3 percent under the Ruling, since hospitals could rebill 
under Part B without the expense of an appeal. Due to the timely filing 
restrictions and lower Part B payment rate for rebilling, we assumed 
there would be no increase in any inpatient utilization resulting from 
the proposed regulatory change to restrict inpatient Part B billing to 
the timely filing requirement of 12 months from the date of service, 
relative to circumstances prior to the appeal decisions. The 12-month 
timely filing restriction imposed by the proposed regulation would 
greatly limit the capacity in which a hospital could rebill and thereby 
substantially reduces the number of Part B inpatient claims rebilled by 
hospitals, largely offsetting the higher costs arising from the appeal 
decisions and the Ruling. The amounts are shown in millions for CYs 
2013 through 2017.

                Table 1--Estimated Impact on Medicare Program Expenditures for Hospital Services
                                      [Current year dollars (in millions)]
----------------------------------------------------------------------------------------------------------------
                                                                           Part B inpatient
                                                                           billing with  12-
          Calendar year            Appeal decisions       CMS ruling         month timely        Total impact
                                                          1455[dash]R     filing restriction
                                                                            proposed policy
                                                 (1)                 (2)                 (3)                 (4)
----------------------------------------------------------------------------------------------------------------
2013............................                $290                $560                  $0                $850
2014............................                 410                 770              -1,140                  40
2015............................                 410                 780              -1,160                  40
2016............................                 430                 830              -1,210                  50
2017............................                 460                 870              -1,280                  50
----------------------------------------------------------------------------------------------------------------

We note the following caveats relating to these cost estimates. First, 
the estimated financial effects are very sensitive to certain 
specifications of the proposed policy. For example, if the 12-month 
timely filing restriction on rebilling were to apply from the ``date of 
denial'', rather than from the ``date of service'', then the savings 
under the proposed policy would be much smaller than shown here. 
Second, the actual costs or savings would depend substantially on 
possible changes in behavior by hospitals, and such behavioral changes 
cannot be anticipated with certainty. The estimates are especially 
sensitive to the assumed utilization changes in inpatient and 
outpatient utilization. While we believe that these assumptions are 
reasonable, relatively small changes would have a disproportionate 
effect on the estimated net costs.
2. Estimated Impact on Beneficiaries
    Table 2 contains the aggregate impacts on beneficiary out-of-pocket 
expenses for Parts A and B, as a result of the appeal decisions, the 
Ruling, and this proposed rule. These changes are mainly the result of 
the changes in beneficiary cost-sharing when inpatient services are 
paid under Part B rather than under Part A. The amounts are shown in 
millions for CYs 2013 through 2017.

        Table 2--Estimated Impact on Beneficiaries' Out-of-Pocket Expenses for Part A and Part B Services
                                      [Current year dollars (in millions)]
----------------------------------------------------------------------------------------------------------------
                          Calendar year                               Part A          Part B           Total
----------------------------------------------------------------------------------------------------------------
                                                Appeal Decisions
----------------------------------------------------------------------------------------------------------------
2013............................................................             $20             $20             $40
2014............................................................              30              30              60
2015............................................................              30              30              60
2016............................................................              30              30              60
2017............................................................              30              30              60
----------------------------------------------------------------------------------------------------------------
                                       CMS Ruling 1455[dash]R
----------------------------------------------------------------------------------------------------------------
2013............................................................              50             -40              10
2014............................................................              80             -60              20
2015............................................................              80             -60              20
2016............................................................              80             -60              20
2017............................................................              90             -70              20
----------------------------------------------------------------------------------------------------------------
                Proposed Part B Inpatient Billing With 12-Month Timely Filing Restriction Policy
----------------------------------------------------------------------------------------------------------------
2013............................................................               0               0               0
2014............................................................            -100              40             -60
2015............................................................            -100              40             -60
2016............................................................            -110              50             -60

[[Page 16644]]

 
2017............................................................            -110              50             -60
----------------------------------------------------------------------------------------------------------------
                                                      Total
----------------------------------------------------------------------------------------------------------------
2013............................................................              70             -20              50
2014............................................................               0              20              20
2015............................................................               0              20              20
2016............................................................               0              20              20
2017............................................................               0              20              20
----------------------------------------------------------------------------------------------------------------
Note: Totals do not necessarily equal the sums of rounded components.

3. Effects on Other Providers
    This proposed rule would not affect providers other than hospitals.
4. Effects on the Medicaid Program
    This proposed rule will not affect expenditures under the Medicaid 
program.

D. Effects of Other Policy Changes

    We are not proposing to make other changes in this proposed rule.
1. Anticipated Effects on the Medicare Program--Part B Claims and 
Appeals
    Under this proposed rule, hospitals would be able to file Part B 
inpatient claims when payment cannot be made for an inpatient admission 
under Part A. As discussed in section II.G of this proposed rule, 
hospitals must submit the Part B inpatient claim to the appropriate 
contractor within the timely filing limits set forth in 42 CFR 424.44. 
Based on recent data related to claim denials, we anticipate some 
situations where the reasonable and necessary denial of the Part A 
inpatient admission is issued within 1 calendar year from the dates of 
service, and therefore hospitals would be able to file the Part B claim 
timely. Based on the level of billing under Part B as a result of 
recent ALJ and Medicare Appeals Council decisions, we estimate that 
approximately 25 percent of the Part A inpatient admissions denied by 
contractors would result in the submission of a Part B inpatient claim 
within the timely filing limits.
    In addition, we anticipate that hospitals would likely increase 
their efforts to proactively identify admissions that should be billed 
under Part B through self-audit, which would decrease the number of 
Part A inpatient claims submitted, while increasing the number of Part 
B inpatient claims submitted. Since we do not have data to estimate the 
number of Part A admissions that hospitals are likely to self-audit in 
order to determine if they should be billed under Part B, we are 
soliciting comments from hospitals regarding the frequency with which 
self-audits are currently done and the anticipated frequency with which 
they would self-audit their inpatient admissions to submit Part B 
claims in a timely manner.
    For those cases in which hospitals would not be able to submit a 
timely Part B claim when the Part A inpatient claim is denied by a 
Medicare contractor on a post-payment basis, hospitals and 
beneficiaries may continue to file appeals of the Part A claim denial 
per 42 CFR part 405 subpart I. We believe the Part B billing provisions 
proposed in this rule have the potential to lower Part A appeals volume 
due to the expanded opportunities for billing under Part B. 
Consequently, we are not anticipating any additional appeals as a 
result of this proposal. There would be some administrative costs 
incurred by MACs in verifying there is no pending Part A appeal prior 
to processing a Part B inpatient claim, but we believe that this would 
be similar to the existing administrative burden MACs incur with 
receiving and effectuating the appeal decisions that would have to be 
processed had the hospitals pursued their Part A appeal.
2. Anticipated Effects on Hospitals
    The timely filing restrictions proposed on filing Part B claims 
will require hospitals to closely monitor the status of Part A claim 
denials so that they may submit Part B inpatient claims, when 
appropriate. While the timely filing limits would not always afford 
hospitals the opportunity to submit Part B claims, hospitals would 
still have the opportunity to appeal the Part A claim determination if 
they disagree with the contractor's decision. Also, since a Part B 
claim can only be processed if there is no pending Part A appeal, 
hospitals would be required to request withdrawal of pending appeals if 
they wish to submit any Part B claims. Hospitals are parties to claim 
appeals, and will be able to track pending appeals, including 
beneficiary appeals. They receive copies of decision letters when 
appeals have been completed, and receive copies of notices of hearing 
when an appeal gets to the ALJ level. Hospitals may also access the 
status of a claim appeal at the reconsideration level and hearing level 
through www.q2a.com by using the Medicare appeal number for the claim.
    In addition, hospitals would have to refund amounts collected from 
the beneficiary (or third party insurer) for denied Part A claims if 
the hospital is determined to be liable under section 1879 of the Act 
for the denied items and services furnished to a beneficiary. This is 
not a new burden, as hospitals are required to make that refund absent 
any of the proposals in this rule. Hospitals that choose to submit Part 
B inpatient claims under the proposed process may also need to collect 
from the beneficiary the applicable deductible and copayment related to 
covered Part B items and services, and the cost of items excluded from 
Part B coverage. We believe that the burden to bill a Part B claim and 
collect any Part B copayments and deductibles is likely similar to or 
less than the burden hospitals currently face when appealing the denial 
of the Part A inpatient admission.

E. Alternatives Considered

    We proposed that all hospitals and CAHs would be eligible to bill 
additional Part B inpatient services when a Part A claim is denied 
because the admission was not reasonable and necessary but hospital 
outpatient services would have been reasonable and necessary. In 
section II.D. of this proposed rule, we proposed to require that 
hospitals currently not billing the OPPS for Part B inpatient services 
(those

[[Page 16645]]

with no outpatient departments, or that have outpatient departments but 
submit no claims to Medicare Part B) would now bill the OPPS for these 
services. We considered allowing these hospitals to continue to bill 
Part B inpatient services for payment under their pre-OPPS payment 
methodology consistent with existing policy. We did not propose this 
policy because we believe their likely payments under the proposed Part 
B inpatient policy would outweigh their costs of implementing billing 
systems specific to the OPPS.

F. Accounting Statement and Table

    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement. This 
statement must state that we have prepared an accounting statement 
showing the classification of the expenditures associated with the 
provisions of this proposed rule. We present this information in Table 
3 as follows:

    Table 3--Accounting Statement Table: Classification of Estimated Medicare and Beneficiares'-Out-of-Pocket
                                      Expenditures for Hospital Services *
                                          [In millions of 2013 dollars]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                  Category                                                Transfers
                                            --------------------------------------------------------------------
                                                   Units discount rate                  Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.............              7%              3%  ...................................
                                                      -$877           -$896  CYs 2013-2017
----------------------------------------------------------------------------------------------------------------
                  From/To                                      Federal Government to Hospitals
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers.............              7%              3%
                                                       -$44            -$45  CYs 2013-2017
----------------------------------------------------------------------------------------------------------------
                  From/To                                         Beneficiaries to Hospitals
----------------------------------------------------------------------------------------------------------------
* These amounts are based on the conversion to constant year dollars of the 12-month timely filing restriction
  policy figures in Tables 1 and 2 of this proposed rule.

G. Conclusion

    The analysis provided in this section of this proposed rule, 
together with the remainder of this preamble, provides a Regulatory 
Impact Analysis. In accordance with the provisions of Executive Order 
12866, this rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, Centers for Medicare & 
Medicaid Services proposes to amend 42 CFR chapter IV as forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority for part 414 continues to read as follows:

    Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

0
2. Subpart A is amended by adding Sec.  414.5 to read as follows:


Sec.  414.5  Hospital inpatient services paid under Medicare Part B 
when a Part A hospital inpatient claim is denied because the inpatient 
admission was not reasonable and necessary, but hospital outpatient 
services would have been reasonable and necessary in treating the 
beneficiary.

    (a) If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and 
necessary, or if a hospital determines under Sec.  482.30(d) of this 
chapter Sec.  485.641 of this chapter after a beneficiary is discharged 
that the beneficiary's inpatient admission was not reasonable and 
necessary, the hospital may be paid for any of the following Part B 
services that would have been reasonable and necessary if the 
beneficiary had been treated as a hospital outpatient rather than 
admitted as an inpatient, provided the beneficiary is enrolled in 
Medicare Part B:
    (1) Services described in Sec.  419.21(a) of this chapter that do 
not require an outpatient status.
    (2) Ambulance services, as described in section 1861(v)(1)(U) of 
the Act, or, if applicable, the fee schedule established under section 
1834(l) of Act.
    (3) Except as provided in Sec.  419.2(b)(11) of this chapter, 
prosthetic devices, prosthetics, prosthetic supplies, and orthotic 
devices.
    (4) Except as provided in Sec.  419.2(b)(10) of this chapter, 
durable medical equipment supplied by the hospital for the patient to 
take home.
    (5) Clinical diagnostic laboratory services.
    (6)(i) Effective December 8, 2003, screening mammography services; 
and
    (ii) Effective January 1, 2005, diagnostic mammography services.
    (7) Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec.  410.15 of 
this chapter.
    (b) The claims for the Part B services filed under the 
circumstances described in this section must be filed in accordance 
with the time limits for filing claims specified in Sec.  424.44(a) of 
this chapter.

PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

0
3. The authority citation for part 419 continues to read as follows:

    Authority:  Secs. 1102, 1833(t), and 1871 of the Social Security 
Act (42 U.S.C. 1302, 1395l(t), and 1395hh).

0
4. Section 419.21 is amended by revising the section heading to read as 
follows:


Sec.  419.21  Hospital services subject to the outpatient prospective 
payment system.

* * * * *
0
5. Section 419.22 is amended as follows:
0
A. Revising the section heading.
0
B. In paragraph (h), by removing the phrase ``Outpatient therapy'' and 
adding in its place the term ``Therapy''.

[[Page 16646]]

0
C. In paragraph (j), removing the cross-reference ``Sec.  
419.22(b)(11)'' and adding in its place ``Sec.  419.2(b)(11)''.
0
D. Adding paragraph (u).
    The revision and addition reads as follows:


Sec.  419.22  Hospital services excluded from payment under the 
hospital outpatient prospective payment system.

* * * * *
    (u) Outpatient diabetes self-management training.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: March 1, 2013.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: March 7, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-06163 Filed 3-13-13; 4:15 pm]
BILLING CODE 4120-01-P