New CMS Appeal Process Proposal Expected to Have Low Impact

CMS's complex and low impact appeal update

As a result of their hospital stays that exceeded three days – all of which were outpatient Part B stays – a group of Medicare beneficiaries filed a class action lawsuit in 2010 to recover their costs from stays in skilled nursing facilities (SNFs) for rehabilitation following an illness.

It was probably the height of the Recovery Audit Contractor (RAC) program in 2010, when denials of inpatient admissions were an easy prey for the Recovery Audit Contractors. Prior, the inpatient admission regulations were vague, which led many hospitals to struggle in enforcing them effectively. Observation stays were also paid for on a fee-for-service basis by the Centers for Medicare & Medicaid Services (CMS), without limitations of Diagnosis Related Groups (DRGs). Consequently, some hospitals opted to classify numerous patients as outpatients during their hospital stays – a strategy aimed at circumventing the risk of RAC denials but also, inadvertently, denying patient’s access to Medicare Part A coverage for Skilled Nursing Facility (SNF) stays if needed.

The Two-Midnight Rule was adopted by CMS in October 2013 in response to these long outpatient stays. During hospital stays, patients could no longer be kept as outpatients for days and days without access to their SNF benefit. However, the real fix was not addressed, namely eliminating the three-day rule for SNF access to Part A.

After a final ruling from the Supreme Court in 2020, CMS was ordered to establish an appeals process for a particular class of patients whose rights had been violated in the case. CMS took three years to work through the legal issues following the final decision before finally drafting and releasing CMS-4204-P, a proposed rule.

The first thing to note is that this is a proposed rule, so it doesn’t need to be changed yet. If you don’t want to scare your staff with warnings about a new notice that patients will have to receive, do not start citing Condition Code 44 or telling them they have new appeal rights. There will be time for implementation of this rule after CMS reviews the comments and publishes the final rule. That means nothing will change until June 2024.

Furthermore, as written, the final rule will be revised significantly since CMS has a lot of ambiguity regarding how things happen in hospitals as opposed to how they actually do. Although not all of those ideas will lead to changes to the proposed rule, they will certainly get them thinking.

Despite false rumors that the rule would give appeal rights to all patients who were inpatients and now outpatients, this rule is very limited. Two groups will be affected by these new appeal rights, including the ability to have the Beneficiary and Family Centered Care-Quality Improvement Organizations (BFCC-QIOs) expedite the review of their status change from inpatient to outpatient. Firstly, there are patients who have Medicare Part A, but not Part B, who are admitted as inpatients, then their status is changed to outpatients, observation services are ordered, observation services are provided, and a Medicare Inpatient Observation Notice (MOON) is issued. Appeals make sense for these patients since they are shifting from insurance-covered to out-of-pocket stay. In addition, proper registration and identification of patients with A and not B will be crucial.

In addition, there are Medicare patients with Parts A and B who are admitted as inpatients, then have their status changed to outpatients, are ordered observation services and receive observation services, receive a MOON, and remaining in the hospital for at least three days. In this patient’s case, the patient did not need to be in a nursing facility for more than three days in order to appeal.

Could you tell me what I have said in the past that acted as a forewarning?. I recommended as recently as July 2023 that you not provide a MOON unless you have one or two patients staying an additional 24 hours after a Condition Code 44 change. Because the MOON does not inform them that their status has changed, as the Condition Code 44 process requires, why use a form that takes more effort and serves no purpose at all? In line with this rule, if the patient does not get the MOON, they do not have appeal rights. You will have to give a MOON if you change the Condition Code 44 early in the stay, but there will be a limited number of patients who can get the MOON.

Furthermore, I have underscored the fact that CMS defines observation services as “clinically appropriate” monitoring. If a patient is admitted under custodial care, such care does not qualify as observation care, and you should not bill for observation hours, but rather bill custodial care with HCPCS code A9270 under revenue code 0760. While a patient’s status changes to outpatient after admission for placement or overnight inpatient stay, it is encouraged to refrain from medical billing for observation services. If a patient remains for two or three days or 20 days while a placement issue is resolved, the care provided remains custodial, not observation. Consequently, the patient cannot appeal for lack of a MOON or for the absence of observation services.

You have violated the Two-Midnight Rule by leaving a patient who needs to receive necessary hospital care as an outpatient past the second midnight, as described in this rule, if you change them from an inpatient to an outpatient and provide ongoing observation care, and the stay reaches three days. National Correct Coding Initiative (NCCI) edits for observation hours are 72, so billing claims exceeding three days of observation will be rejected.

Is there any case in which I could envision that would work? I imagine a Medicare patient with chest pain who presents on a Friday afternoon to a small community hospital. Due to their high risk, they will need further testing in the hospital. Because of the holiday, the next time we will be able to take a stress test is Tuesday. Due to the patient’s stable condition, it has been decided to keep the patient in the hospital from Friday to Tuesday on telemetry.

They are admitted as inpatients by the attending. On Saturday, the UR staff noticed the admission. They ran criteria that did not meet inpatient standards, and then referred the case to a physician advisor on the UR Committee. It is recommended that you be moved to the outpatient unit, with observation services for ongoing monitoring, by the physician advisor on the UR Committee. It is reported on the MOON, with a notation that your status has changed to outpatient. By Tuesday, the patient had fulfilled all the necessary qualifications to request an expedited appeal regarding the change from inpatient to outpatient status.

The expedited appeal process can lead to patients staying in the hospital longer than they would otherwise. However, CMS doesn’t specify how hospitals should charge for this kind of care during the expedited appeal process.


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