New processes for Medicare patient-status appeals have arrived, with implications for finance teams (updated)

If they have not done so already, hospitals should establish processes for responding to new regulations concerning status-appeal rights for Medicare beneficiaries.

The regulations have taken effect in early 2025 after being published in an October 2024 final rule. That rule stemmed from the outcome of litigation that had begun 15 years earlier.

Per the regulations, Medicare fee-for-service (FFS) beneficiaries have access to a new expedited appeals process in certain scenarios when their status changes during a hospital stay. In addition, a new retrospective process for stays dating back to 2009 will be available until Jan. 2, 2026.

The status change in question entails reclassification from inpatient to outpatient observation for Medicare FFS patients who do not have Part B or whose hospital stay has lasted at least three days. Hospital staff should ensure those patients receive the new Medicare Change of Status Notice (MCSN) no later than four hours before discharge.

“While the process for determining which patients are required to be provided the MCSN and the delivery regulations are beyond the purview of the financial team, there are significant implications for finance in this process that should be considered,” Ronald Hirsch, MD, FACP, ACPA-C, vice president of regulations and education with R1 Physician Advisory Solutions, part of R1 RCM, said in written comments.

Considerations for expedited appeals

Expedited appeals became available Feb. 14 for patients who are still in the hospital and meet the criteria. These appeals require a ruling to be made by a Beneficiary and Family Centered Care-Quality Improvement Organization (QIO) within 24 hours.

If a patient files an expedited appeal, Hirsch said, the hospital should hold the claim associated with the stay until the QIO makes a determination. That’s to avoid the need to produce a corrected claim.

Patients also can file a post-discharge status appeal that is supposed to be resolved within 48 hours.

In the latter scenario, “If the outpatient claim has been submitted and the QIO informs the hospital that they have determined that the proper status is inpatient, that outpatient claim will need to be canceled, payment refunded [to CMS] if applicable, and an inpatient claim produced and submitted,” Hirsch said.

Key process details, he added, include using the date of the original inpatient admission order to ensure CMS’s common working file reflects the length of the admission. Accuracy in that aspect is important to make certain the patient has access to the Medicare Part A skilled nursing facility (SNF) benefit as needed.

Such reprocessing protocols may seem “onerous,” Hirsch said, but a redetermination to inpatient status could allow the hospital to receive a higher payment rate. It’s not clear whether QIO judgments will be subject to audits by recovery audit contractors or other personnel.

Cash-flow KPIs could be affected if a relatively large appeals volume brings delays in claims submission for those care episodes, Hirsch noted.

Considerations for retrospective appeals

Another noteworthy part of the final rule is the retrospective appeals process, which became available Jan. 1. As with the in-hospital and post-discharge appeals, patients can challenge a status change to outpatient observation if they did not have Part B during their stay or their stay lasted at least three days.

Logistical hurdles facing hospitals include sending a patient’s medical records to CMS as part of an appeal. But CMS apparently does not intend to penalize hospitals that no longer possess the records if the mandatory window for retention has expired. Patients will be responsible for producing supporting statements and any pertinent records they have, along with proof that they paid out of pocket, Hirsch said.

A potential drawback for providers is that “since many of these appeals will encompass admissions beyond the medical record retention period where no medical records are available, it may be impossible to generate a Part A claim for billing,” he added. “In such a case, it seems the provider has no ability to receive any reimbursement.”

If a patient’s retrospective appeal succeeds, the hospital and, if applicable, the SNF will be required to refund payment collected from the patient. The notification to the provider is supposed to include the patient’s current contact information and the amount due to the patient.

“As this process is available to a patient’s estate and next of kin in the case the patient is deceased, it is assumed that CMS will provide that information with the notification of an appeal decision to allow the provider to provide the payment to the appropriate party,” Hirsch surmised.

Update: CMS says providers will receive a copy of the appeals decision letter containing the contact information and should follow standard refund rules regarding IRS reporting.

Coding concerns

After a successful retrospective appeal, the hospital or SNF can rebill CMS by submitting a Part A claim, with the resulting payment offset by the Part B payment previously received. No Part B refund to CMS is necessary if the provider does not seek to rebill.

“What remains unclear as of this date is how hospitals and SNFs are supposed to prepare a claim for services that were provided up to 15 years ago,” Hirsch said.

One potential stumbling block is the changeover to ICD-10 starting Oct. 1, 2015, meaning services provided earlier might require rebilling with ICD-9 codes

Said Hirsch, “If so, will the Medicare contractors be able to process such a claim?” HCPCS and CPT codes also have undergone significant changes.

Update: CMS says diagnostic codes should be used according to applicability on the date of service, apparently meaning ICD-9 codes would be used to rebill for care episodes that go back a decade or more. DRG rates also will be based on the date of service.

Calculating a retrospective payment also may be tricky amid the shift from the Resource Utilization Group System to the Patient-Driven Payment Model for SNF care, not to mention the numerous annual changes to DRGs.

“While many of these stays were short stays and likely had lower [DRG] weights, the prospect of receiving a several-thousand-dollar payment may be appealing enough to traverse the many obstacles and unknowns,” Hirsch said.

Collaboration needed

Although the extent to which Medicare FFS beneficiaries will use the new appeals processes is unclear, Hirsch said preparation at hospitals should be well underway: “Finance staff should be available to the case management, utilization review and health information management staff who will be on the front lines of this process and will be the likely recipients of any correspondence from CMS and its contractors.”

One way finance leaders can help is simply to understand the new dynamic facing their colleagues in these specific circumstances, Hirsch added: “Finance should not blame the utilization review staff for the inevitable delays in claim submission and cash flow. These appeals should not be common, but in today’s environment any worsening of KPIs is questioned. Leadership should understand that this process is required, and finger pointing is not appropriate.”