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In the August 2009 issue of Shorts, we alerted you to an issue developing in North Carolina related to the federal Recovery Audit Contractor (RAC) program. The problem we identified was that several SNFs in the western part of the state had received letters from a local hospital essentially saying, “oops, we just discovered in preparing for the RAC audits that patients we referred to you did not qualify for hospital inpatient Medicare benefits and thus did not qualify for subsequent SNF Medicare benefits.” The letters then listed a number of SNF residents who purportedly were referred by the hospital to the SNF for Medicare-covered services and explained that the hospital had returned the Medicare reimbursement it had received for the care of these patients and then suggested the SNF do likewise.

Those letters created several problems. First, they created a public record that an SNF had been put on notice by its referral source that it may have billed inappropriate claims to Medicare. Second, the claims were often old—the letters we saw related to some residents admitted to the SNF as far back as January 2007, some of whom had since been discharged or passed away, leaving the facility with no means of recouping the lost funds IF it elected to refund payment to Medicare. Third, while the hospital was usually reimbursing Medicare for three or so days of care, the SNF had much more at stake in many of these cases. Fourth, not every three-day hospital stay that is later determined by a hospital or even a RAC contractor to have been inappropriate results in a disqualification of a subsequent Medicare SNF stay. Finally, the letters we saw provided no information about why the resident was supposedly not eligible for Medicare SNF benefits, leaving the facility unable to assess whether in fact the care was Medicare-eligible.

We raised this issue with the American Health Care Association in Washington, D.C., on behalf of our clients. It turns out that the AHCA was already aware of the potential problem but was lacking any real-life examples of it actually occurring. We gave them several and they immediately took the cases to CMS.

CMS has now indicated that it will be issuing guidance to help SNFs with this issue. According to AHCA:
CMS has now confirmed in public statements that coverage of an SNF stay related to a denied hospital stay will not be in jeopardy because of RAC review of the hospital stay. CMS’s position is based on the fact that the RAC scope of work does not allow a RAC to review claims in which beneficiaries are liable for payment, such as issuing a technical denial of SNF coverage for lack of a qualifying three-day inpatient hospital stay. However, CMS cautions that it is the SNF’s responsibility to confirm each patient’s prior inpatient status and to determine that an SNF level of care is required. Further, CMS, beyond the RAC scope of work language, has not as yet issued any formal written policy in response to the concerns that have been raised. We will provide members with any such additional issuance from CMS.

In addition, it appears that since CMS, through RAC review, is scrutinizing the medical necessity of inpatient hospital admissions, the number and duration of outpatient observation stays may be increasing. This trend unfortunately could affect beneficiary access to needed post-acute care that would otherwise be covered by Medicare. AHCA has raised this concern with CMS and is working with other concerned groups to address it. However, we recommend that SNFs be very careful to determine that beneficiaries seeking admission after a hospital stay have indeed had the requisite three-day inpatient stay.

We thank our clients in the western part of the state for bringing this issue to our attention. Score one for North Carolina!

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