REGULATION, ACCREDITATION, AND PAYMENT PRACTICE GROUP (June, July, August 2004)

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1 REGULATION, ACCREDITATION, AND PAYMENT PRACTICE GROUP (June, July, August 2004) Lester J. Perling Broad and Cassel Fort Lauderdale, Florida I. Case Summaries CMNs Document Medical Necessity In Maximum Comfort Inc. v. Thompson, a Medicare durable medical equipment (DME) supplier sought judicial review of a final administrative decision made by the Medicare Appeals Council of the Department of Health and Human Services (MAC) affirming an overpayment assessment made against it by its Medicare carrier. The carrier contended that the plaintiff had insufficiently documented the medical necessity of the wheelchairs that it billed to the Medicare program. The supplier appealed the MAC s decision, claiming that the certificates of medical necessity (CMN) furnished by physicians were sufficient to document the medical necessity of the equipment being provided. The United States District Court for the Eastern District of California found that the plain language of 42 U.S.C. 1395m(j)(2)(A)(i) supported the supplier s positions that it may rely on an CMN to provide the required information for determining medical necessity and reasonableness and that the Secretary of the Department of Health and Human Services cannot require DME suppliers to obtain medical records and make independent judgments with regard to medical necessity and reasonableness. Consequently, the Court granted the plaintiff s motion for summary judgment and permanent injunction prohibiting the Secretary from recouping, offsetting or otherwise collecting from the supplier any alleged overpayments. Maximum Comfort Inc. v. Thompson, 323 F. Supp. 2d 1060 (E.D. Calif. June 30, PRRB Decides Case Physical Therapy Salary Cases In two recent cases before the Provider Reimbursement Review Board (PRRB) home health agencies appealed intermediary adjustments regarding physical therapy compensation. In both cases, the agencies employed physical therapists who were paid on a per visit basis. The intermediary determined that Medicare s reasonable compensation guidelines applied to the cost of these physical therapists when reviewing the agencies cost reports. Both agencies challenged this determination and alleged that the application of the guidelines to employee physical therapist s costs was improper. The PRRB determined that the salary equivalency guidelines do not apply to employed physical therapists. These guidelines apply when services are rendered under arrangement which the PRRB determined to mean outside contractor and therefore did not apply to employed physical therapists. The PRRB found that the intermediary should have used the prudent buyer analysis in determining whether the salaries were reasonable. Berks Visiting Nurses Association v. Blue Cross Blue Shield Association/Cahaba Government Benefit Administrators, Blue Cross Blue

2 Shield Ass n/cahaba Gov t Benfit Adm r., No , PRRB-Dec. (CCH Medicare Guide 200,307) (August 13, and Pocono Medical Home Care Inc. v. Blue Cross Blue Shield Association/Cahaba Gov t Benefit Adm r., 2004-D31, PRRB Dec. (CCH Medicare Guide 200,305) (July 16, Illinois Medicaid Program Found to Violate Federal Law This was a class action suit by Medicaid beneficiaries on behalf of themselves and future Medicaid recipients. The United States District Court for the Northern District of Illinois found that Illinois s Medicaid program for children violated federal Medicaid law because reimbursement rates did not cover overhead and payment delays have caused many providers to close their practices to new Medicaid patients or to not treat Medicaid patients at all. The Social Security Act (42 USC 1396(a)(30)(A)) requires states to set reimbursement rates sufficient to enroll enough providers to insure recipient access. The Court found that most children on Medicaid received medical care from free clinics or emergency rooms. The Court held that under Medicaid law, patients have a right to access a pediatrician or other necessary specialists. Additionally, the Court found that the State of Illinois failed to meet the requirements of the Early Periodic Screening, Detection and Treatment Program because the State made no effort to insure that any children on Medicaid actually received any of the required services. The Social Security Act (42 USC 1396(d)(r) and 1396(a)(43)(C)), say that state Medicaid agencies have an affirmative obligation to provide services for follow up care that results from the screenings. The Court found that most children in the state did not receive the required screenings and immunizations. The state failed to give Medicaid recipients notice of the availability of the services. Memizski v. Marman, 2004 U.S. Dist. LEXIS (US Dist. Ct. ND. Ill. August 23, Observation Beds are Not Inpatient Beds for DHS Purposes This case involved a CMS Administrator decision regarding whether a hospital s observation bed days should be excluded from the amount of available inpatient beds in determining whether a prospective payment system hospital qualified as an urban disproportionate share hospital (DHS). The fiscal intermediary excluded the observation bed days but the Provider Reimbursement Review Board (PRRB) reversed the intermediary. The CMS Administrator agreed with the intermediary, not the PRRB. The Administrator found that eligibility for DHS payments must be based only on beds that are recognized as part of the hospital s inpatient operating costs. These beds must be immediately available to inpatients. A bed occupied by an observation patient is not available to inpatients. Moreover, observation services are considered outpatient services unless the patient is formally admitted to the hospital. Odessa Regional Hospital v. Mutual of Omaha Insurance Company, CMS Administrator Decision, (CCH Medicare Guide, 81,182) (June 30, II. Accreditation Update

3 ASC Medicare Accreditation The Department of Health and Human Services, Departmental Appeals Board has held that an ambulatory surgery center (ASC) that is certified by the Accreditation Association for Ambulatory Health Care (AAAHC) under regular accreditation standards, but not Medicare certification standards, is not automatically certified as a Medicare-accredited supplier. The DAB found that there were two types of AAAHC accreditation standards, regular and regular plus Medicare, which include all Medicare conditions of participation for ASCs including life safety code requirements. The DAB found that the ASC did not meet the life safety code requirements and CMS properly denied Medicare certification until the day that it did meet the life safety code requirements. Oak Lawn Endoscopy, HHS Departmental Appeals Board, Civil Remedies Division, Dec. No. SR1187 (CCH Medicare Guide 120,667) (June 3, GAO Faults Hospital Accreditations A recent study by the General Accounting Office (GAO) reviewed the Joint Commission on Accreditation of Health Care Organizations ( JCAHO ) accreditation process. The GAO determined that JCAHO did not identify most of the hospitals that were found to have deficiencies in Medicare requirements when they were surveyed by state survey agencies. Of the hospitals that were accredited by JCAHO, 31% were cited for noncompliance with Medicare requirements by state agency validation surveys. The GAO recommends that Congress give CMS authority over JCAHOs hospital accreditation program and recommends that CMS modify its current methods for accessing JCAHO s performance. Medicare Patient Safety in Hospitals, GAO Report No. GAO (CCH Medicare Guide 51,098) (July III. Regulatory Update CMS proposes to implement the new Medicare Prescription Drug Benefit On December 8, 2003, the voluntary prescription drug benefit program was enacted, in section 101 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). This proposed rule would implement the new Medicare Prescription Drug Benefit, which would benefit millions of Medicare beneficiaries by significantly improving the available coverage. As specified by the MMA, the prescription drug benefit program will become available to beneficiaries on January 1, Fed. Reg. 148 (Aug. 3, Payment System Rate Update for Calendar Year 2005 This update corrects technical errors that appeared in the proposed rule published on June 2, 2004 in the Federal Register. The technical errors were identified and corrected in the Correction of Errors. The rule is titled Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year Fed. Reg. 146 (July 30,

4 Medicare Inpatient Rehabilitation Prospective Payment System This notice for prospective payment rates update inpatient rehabilitation facilities for the Federal fiscal year 2005 under section 1886(j)(3)(C) of the Social Security Act. The Act requires the Secretary to publish, the classifications and weighing factors for the inpatient rehabilitation case-mix groups and a description of the methodology and data used in computing the prospective payment rates. 69 Fed. Reg. 146 (July 30, Medicare Outpatient Prospective Payment System This proposed rule would revise the prospective payment system for Medicare hospital outpatients. The revision implements statutory requirements, changes arising from experience with the system, and related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of The proposed rule also describes changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system which would be applied to services provided on or after January 1, Comments on the proposed rule must be submitted to CMS by October 8, Fed. Reg. 157 (Aug. 16, Medicare Changes to the Hospital Inpatient Prospective Payment Systems. The proposed revision for Medicare hospital inpatient prospective payment systems (IPPS) results from past experience and to implement related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of The Addendum to the final rule describes the changes to the amounts and factors that determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. The changes would be applied to discharges occurring on or after October 1, Also, the proposed rule sets forth rate-of-increase limits and policy changes for hospitals and hospital units excluded from IPPS that are paid in full or in part on a reasonable cost basis. 69 Fed. Reg. 154 (Aug. 11, Establishment of the Medicare Advantage Program This proposed rule would implement provisions of the Social Security Act to establish and regulate the Medicare Advantage (MA) program. The MA program enacted in Title II of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, replaces the Medicare+Choice (M+C) program established under Part C of title XVIII of the Act, but retains most of the major features of the M+C program. The MA program attempts provide Medicare beneficiaries with reformed and expanded private health plan options. Comments on the proposed rule must be submitted to CMS by September 24, Fed. Reg. 148 (Aug. 3, Medicare Revisions to Payment Policies Under the Physician Fee Schedule

5 This proposed rule would implement changes to the resource-based practice expense relative value units (RVUs) and Medicare Part B payment policy. The rule proposes various policy changes to update payment systems based on changes in medical practice and the relative value of services. The proposed rule also addresses various provisions of the Medicare Advantage (MA) program. The MA program was enacted in Title II of the Medicare Prescription Drug, Improvement, and Modernization Act of Comments on the proposed rule must be submitted to CMS by September 24, Fed. Reg. 150 (Aug. 5,

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