On February 13, CGS Administrators, the Parts A and B Medicare Administrative Contractor for Kentucky and Ohio, relayed instructions to Medicare hospitals paid under the Inpatient Prospective Payment System from the Centers for Medicare and Medicaid Services regarding recent denied inpatient claims that can now be processed on an outpatient or observation basis. CGS' notice results from recent federal Administrative Law Judge (ALJ) decisions affecting the final payment for inpatient Medicare claims denied as not reasonable or necessary. 

ALJs hear Medicare appeals at level three, following a decision of a Qualified Independent Contractor. Following the relevant ALJ decisions, which reversed the initial payment denial decision, CGS will notify providers within 30 days of receiving a decision to secure a new replacement claim with the proper HCPCS billing code. The claim department at CGS will cancel the hospital's initial inpatient claim in the FISS (Fiscal Intermediary Standard System). Upon submitting the replacement claim, the hospital may include a line item for observation care only if there was a proper physician order for observation. But, CGS stated that "if the ALJ specified 'observation level of care' or 'including observation care,' line item charges for observation may be added if otherwise appropriate, as the ALJ is specifically substituting the order to admit for the order for observation." 

CGS further advised that the hospital must include in the claim remarks section the inpatient DCN (document control number), the ALJ rebilling code, and the observation code if applicable. The provider must refund the beneficiary any difference between the Part A deductible or coinsurance initially paid because the provider billed as an inpatient service and the Part B deductible or coinsurance now payable because the properly billable service is either an outpatient or observation service. 

CGS made clear that this treatment is being taken only to effectuate these specific ALJ orders. CGS must receive any replacement claims within 180 days or the claim will be considered closed. 

CGS’ announcement can be found here.