Under current Centers for Medicare & Medicaid Services (CMS) rules, hospitals stand to lose most (if not all) payment when a CMS contractor denies an inpatient claim on grounds that the services could have been provided on an outpatient or “observation” basis. Although it would seem logical such a denial should result in Part B reimbursement for the outpatient services rendered, current CMS manual provisions allow for only a fraction of the reimbursement the hospital would have received if it had initially billed the claim under Part B. Recent administrative law judge (ALJ) decisions have attempted to override this outcome by ordering CMS contractors to make full Part B payment for outpatient care. It was unclear, until recently, whether or how CMS contactors would comply with such ALJ decisions, which are contrary to CMS manuals that prohibit Part B payment for patients that have been admitted as inpatients.
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