CMS to Begin Enforcing “Longstanding” Accounting Classification Rule for Crossover Bad Debts – Last week, CMS announced on its website that for cost reporting periods beginning on or after October 1, 2019, providers must comply with a so-called “longstanding” rule to claim reimbursement for crossover bad debts from the Medicare program. The announcement, available here, says that providers will be denied reimbursement for their crossover bad debts unless the underlying balances are logged to a bad debt expense account in their financial accounting records. This requirement is expected to be controversial in the provider community. The industry standard is to log crossover balances to contractual allowance accounts, and many now consider this practice mandatory due to recent changes to the Generally Accepted Accounting Principles (GAAP) regarding revenue recognition. CMS’s announcement creates a conflict between GAAP rules and CMS’s policy for reimbursing for crossover bad debt.
Crossover bad debts arise in the context of patients who are eligible for both Medicare and Medicaid. Medicare is the primary payor for this population of patients, but providers often bill the applicable state Medicaid program for Medicare coinsurance and deductibles that “dually-eligible” patients do not pay. Most state plans will only reimburse providers for unpaid Medicare coinsurance and deductibles up to specified ceilings. Any portion of a Medicare coinsurance or deductible that a state Medicaid agency does not cover is known as a crossover balance. Because dually-eligible patients rarely pay their coinsurance and deductibles and the state payment ceilings are infamously low, the vast majority of the coinsurance and deductibles of dually eligible patients become crossover balances.
For reimbursement purposes, the Medicare program has historically reimbursed hospitals for crossover balances as Medicare bad debt. Section 322 of the Provider Reimbursement Manual (PRM) recognizes that crossover bad debts are “worthless” and states that if a patient who is eligible for both Medicare and Medicaid owes a Medicare coinsurance or deductible that the applicable state plan is not obligated to cover, the provider may claim the balance as a Medicare bad debt without the need to engage in “reasonable collection efforts.”
But for financial accounting purposes, providers do not report crossover balances the same way they report other bad debts. Providers generally write off crossover balances to contractual allowance accounts instead of bad debt expense accounts. A contractual allowance is a GAAP concept that refers to the difference between a provider’s standard charge for a given service and the amount the provider accepts as payment at a discounted contractual rate. Crossover balances are contractual allowances because providers are contractually bound by their Medicaid provider agreements to accept amounts paid by the state plan as payment in full, even if the state plan pays nothing. Because there is no legal ability to recover the contractual allowance—it is in effect a price concession—providers consider them to be “worthless” and claim them as bad debt pursuant to Section 322.
For years, providers have logged crossover balances to contractual allowance accounts while claiming reimbursement for them from the Medicare program. But recently, the Medicare Administrative Contractor (MAC) Palmetto GBA began denying crossover bad debt claims because the underlying balances were not written off to bad debt expense accounts. Palmetto also denied provider requests to reopen past cost reports to claim additional crossover bad debt for the same reason. Such reopening requests were routinely granted in the past. When providers inquired about the basis of this accounting classification rule, Palmetto cited to Section 320.1 of the PRM, which says that “amounts deemed to be uncollectible are charged to an expense account for uncollectible accounts.”
Representatives from King & Spalding along with several providers and hospital associations in Palmetto’s jurisdiction met with CMS in late January 2019 to discuss Palmetto’s policy. Following this meeting, CMS communicated that it would direct Palmetto to reverse any denials it has made for crossover bad debt in past cost reporting periods on the basis of the accounting classification rule. CMS also signaled that it would direct Palmetto to reconsider reopening requests that were denied for the same reason. We have received reports that CMS has issued a Technical Direction Letter (TDL) to MACs that include these instructions.
As a result of this intervention, providers in Palmetto’s jurisdiction no longer appear to be facing steep financial losses due to Palmetto’s retroactive application of this policy. Any provider that has received an NPR denying crossover debt, or was previously denied a reopening on this basis, should request reopening. However, despite expressing their understanding that there is no legal possibility of recovering a crossover contractual allowance, CMS representatives have apparently not yielded on this issue entirely. With last week’s announcement, CMS has decided to apply Palmetto’s policy prospectively for cost reporting periods beginning after October 1, 2019. What’s more, CMS has decided to apply this policy on a nationwide basis.
For more information about the accounting classification rule, we refer readers to the article titled “Crossovers in the Crosshairs” from the February 2019 edition of the Reimbursement Advisor.
The Hospital and Healthsystem Association of Pennsylvania Joins Lawsuit Against Pennsylvania Attorney General Relating to UPMC’s Highmark Dispute – On March 25, 2019, the Hospital and Healthsystem Association of Pennsylvania (HAP), Pennsylvania’s largest hospital association, filed a motion in the Middle District of Pennsylvania to intervene in University Pittsburgh Medical Center (UPMC)’s dispute with Highmark Health (Highmark), which is the Blue Cross/Blue Shield Association’s licensee in Western Pennsylvania.
This dispute commenced in 2012 when UPMC announced that it would no longer continue to contract with Highmark following Highmark’s proposed affiliation with Allegheny Health Network. After two years of negotiations, the parties reached a consent decree in 2014 which provided in-network access for Highmark members to UPMC providers. An unsigned copy of the consent decree is available here. The Consent Decree between UPMC and Highmark is scheduled to expire on June 30, 2019. Upon expiration of the Consent Decree, it is estimated that 175,000 Pennsylvania Highmark Medicare Advantage plan members will lose in-network access to 11 UPMC hospitals and most UPMC physicians.
In an effort to compel the parties to further extend the terms of the Consent Decree or otherwise settle the dispute, on February 7, 2019, Attorney General Josh Shapiro sued UPMC “request[ing] that the Court impose modifications to protect and promote the public interest by ensuring that UPMC abides by its charitable obligations to the Commonwealth of Pennsylvania.” In this lawsuit, Attorney General Shapiro claims UPMC violated state law by restricting access to its network of hospitals and physicians.
Soon after, in late February 2019, UPMC counter-sued the Pennsylvania Attorney General’s office over its attempt to compel UPMC to work with Highmark to mitigate the consequences of the expiration of the soon expiring Consent Decree. UPMC is seeking a preliminary injunction to stop Attorney General Shapiro from interfering in negotiations or any future agreement between UPMC and Highmark.
HAP has now motioned the court for permission to intervene in the lawsuit in support of UPMC. In a statement published to its website, HAP argues that Attorney General Shapiro’s plan would “potentially force all nonprofit hospitals to do business with any insurer regardless of that insurer’s offered payment terms, procedures for assuring high-quality care, or the strength of its provider network.”
Reporter, Michelle Huntsman, Houston, +1 713 751 3211, email@example.com.
Provider Reimbursement Review Board Seeks Input on Board Rules – On March 18, 2019, the Provider Reimbursement Review Board (PRRB) announced that it is inviting comments, suggestions, and other feedback in connection with five topic areas: (1) continued implementation and improvement of the Office of Hearings Case and Document Management System (OH CDMS), which is the online portal for electronic filings and correspondence; (2) continued implementation of the final rule, published on November 13, 2015; (3) Board Rules 46, 47.2.2, and 47.2.3, which facilitate “withdrawal of Board appeals to pursue resolution through reopening of the related NPR [Notice of Program Reimbursement]/RNPR [Revised Notice of Program Reimbursement];” (4) Board Rules 20-22 relating to group appeals, including the Schedule of Providers and supporting documentation needed for the group appeals; and (5) Board Rule 42 relating to requests for expedited judicial review (EJR). The PRRB requests feedback on these issues be sent via email only to PRRB@cms.hhs.gov by May 1, 2019 and include in the subject line “Alert 17.” Alert 17, announcing the request for input, is available here. PRRB’s current Board Rules are available here.
Relevant aspects of the current Board Rules on these topics include the following:
- Current Utilization of OH CDMS
Under the current Board Rules, electronic filing of appeals is not yet required, but is “strongly recommended.” Nevertheless, certain documents, such as the final schedule of jurisdictional documentation for group appeals, must still be filed in hard copy. The PRRB also issues its own communications electronically and sends appeal acknowledgments and decisions via email to appeal representatives, including representatives who are not registered for e-filing. PRRB is particularly “interested in user feedback and experience on using OH CDMS for Board proceedings and how Board processes and OH CDMS can be better aligned.”
- Continued Implementation of the Final Rule, Published November 13, 2015
The final rule, published on November 13, 2015, made certain revisions to the PRRB’s governing regulations at 42 C.F.R. Part 405, Subpart R, including removing from the Board Rules the jurisdictional requirement that a provider has “claimed or protested” an item as a condition of filing an appeal, and instead, made that requirement a substantive cost report requirement. The appeal regulations were modified to specify that for “each specific item under appeal,” the provider must explain in its hearing request why, and describe how, the provider is dissatisfied with the specific aspects of the contractor’s determination. 42 C.F.R. § 405.1835. For self-disallowed items, the hearing request must explain the “nature and amount of each self-disallowed item,” the reimbursement sought for the item, and why the provider self-disallowed the cost instead of claiming reimbursement for the item. The Board Rules require that the PRRB’s factual findings and legal conclusions about whether there was an appropriate cost report claim for the item be included in the record of administrative proceedings for the appeal but must not be included in the PRRB’s decisions, orders, or other actions that pertain to jurisdictional matters. See 80 Fed. Reg. 70298, 70551-70580, 70597-70604 (Nov. 13, 2015).
- Board Rules 46, 47.2.2, and 47.2.3 Regarding Withdrawal of PRRB Appeals to Pursue Resolution Through NPR/RNPR
The current Board Rules permit the withdrawal and subsequent reopening of an appeal in two circumstances. First, where the provider files an appeal, the Medicare contractor subsequently agrees to reopen the final determination on the issue(s) being appealed, the provider withdraws the appeal, but then the Medicare contractor fails to reopen the cost report as agreed. In this instance, the PRRB will reinstate the appeal after a showing by the provider of its request to reopen the final determination and the Medicare contractor’s agreement to do so. Second, an appeal can be reinstated where the provider simultaneously files a request to the Medicare contractor to reopen the final determination, along with an appeal and notice of withdrawal of appeal. In this instance, if the Medicare contractor refuses to reopen the appeal, the provider can reinstate the appeal upon a showing that it made the request to reopen and the Medicare contract denied that request.
- Board Rules 20-22 Relating to Group Appeals, Including the Schedule of Providers and Supporting Documentation Needed for Group Appeals
Board Rules 20-22 set forth the procedural filing requirements for group appeals, the content of what must be included in the appeals, and the time limits/review requirements for the Medicare contractor when reviewing group appeals.
- Board Rule 42 Relating to Requests for EJR
Board Rule 42 permits providers to “bypass the Board’s hearing process and obtain [EJR] for a final determination of reimbursement that involves a challenge to the validity of a statute, regulation, or CMS ruling.” The EJR filing must be clearly labeled as such and identify the issue for which EJR is requested, demonstrate that there are no factual issues in dispute, demonstrate that the PRRB has jurisdiction, identify the controlling law, regulation, or CMS ruling; and explain why the PRRB does not have authority to decide the legal question. The EJR determination is made within 30 days after the request for EJR is complete and the PRRB determines it has jurisdiction.
Reporter, Amy L. O’Neill, Sacramento, +1 916 321 4812, firstname.lastname@example.org.
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Two AGs Ask Fifth Circuit to Reverse Decision Invalidating the Affordable Care Act – Last week, the Attorneys General for Montana and Ohio filed an amicus brief urging the United States Court of Appeals for the Fifth Circuit to reverse last year’s decision by the District Court for the Northern District of Texas invalidating the Affordable Care Act. The AGs stated that the decision, “if affirmed, will deprive millions of non-elderly Ohioans and Montanans of coverage for pre-existing conditions” and “will also negatively affect countless others who organized their affairs in reliance on the act’s many unrelated provisions.” A copy of the amicus brief is available here.
King & Spalding Roundtable: Challenges to Hospital Charges and What is Reasonable and Customary Payment for Non-Contracted Hospital Care – King & Spalding will host a webinar on Wednesday, April 24, 2019 from 1:00 to 2:00 p.m. ET about recent developments in cases dealing with reasonable and customary determinations by courts, juries and arbitrators for out-of-network healthcare providers for emergency and post-stabilization services, and effective ways to challenge low payments by payors. The webinar will also discuss recent developments in class action cases brought by uninsured patients against hospitals challenging the fees charged by hospitals, and legal strategies for defending these actions. Registration for the event is available here.