The Settlement Program

On August 29, 2014, the Centers for Medicare and Medicaid Services (“CMS”) announced a new settlement process to assist in reducing the appeals backlog at the Office of Medicare Hearings and Appeals for inpatient status claims. Citing the unprecedented increase in the number of appeals and lack of sufficient administrative resources, CMS announced that it will allow hospitals with pending inpatient status claim appeals to enter into an administrative agreement to withdraw those claims in exchange for timely partial payment equal to 68 percent of the net allowable amount. CMS encouraged hospitals to avail themselves of this opportunity to ease the crippling backlog of Medicare inpatient status appeals.

Hospitals eligible to participate in this settlement program include acute care hospitals, encompassing those paid via prospective payment system (“PPS”), periodic interim payments (“PIP”), and Maryland waiver, and critical access hospitals. Psychiatric hospitals paid under the inpatient psychiatric facilities prospective payment system (“IPF PPS”), inpatient rehabilitation facilities (“IRFs”), long-term care hospitals (“LTCHs”), cancer hospitals, and children’s hospitals are not eligible to participate.

Claims for which hospitals may settle under this new program include currently pending appeals or claims within the time frame to request an appeal for inpatient-status claim denials of potentially reasonable and necessary medical services that were denied on the basis that the services should have been provided under outpatient status. These claims must have dates of admissions prior to October 1, 2013, and the patient may not have been a Part C enrollee.

Hospitals have the option of settling some claims through this process while continuing to appeal other denied claims. Certain hospitals with pending False Claims Act investigations or litigation may be excluded from this settlement opportunity.

Hospitals choosing to participate must send their requests, including a signed administrative agreement and eligible claims spreadsheet, to CMS by October 31, 2014 or must ask for an extension if they cannot meet this deadline. CMS will then validate the documents through a three-step process involving determination of any discrepancies for which the hospitals may submit revised information and review by contractors and administrative review bodies at all appropriate levels of appeal.

Recent CMS Guidance

On September 9, 2014, CMS elaborated on the settlement program in a call with providers. In theory, Medicare contractors will respond to hospitals’ initial submission of claims spreadsheets for settlement within 30 days. The hospitals will have another 14 days to respond to the contractors’ initial settlement assessment. The length of the process depends on the number of appeals included in the settlement. A hospital may decide not to settle and not lose the position of its claims in the delayed appeals process. CMS explained that the 68 percent figure for settled inpatient claims will not count towards the number of hospital inpatient days that are used to calculate graduate medical education payments.

Hospitals may not attempt to collect on unpaid claims from patients if those claims are settled, although they will not be required to refund already collected co-payments or deductibles. Further, any uncollected co-payments or deductibles related to settled claims may not be reported as bad debt to CMS. CMS promised to provide further clarification on whether hospitals may continue billing secondary payors of additional insurance policies held by Medicare beneficiaries for these claims and whether inpatient Part A claims that were submitted for rebilling under Part B, but not yet paid, may be settled under this program.


Hospitals with large volumes of inpatient status appeals may want to consider taking part in this settlement program, at least for weaker claims, to reduce their appeals costs and shorten the time for resolution. Hospitals interested in pursuing settlements must act quickly to comply with the upcoming deadline. Otherwise, hospitals can continue to appeal denied claims through the administrative process.