Is Chairman Brady’s Call for CMS to Retract the Settlement Process Likely to Derail the Settlement?

On the Friday before Labor Day, CMS offered a proposal to settle all hospital claims denied for lack of necessity for inpatient admissions (and still in the appeal process). For eligible claims the proposal offers to pay hospitals 68 % of the net allowable amount. In a recently issued letter to Human Services (HHS) Secretary Sylvia Burwell, Kevin Brady (R-TX), Chairman of the Ways and Means Subcommittee on Health, has questioned whether HHS has the statutory authority for the proposed settlement offer and calls on CMS to retract the offer.

In addition to the question of authority, Chairman Brady also raises a number of concerns with regard to the process that CMS has developed for the settlement of hospital claims. We will look at each of the concerns expressed in the letter, but we will offer our opinion first: Chairman Brady’s letter is unlikely to do anything but possibly slightly delay the settlement process. While the Chairman’s letter does call on CMS to retract the settlement proposal, we believe that this is an action CMS will only take if forced to do so.

In the letter Chairman Brady indicates that the Committee was “shocked to learn about the disclosure of the settlement policy in the press.” Apparently, the offer was not only news to the hospital community, but also to one of the most powerful committees in Congress. Given this fact, it is not difficult to read Chairman Brady’s letter as an expression of frustration that CMS did not consult the Committee before issuing the settlement offer. Chairs of oversight committees (rightly) expect that agencies in their jurisdiction will inform them about major policy shifts before they hit the papers. While certainly questionable form on CMS’ part, it seems insufficient to cause CMS to withdraw the offer. We anticipate that Secretary Burwell will draft a thoughtful response to the Chairman and for the settlement process to move forward as planned.

Addressing each of the concerns expressed by Chairman Brady in his letter, here is how we see the issues:

  1. In the letter Chairman Brady questions whether HHS has the statutory authority for this settlement process.
    • Our interpretation is that CMS has the authority. Buried in the Code of Federal Regulations (Title 42, Part 405, Section 376) is language, based on provisions of the Social Security Act, that allows CMS to “compromise” on any overpayment determination regarding a claim. Nothing says CMS can do this en masse, but nothing says they can’t, so there’s every reason to believe a court would see this regulation as permitting the present offer.
  2. Chairman Brady question the wisdom of the “‘all or nothing’ settlement approach,” rightfully noting that each discharge is unique and the circumstances that apply pertaining to medical necessity in one case do not necessarily transfer to all cases.
    • The very nature of an aggregated settlement is that each party concedes claims it could probably prevail on for the sake of efficiency. Regarding the Chairman’s concern that the process threatens the “due process rights of Medicare providers,” as there is nothing compulsory about the settlement, providers are not obligated to accept the offer.   A provider can choose to stay in the appeals process, likely with its wait time shortened by the providers who do settle being removed from the queue.
  3. Chairman Brady asks CMS to show its math regarding the 68% offer. He points to the payment ratio of outpatient versus inpatient treatment in five categories, and asks why the settlement does not reflect that number (an average of 36%).
    • Based on statistics from the American Hospital Association’s RacTrac study, if all the eligible claims went through the entire appeal process, 66% of them would yield decisions favorable to the hospitals. The proposed settlement achieves what is likely to be close to the ultimate result, but speeds up the process.
  4. Chairman Brady asks about the beneficiaries’ frustration regarding the skyrocketing Part B liability that has followed the increase in inpatient denials.
    • If anything, the settlement profits beneficiaries, who could be liable for Part B coinsurance if hospitals lost their appeals and rebilled the claims. Under the express terms of the agreement, hospitals forego any right to collect anything from beneficiaries that hasn’t already been either paid or promised under a payment plan.

The ultimate takeaway from all of this might be that if you’re running a federal agency and plan to launch a program that could cost billions – and the Congressional committee overseeing your agency has held hearings on the topic – you would be wise to pick up the phone and give the committee a heads up. In this case it appears that CMS forgot that. In light of CMS’ recent policy fits and starts – the about-face on rebilling, the repeated delays of implementation of the two-midnight rule, the vacillation on automatically denying related claims – CMS’ apparent failure to consult with Congress prior to issuing the proposed settlement is not much of a surprise. But, while the result could be a hurdle for the proposed 68% settlement offer for inpatient status appeals, it’s not likely to be a derailment.