Why Healthcare Providers Should Insist on Laws Requiring Payment of Services Denied for Lack of Authorization: A Maryland MCO Case Study.
This is the first of two articles regarding Maryland laws in need of updating.
By: Robert P. Scanlon and Gustavo Matheus
Two of Maryland’s managed care laws need to be changed or at least clarified. These modifications are necessary to preserve the Medicaid system’s integrity in ensuring that medically necessary, covered healthcare services are reimbursed by Medicaid HMOs (“MCOs”). Currently, too many healthcare services are improperly denied by these managed care plans. Reimbursing hospitals for covered services not only ensures the health of our community’s most vulnerable members, but also the fiscal wellbeing of rendering hospitals.[1]
One law is a regulation promulgated by the Maryland Department of Health (“MDH”) and the other is a statute enforced by the Maryland Insurance Administration. This article addresses the MDH regulation COMAR 10.67.06.07H. The pertinent language of this regulation may be found by clicking HERE.
A Real Life Example
Let’s consider a real-life example: A woman arrives by ambulance at the emergency room (“E.R.”) of a local hospital complainting of pain in her left knee after a fall at home. She is found to have a dislocated knee. The E.R. doctors cannot successfully “reset” the knee, and the patient is seen by an orthopedic surgeon who performs a “closed reduction of the left patella.” The surgery is successful and the patient is admitted for a one night stay, returning home the next day.[2]
The patient received excellent care and she is grateful to the surgeon and staff, and glad to have health benefits through her Medicaid HMO (“MCO”). Thankfully, the patient receives physical therapy and recovers fully.
While her journey in healthcare is complete, the hospital’s efforts at obtaining reimbursement has just begun. Whether the hospital will ever receive reimbursement is in doubt because MCOs rely upon a misguided interpretation of an important MDH regulation. Clarity is needed.
Terminology
As used in this analysis, room and board means the cost of staying in a hospital room, including the meals, the room itself, and essential supplies. Ancillary fees, on the other hand, are all other charges on a hospital bill.[3] Ancillaries include diagnostic tests, laboratory services, therapies and treatments, medical supplies, procedures, and surgery. While one might colloquially think of ancillaries as incidental to the rendered care, ancillaries include services that are central to the patient’s care.
Why the Claim Was Denied: The Misinterpreted Regulation
Because the patient was admitted by the surgeon for an overnight stay[4] – and the health plan’s medical director concluded the patient should have remained only in observation status[5] – the inpatient stay was not authorized by the MCO. As a consequence, in reliance upon COMAR 10.67.06.07 H (3), the MCO paid nothing.
A mainstay of required MCO benefits for inpatient services is COMAR 10.67.06.07, the Maryland regulation proscribing coverage of hospital inpatient services. Subsection H declares:
Payment For Ancillary Services.
(1) [An] MCO shall pay for all medically necessary ancillary services provided on inpatient hospital days including those days for which the inpatient hospitalization is otherwise appropriately denied.
This section is the Medicaid general rule on reimbursement for inpatient claims. Read on its face, section H(1) requires reimbursement of medically necessary services, even if the admission is appropriately denied. This is strong, clear language in favor of coverage of medically necessary services rendered for inpatient claims, even if certain inpatient days are determined to have met a lower level of appropriate care.
Section H(2) provides that “A denial of an inpatient ancillary service shall be based on the medical necessity of the specific ancillary service.” This would require some explanation for why an ancillary service is denied as opposed to a carte blanche denial of the entire claim.
Under sections H(1) and H(2), the case of the patient with the knee surgery would have resulted in the claim being fully paid, except for the room and board and admit fees. That seems reasonable, as long at the MCO’s medical director supports outpatient-only treatment. However, the MCOs misread section H(3) to avoid any payment.
Section H(3) reads:
An MCO is not required to pay for ancillary services if the entire hospitalization in section H(1) of this regulation is appropriately denied. [Italics added.]
Using this section to avoid paying anything at all is absurd on its face. It violates both Section H(2) and H(3). In the referenced example the MCO did not deny the need for the surgery or the fact that the patient had to recover in the hospital, albeit at a lower level of care than admission. This means that the MCO has acknowleged the medical necessity of the ancillary services, thus violating Section H(2). Additionally, to the extent that the MCOs refusal to pay anything is a denial of “the entire hospitalization,” it is also a violation of Section H(3) because the denial was not appropriate. As noted, the MCO admitted that the surgery was medically necessary and the patient needed to recover in the hospital in observation status.
The Irrational and Improper Result
The end result of an “H(3) denial” is that all care–even medically necessary treatment central to the patient’s reason for seeking treatment–will be denied by an MCO merely due to disagreement as to a patient’s appropriate status. If the the attending physician and the plan’s medical director cannot agree on the best status for the patient (inpatient vs. observation), then the hospital’s claim will be denied as a result of that professional disagreement.
Because of the claims processing practices employed by MCOs, the hospital will have to rebill the claim, removing the admit fee and room and board charges, to be paid. Therefore, to be paid the portion not clinically in dispute, the hospital will need to concede that the admission was clinically improper.[6]
This is counterintuitive, counterproductive, an important loss of hospital revenue, and a waste of a hospital’s human resources. This is also due to a convenient misinterpretation of a regulation by MCOs. This must change at the regulatory level.
What is Needed and How You Can Help
To change this outcome, section H(3) should be modified slightly as follows:
An MCO is not required to pay for ancillary services if the entire hospitalization in section H(1) of this regulation is appropriately denied. An entire hospitalization is deemed to be appropriately denied only if no services provided in the hospital were medically necessary.
Inclusion of this italicized language would add sufficient clarity to the exception and allow it to be limited only to clinical denials, closing the unintended loophole. No longer would “observation versus inpatient” status be a reason to deny all of a hospital’s medically necessary care rendered to a Medicaid beneficiary.
One important way for Maryland hospitals to support this needed change is by contacting the Maryland Department of Health. To help change this law, please contact the Maryland Department of Health.
You may email the MDH at https://health.maryland.gov/Pages/contactus.aspx. Please also write to the Maryland Secretary of Health:
Hon. Dennis R. Schrader
Secretary
Maryland Department of Health
201 W. Preston Street
Baltimore, MD 21201-2399
Secretary Schrader and his executive officers must be informed of the inadvertent and inappropriate impact of this regulation on Maryland’s hospitals, and the need to change this law.
Robert P. Scanlon is managing member of Anderson & Quinn, LLC, a law firm that provides individuals, businesses, corporations, and healthcare institutions with the legal and litigation support they need. Rob may be reached at rscanlon@andersonquinn.com. Gustavo Matheus is chair of the firm’s healthlaw practice. Gustavo may be reached at gmatheus@andersonquinn.com. Messrs. Scanlon and Matheus are licensed to practice law in Maryland, Virginia and the District of Columbia.
[1] MCOs are paid by the state on a “per member per month” basis, regardless of whether the Medicaid beneficiary enrolled with the MCO actually needs or uses healthcare services.
[2] The physician who appealed this denial summarized the chronology with clinical detail: “On 09/22, the patient was upgraded to acute inpatient status secondary to persistent right knee pain, secondary to patella dislocation complicated by a failed closed reduction under conscious sedation. She was admitted to a monitored unit and placed on patella dislocation pathway. She remained on neurological checks, cardiorespiratory and hemodynamic instalbility monitoring, pain management, IV fluids, IV iron replacements, physical and occupational therapy, fall and safety precautions, orthopedics follow-up for possible open reduction internal fixation surgery. On 09/23, her tests were completed, condition had improved and she was cleared for discharge.”
[3] For purposes of this analysis, the related “admit fee” is included as a room and board expense.
[4] When the attending physician writes an order in the medical chart to admit a patient, the hospital will charge an administrative “admit fee” and a room and board charge. The type of bill is an inpatient bill. (See footnote 7, below.)
[5] An attending physician may keep a patient in the hospital in observation status. Observation status, often largely indistinct from an inpatient admission, is charged on an hourly basis.
[6] This practical necessity flies in the face of Maryland Insurance Article § 15-1005, Maryland’s Prompt Pay statute requiring payment of undisputed charges. Circumventing the Prompt Pay statute, MCOs rely on the Type of Bill field on a claim (inpatient vs. observation) as an impediment to payment.
