Finalized appeals processes for Medicare patients will require new hospital protocols in 2025 (updated)

Hospitals should prepare to imminently accommodate new appeals processes and paperwork for some Medicare patients whose status gets changed from inpatient to outpatient observation during a stay.

A newly published final rule gives beneficiaries options for appealing such a change. The effective date of the new appeals processes was not announced in the rule, but CMS projects it will be in early 2025 after an operational implementation period. A forthcoming announcement will confirm the effective date.

Update: An online document posted by CMS projects that the retrospective appeals process will be available Jan. 1, and the appeals processes for patients during or after a hospital stay will be available Feb. 14. See the next section of this article or the final rule at the link above for information on the processes.

The proposed version of the rule was drafted last year in response to a 2020 court decision, which noted a status reclassification to outpatient observation may affect a Medicare beneficiary’s eligibility for covered post-acute care. Because the court decision did not address Medicare Advantage, the new appeals processes do not apply to that program.

Key points in the rule

The court decision mandated “an expedited appeals process substantially similar to the existing expedited process for challenging hospital discharges,” according to the final rule.

The new appeals processes will pertain to hospital visits by beneficiaries who were either:

• Not enrolled in Part B
• At the hospital for at least three days but designated as an inpatient for fewer than three days and admitted to a skilled nursing facility within 30 days of the hospital stay

If a patient files a status appeal while still in the hospital, a Medicare quality improvement organization (QIO) must review the case within one day of obtaining relevant records. If beneficiaries do not appeal while in the hospital, they can still file a standard appeal with a two-day turnaround time for the review.

“One notable difference, as compared to [the process] for inpatient hospital discharge appeals, is that under this new appeals process beneficiaries will not have financial liability protection for hospital services received while their appeal is adjudicated,” the final rule states.

However, the hospital cannot bill the patient while the QIO’s decision is pending.

Hospitals do not have to keep patients in the facility during an appeal. Patients can be released based on an assessment of their medical circumstances.

Another core provision is the availability of a retrospective appeals process for beneficiaries with prior hospital stays that took place in 2009 or later. The window to file a retrospective appeal will last for one year from the implementation date of the new rule.

Tweaks to the proposed rule

Provisions in the final rule are mostly similar to those in the proposed rule, which was published in December 2023.

Changes to accommodate providers include an extension from 180 days to 365 days in the window to submit a claim following an appeals decision that goes in favor of the beneficiary. A process for submitting such claims will be described in upcoming guidance.

“We are currently working to make the necessary system changes to accommodate these claims and to create billing instructions that will be approved and finalized shortly after publication of this final rule,” CMS states. “That will give providers some advance time to work internally and/or with billing agents to be able to submit claims following a favorable appeal.

“We will be working to implement condition codes and remarks codes to be used on claims submitted following a favorable decision so those claims may be identified by the MAC [Medicare administrative contractor].”

Providers also will have 120 days, up from a proposed 60 days, to fulfill a records request by a MAC or other contractor.

Other modified language from the proposed rule clarifies that if a beneficiary wins an appeal and a hospital looks to submit a Part A claim, it first must refund any Part B payments made by Medicare. If the hospital does not take that step, the Part B claim will be canceled, with payments recouped.

Even if a hospital does not seek to subsequently submit a Part A claim, a refund of payments for outpatient services will be mandated for beneficiaries who were not enrolled in Part B at the time of the visit.

Burdens may accumulate

Hospitals will have to incorporate a new form called a Medicare Change of Status Notice (MCSN) when patients get reclassified from inpatient to outpatient observation, according to the final rule. The notice must be delivered to the patient no later than four hours before discharge (for patients with Medicare Part B, the notice would be delivered after they have been in the hospital for three days).

Stakeholder comments criticized the new notice as being overly burdensome for hospitals, especially at a time of workforce constraints. However, CMS responded that its projections suggest the average hospital will have to provide only two to three such notices to patients per year, given the specific circumstances involved.

“While we understand the act of delivering new notices, even in a low volume, is an appreciable increase in responsibilities for hospitals, we do not believe the new appeals process will significantly affect operations or staffing within hospitals,” CMS wrote.

CMS considered adding the information about the new appeals processes to existing notices but decided against that approach, in part because the new information would not apply to most patients receiving the existing notices and thus could cause confusion.

The agency sought to incorporate delivery protocols that already apply to the Important Message from Medicare notice, allowing hospitals to use procedures with which they’re already familiar. CMS notes that clinical personnel are not required to be responsible for delivering new or existing notices.

There still were concerns among stakeholders that the hospital burden is being underestimated, with CMS projecting delivery of each notice will take roughly 10 minutes. That estimate is based on the calculation for the Important Message from Medicare notice, but stakeholders said it does not consider the time needed to answer questions from beneficiaries who receive the new notice.