Critical Access Hospitals
Do You Still Want Method II Payment?
The Federal fiscal year 2010 final rule for the inpatient prospective payment system, officially published by the Centers for Medicaid and Medicare Services ("CMS") on August 27, 2009, includes several provisions affecting critical access hospitals ("CAH"). One of those changes relates to CAHs that have elected to use the "Method II" billing option. For CAHs electing Method II, reimbursement for outpatient facility services will be reduced from 101% of reasonable costs to 100% of reasonable costs, effective for cost reporting periods beginning on or after October 1, 2009. Professional fees under Method II would remain unaffected and would still be paid at 115% of the amount that would otherwise be paid. CMS believes this change is a correct interpretation of the statute governing Method II payment.
CAHs must make the Method II election at least 30 days prior to the beginning of each cost reporting period. The election then applies to payment for all CAH outpatient services and to physician services to hospital outpatients for which the physician has reassigned billing rights to the CAH, for that entire cost reporting period.
Under the old rules, Method II billing always resulted in increased reimbursement due to the additional 15% for the professional component: the CAH was paid 101% of outpatient facility costs under either Method I or II. Now, however, a Method II election will reduce outpatient facility payment by 1% of outpatient costs. This could result in decreased reimbursement for CAHs electing Method II – if the 1% of outpatient costs exceeds the 15% additional payment on the Medicare physician fee schedule. Each CAH will now need to determine whether Method II will result in enhanced payment or not, based on their particular circumstances. This will depend on a number of factors including: the number of physicians to which Method II billing would apply, outpatient volume, and Medicare utilization.
CAHs with September 30 FYEs would have had to make the election for September 30, 2010 prior to this past September 1st. CAHs that have already notified their FI/Mac of a Method II election, consistent with prior year practices, but have now determined that Method II will result in decreased reimbursement, may have an opportunity to rescind their Method II election and revert to Method I. Although the applicable regulations and guidance do not expressly allow for rescission, we are aware of at least one FI/Mac that has indicated they will honor a rescission given the recent change in the law as long as the rescission is received in writing by the FI/Mac prior to the beginning of the affected cost reporting period (October 1, 2009 for September 30 year ends).
If you would like additional information about this issue, please contact your regular Hall Render attorney, David Snow (414-721-0447; dsnow@hallrender.com) or Todd Nova (414-721-0464; tnova@hallrender.com).
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