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20 Clearinghouse Rev. 434 (1986-1987)
How to Appeal Medicare Hospital Coverage Denials under the DRG System

handle is hein.journals/clear20 and id is 440 raw text is: How to Appeal Medicare Hospital Coverage Denials Under the DRG System by Sally Hart Wilson I. Introduction Medicare, the federal health insurance program for the aged and disabled, is the primary source of payment for health care services for persons 65 and older.' Among such services, the big ticket item for both elderly individuals and the Medicare program as a whole is inpatient hospital services.2 Not only is the portion of the Medicare budget consumed by payments for hospital services quite large, but between 1967 and 1980 it 'increased from 52.7 percent to 66.4 percent of all Medicare reimbursements.3 As the portion of overall Medicare program expenditures devoted to hospital services increased, the annual cost of the Hospital Insurance Program, known as Medicare Part A, increased geometrically. Between 1970 and 1982, Hospital Insurance fund disbursements rose from $5.3 billion to $36.1 billion.4 In attempting to identify the cause of this expansion of hospital care costs, health economists point to incentives built into the old hospital reimbursement system. As originally con- stituted, the Medicare program reimbursed individual hospitals for their costs retroactively, so that increased expenditures, even capital expenditures for a new wing, for example, would yield a higher reimbursement rate. Furthermore, the amount of reimbursement was directly proportionate to the number and Sally Hart Wilson is a staff attorney at the National Senior Citizens Law Center, 1052 W. 6th St., Los Angeles, CA 90017, (213) 482-3550. I. Social Security Act, Title XVIII, 42 U.S.C. §§ 1395-97f. 2. In FY 1981, nearly all Medicare Health Insurance reimbursements and 68 percent of all Medicare program reimbursements were spent for inpatient hospital services. HEALTH CARE FIN. ADMIN., DEARTMNT OF HEALT & HUMAN SE~vs., MEoICARE & MEDICAID DATA BOOK, 1983, HCFA pub. 03156 at 46, 50, table 3.6 (Dec. 1983). 3. Id. at 25, figure 2.3. 4. HEALTH CARE FIN. ADMIN., BUREAU OF DATA MANAGEMENT & STRATEGY, SUMMARY OF 1983 ANNUAL REPORTS OF MEDICARE BD. OF TRUSTEES 6, table 2 (June 1983). kind of services rendered, so that more expensive services, provided more frequently, yielded larger profits. In 1983, Con- gress responded by initiating the most significant change in the Medicare program since its enactment in 1965. This article describes the changes effected by that legislation, as well as the appeal rights of persons denied Medicare coverage for hospital treatment under the new system. II. The Prospective Payment System for Reimbursement Based on DRGs Under the action taken by Congress, a new Prospective Payment System (PPS) was initiated, which employs a prospectively determined flat rate for each patient's entire course of treatment to serve as an incentive for more efficient provision of services. The system utilizes a method of classifying each patient according to condition and treatment in Diagnostic- Related Groups (DRGs), each of which has an assigned payment amount based on the average cost of treating a patient in that DRG.5 The system employs more than 460 DRGs, one of which is assigned to every Medicare patient upon discharge.6 The original legislation provided for a phase-in of the DRG reimbursement system in 25-percent increments over four years, culminating in full implementation by FY 1987.7 However, the Consolidated Omnibus Budget Reconciliation Act of 1986 5. Social Security Act § 1886, 42 U.S.C. § 1395ww. 6. It is claimed that the DRG classification system is sufficiently complex to account for all possible variations in patients' conditions and needs. If a particular patient is sufficiently atypical that significantly more treatment than the average is needed, provision is made for outlier payments not to exceed 6 percent of the total DRG payments. Hospitals dispute the claim that the system is able to adequately account for differences in patients' needs, and they contend that they are significantly underreimbursed for the treatment of difficult cases under PPS. 7. Social Security Act, § 1886(d)(l)(C), 42 U.S.C. § 1395ww(d)(I)(C). CLEARINGHOUSE REVIEW &U

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