April 2015 Monthly RAC Report: Repeal of SGR Formula and Further Postponement of RAC Reviews

April 23, 2015

On April 16, 2015, President Barack Obama signed into law the Medicare Access and CHIP Reauthorization Act of 2015, a key bill that repeals the Sustainable Growth Rate (“SGR”) formula for Medicare physician payment and extends the moratorium on the application by Recovery Audit Contractors (“RACs”) of the two-midnight rule—the rule that presumes a Medicare patient to be properly admitted as an inpatient if his or her hospital stay crosses two midnights. In short, the bill avoids the anticipated 21% cut in physician reimbursement under the SGR formula and replaces the formula with increases to physician reimbursement of 0.5% for the years 2015, 2016, 2017, and 2018, at which point the program will transition into a merit-based program in which physician payment will be determined according to certain quality measures. Further, the bill postpones the RACs’ implementation of patient status reviews based on the two-midnight rule, which previously was set to resume on March 30, 2015. Now the RACs must wait until September 30, 2015, before requesting and reviewing medical records to deny short-stay claims based on the patient’s status as an inpatient using the two-midnight rule.

The bill’s extension of the moratorium on the RACs’ application of the two-midnight rule should further relieve the backlog of appeals at the ALJ level (3rd level), and also provide hospitals with additional time to implement appropriate policies that comport with the two-midnight rule. Note, however, that this moratorium applies only to the RACs, not to Medicare Administrative Contractors or Zone Program Integrity Contractors, for instance.

If you have any questions or comments about this Report, please contact Larry McCarty (larry.mccarty@phelps.com) or Jeff Moore (jeff.moore@phelps.com).