[Federal Register Volume 88, Number 247 (Wednesday, December 27, 2023)]
[Proposed Rules]
[Pages 89506-89538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28152]



[[Page 89505]]

Vol. 88

Wednesday,

No. 247

December 27, 2023

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 476, and 489





Medicare Program: Appeal Rights for Certain Changes in Patient Status; 
Proposed Rule

  Federal Register / Vol. 88 , No. 247 / Wednesday, December 27, 2023 / 
Proposed Rules  

[[Page 89506]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 476, and 489

[CMS-4204-P]
RIN 0938-AV16


Medicare Program: Appeal Rights for Certain Changes in Patient 
Status

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement an order from the Federal 
district court for the District of Connecticut in Alexander v. Azar 
that requires HHS to establish appeals processes for certain Medicare 
beneficiaries who are initially admitted as hospital inpatients but are 
subsequently reclassified as outpatients receiving observation services 
during their hospital stay and meet other eligibility criteria.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, by February 26, 2024.

ADDRESSES: In commenting, please refer to file code CMS-4204-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-4204-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-4204-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    David Danek, [email protected], for issues related to the 
retrospective process.
    Janet Miller, [email protected], for issues related to the 
prospective process.
    Shaheen Halim, [email protected] for issues related to 
Quality Improvement Organization review.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following website as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that website to view public comments. CMS will not post on 
Regulations.gov public comments that make threats to individuals or 
institutions or suggest that the individual will take actions to harm 
the individual. CMS continues to encourage individuals not to submit 
duplicative comments. We will post acceptable comments from multiple 
unique commenters even if the content is identical or nearly identical 
to other comments.

I. Executive Summary

    The purpose of this proposed rule is to establish appeals processes 
to comply with a court order issued in the case Alexander v. Azar, 613 
F. Supp. 3d 559 (D. Conn. 2020), aff'd sub nom., Barrows v. Becerra, 24 
F.4th 116 (2d Cir. 2022). The proposed processes would apply to certain 
Medicare beneficiaries who are initially admitted as hospital 
inpatients but are subsequently reclassified as outpatients receiving 
observation services during their hospital stay and meet other 
eligibility criteria.
    The proposed processes would consist of the following:
     Expedited appeals: We are proposing an expedited 
appeals process for certain beneficiaries who disagree with the 
hospital's decision to reclassify their status from inpatient to 
outpatient receiving observation services (resulting in a denial of 
coverage for the hospital stay under Part A). Eligible beneficiaries 
would be entitled to request an expedited appeal regarding that 
decision prior to discharge from the hospital. Appeals would be 
conducted by a Beneficiary & Family Centered Care--Quality Improvement 
Organization (BFCC-QIO).
     Standard appeals: We are proposing that 
beneficiaries who do not file an expedited appeal would have the 
opportunity to file a standard appeal (that is, an appeal requested by 
a beneficiary eligible for an expedited appeal, but filed outside of 
the expedited timeframes) regarding the hospital's decision to 
reclassify their status from inpatient to outpatient receiving 
observation services (resulting in a denial of coverage for the 
hospital stay under Part A). Under our proposal, these standard appeals 
will follow similar procedures to the expedited appeals process but 
without the expedited timeframes to file and for the QIO to make 
decisions.
     Retrospective appeals: We are proposing a 
retrospective review process for certain beneficiaries to appeal 
denials of Part A coverage of hospital services (and certain SNF 
services, as applicable), for specified inpatient admissions involving 
status changes that occurred prior to the implementation of the 
prospective appeals process, dating back to January 1, 2009. Consistent 
with existing claims appeals processes, we are proposing that Medicare 
Administrative Contractors (MACs) will perform the first level of 
appeal, followed by Qualified Independent Contractor (QIC) 
reconsiderations, Administrative Law Judge (ALJ) hearings, review by 
the Medicare Appeals Council, and judicial review.

II. Background

    This proposed rule sets forth new appeals procedures to implement 
the court order in Alexander v. Azar, 613 F. Supp. 3d 559 (D. Conn. 
2020), aff'd sub nom., Barrows v. Becerra, 24 F.4th 116 (2d Cir. 2022). 
In this order, the court directed the Department of Health and Human 
Services (HHS) to ``permit all members of the . . . class to appeal the 
denial of their Part A coverage'' and to establish appeal procedures 
for certain beneficiaries in Medicare Part A and B (``Original 
Medicare'') who are initially admitted to a hospital as an inpatient by 
a physician but whose status during their stay is changed to outpatient 
by the hospital, thereby effectively denying Part A coverage for their 
hospital stay.\1\ In some cases, the status change also

[[Page 89507]]

affects the availability of Part A coverage for a beneficiary's post-
hospital extended care services furnished in a skilled nursing facility 
(SNF). The court imposed additional conditions on the right to appeal 
as described in detail in this proposed rule.
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    \1\ The terms of the court order refer to denials of Part A 
coverage. Consistent with the court order, the appeals processes 
proposed in this rule do not extend to enrollees in Medicare 
Advantage (MA) plans. Medicare Advantage plan enrollees have 
existing rights that afford enrollees the right to appeal a plan 
organization determination where the plan refuses to provide or pay 
for services, in whole or in part, including the type or level of 
services, that the enrollee believes should be furnished or arranged 
for by the MA organization. 42 CFR 422.560 through 422.634. For 
example, if an MA plan refuses to authorize an inpatient admission, 
the enrollee may request a standard or expedited plan 
reconsideration of that organization determination. 42 CFR 
422.566(b), 422.568 through 422.572.
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    The court's order requires new appeal procedures be afforded to the 
following class: Medicare beneficiaries who, on or after January 1, 
2009--
     Have been or will have been formally admitted as a 
hospital inpatient;
     Have been or will have been subsequently reclassified by 
the hospital as an outpatient receiving ``observation services''; \2\
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    \2\ For the purposes of these proposed procedures, a beneficiary 
is considered an outpatient receiving observation services when the 
hospital changes a beneficiary's status from inpatient to outpatient 
while the beneficiary is in the hospital and the beneficiary 
subsequently receives observation services following a valid order 
for such services. See proposed 42 CFR 405.931(h).
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     Have received or will have received an initial 
determination or Medicare Outpatient Observation Notice (MOON) \3\ 
indicating that the observation services are not covered under Medicare 
Part A; and
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    \3\ As explained in 42 CFR 489.21(y), the Medicare Outpatient 
Observation Notice (MOON) is a written notice furnished by a 
hospital to Medicare beneficiaries who receive observation services 
as an outpatient for more than 24 hours. The notice explains why the 
beneficiary is not an inpatient and also explains the consequences 
of being an outpatient rather than an inpatient. A copy of the 
notice is available to download at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202212-0938-016.
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     Either--(1) were not enrolled in Part B coverage at the 
time of their hospitalization; or (2) stayed at the hospital for 3 or 
more consecutive days but were designated as inpatients for fewer than 
3 days, unless more than 30 days has passed after the hospital stay 
without the beneficiary's having been admitted to a skilled nursing 
facility. Medicare beneficiaries who meet the requirements of the 
foregoing sentence but who pursued an administrative appeal and 
received a final decision of the Secretary before September 4, 2011, 
are excluded from the class.
    The court determined that beneficiaries who are members of the 
class described previously have been deprived of due process and 
ordered the following:
     Class members shall have an opportunity to appeal the 
denial of their Part A coverage.
     Class members who have stayed, or will have stayed, at a 
hospital for 3 or more consecutive days, but who were designated as 
inpatients for fewer than 3 days, shall have the right to an appeal 
through an expedited appeals process substantially similar to the 
existing expedited process for challenging hospital discharges.
     Class members shall be permitted to argue that their 
inpatient admission satisfied the relevant criteria for Part A 
coverage--for example, that the medical record supported a reasonable 
expectation of a medically necessary two-midnight stay at the time of 
the physician's initial inpatient order, in the case of a post-Two 
Midnight Rule hospital stay--and that the hospital utilization review 
committee's (URC) determination to the contrary was therefore 
erroneous. If a class member prevails, then for the purposes of 
determining Part A benefits, including both Part A hospital coverage 
and Part A SNF coverage, the beneficiary's reclassification as an 
outpatient that resulted from the URC's erroneous determination shall 
be disregarded.
     For class members whose due process rights were violated, 
or will have been violated, prior to the availability of the procedural 
protections as previously set forth, such beneficiaries shall be 
afforded a meaningful opportunity to appeal the denial of their Part A 
coverage, as well as effective notice of this right.
    In addition, on December 9, 2022, the district court issued an 
``Order Clarifying Judgment'' with respect to the claims for outpatient 
hospital services received by beneficiaries who were enrolled in Part B 
of the program at the time such services were furnished. In this 
clarifying order, the judge stated that while he intended to provide a 
meaningful opportunity for class members whose due process rights were 
violated to appeal the denial of Part A coverage, he also stressed the 
need to provide a remedy for class members who endured undercompensated 
stays at skilled nursing facilities. He further stated that, since 
class members with Part B coverage had much of their past hospital 
stays paid for by such coverage, he did not intend to require the 
unwinding of previously approved Part B outpatient hospital claims so 
they could be reprocessed as Part A claims. The clarification states 
that if a class member enrolled in Part B coverage at the time of their 
hospitalization prevails in an appeal of a claim, then an adjustment of 
payment for the underlying hospital services (including any applicable 
deductible and coinsurance amounts) is not required, and Part A payment 
for covered SNF services may be made without any adjustment to the 
payment for the underlying hospital services.
    In section III.A. of this proposed rule, we describe the proposed 
procedures that would be available to members of the class described 
previously (hereinafter, eligible beneficiaries) to appeal denials of 
Part A coverage of hospital services (and certain SNF services, as 
applicable), for specified inpatient admissions involving status 
changes that occurred prior to the implementation of the prospective 
appeals process, dating back to January 1, 2009. We refer to this as 
the retrospective appeals process. In section III.B. of this proposed 
rule, we describe the expedited and standard appeals procedures that 
would be available prospectively (meaning to beneficiaries whose status 
is changed after the effective date of this rule and after the 
implementation and availability of the procedures established by the 
rule) to eligible beneficiaries who, among other things, are admitted 
as hospital inpatients and are reclassified by hospitals as outpatients 
receiving observation services.
    Once we publish a final rule regarding the procedures for these new 
appeals, we intend to specify the implementation date for filing appeal 
requests for retrospective and prospective appeals. When the 
prospective process is fully implemented, eligible beneficiaries who 
are hospitalized and receive notice of their appeal rights and wish to 
pursue an appeal will be expected to utilize the prospective procedures 
(proposed 42 CFR 405.1210 through 405.1212). Eligible beneficiaries who 
are hospitalized and entitled to an appeal under these procedures prior 
to the implementation date of the prospective process will be able to 
utilize the retrospective appeals process, subject to the filing 
limitation proposed in Sec.  405.932(a)(2)(i)(B).
    Accordingly, we are proposing new retrospective and prospective 
appeals processes to implement the court's order as detailed in this 
proposed rule.

III. Provisions of the Proposed Regulations

A. Retrospective Appeals

1. Overview
    The retrospective appeals required by the court order constitute a 
new process under the Medicare program, as the appeals would be based 
on alleged entitlement to coverage for services that were not actually 
billed to the program on a claim. That is, under existing claims 
appeals processes for the Original Medicare program, a beneficiary is 
asking for a determination on whether specific items and services 
billed on a claim for payment should

[[Page 89508]]

have been covered and paid, not whether items and services should have 
been billed or whether there should have been coverage when there is no 
claim. Sections 205(a), 1871, and 1872 of the Social Security Act (the 
Act) provide the Secretary authority to establish regulations to carry 
out the administration of the insurance programs under Title XVIII of 
the Act.\4\ The new retrospective appeals procedures required under the 
court order do not fit into the existing claims appeals process for 
Original Medicare claims established under section 1869 of the Act. 
However, in our view, these new procedures would have similarities to 
the longstanding claims appeals procedures with which Medicare 
beneficiaries are familiar. Accordingly, we are proposing new 
procedures to govern the retrospective appeals process in proposed 42 
CFR 405.931 through 405.938 that would be based, in large part and to 
the extent appropriate, on the existing claims appeals procedures in 
the existing provisions in 42 CFR part 405 Subpart I (as authorized 
under section 1869 of the Act).
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    \4\ Section 205(a) of the Act, incorporated into Title XVIII by 
section 1872 of the Act, provides that the Secretary ``shall have 
full power and authority to make rules and regulations and to 
establish procedures, not inconsistent with the provisions of this 
title, which are necessary or appropriate to carry out such 
provisions[.]'' Section 1871 of the Act states that the Secretary 
shall prescribe such regulations as may be necessary to carry out 
the administration of the insurance programs under this title.
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    We provide more detail about the proposed procedures at each level 
of the administrative appeals process following this overview, and we 
have included flowcharts to depict the overall proposed appeals process 
for retrospective reviews (in Figure 1) and prospective reviews (in 
Figure 2).
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP27DE23.001


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[GRAPHIC] [TIFF OMITTED] TP27DE23.002

BILLING CODE 4120-01-C
    In Sec.  405.931(b)(2), we are proposing to define the term 
``eligibility contractor'' to mean the contractor that would serve as a 
single point of contact for incoming retrospective appeal requests. As 
proposed in Sec.  405.932(a) through (e), the eligibility contractor 
would determine if the request for appeal is valid, including whether 
the request is timely and contains the required elements for an appeal. 
In addition, we are proposing that the eligibility contractor would 
determine whether the individual submitting the request (or the 
individual for whom a request is submitted, in the case of a request 
filed by a representative) meets the definition of a class member as 
defined by the court, and is, thus, an eligible party entitled to an 
appeal under the terms of the court order. The eligibility contractor 
would

[[Page 89511]]

then either deny or approve each appeal request received and notify the 
individual (or their representative) of the determination. For those 
requests that are denied (that is, the beneficiary has not demonstrated 
s/he meets the definition of a class member and is not eligible for an 
appeal, or the appeal request is not otherwise valid), we are proposing 
in Sec.  405.932(e) that the individual filing the request (or their 
representative) would have an opportunity to correct any errors and/or 
demonstrate why the appeal request should be approved. An individual's 
request to review a denial must be received by the eligibility 
contractor within 60 calendar days of the individual's receipt of the 
denial notice under proposed Sec.  405.932(e)(2). For appeal requests 
that are approved (that is, the beneficiary satisfies the requirements 
for class membership--and thus, is determined to be an eligible party--
and the request is valid), the eligibility contractor would forward 
those requests to the processing contractor to conduct the first level 
appeal.
    In Sec.  405.931(b)(3), we are proposing that the processing 
contractor would perform the first level of appeal. The processing 
contractor would be the MAC that currently has jurisdiction over Part A 
claims for the hospital at which the beneficiary was initially admitted 
prior to being subject to a status change. As proposed in Sec.  
405.932(f) through (i), processing contractors would generally follow 
existing procedures that govern redeterminations (42 CFR 405.940 
through 405.958), as appropriate, except as we have otherwise proposed 
in Sec.  405.932.
    In Sec.  405.934, we are proposing that eligible parties (or their 
representatives) who are dissatisfied with the processing contractor's 
appeal decision would have the opportunity to request a reconsideration 
to be performed by a QIC. We are proposing that the QICs would 
generally utilize existing procedures that govern reconsiderations (42 
CFR 405.960 through 405.978), as appropriate, except as we have 
otherwise proposed in Sec.  405.934.
    Following a reconsideration, in Sec.  405.936 we are proposing that 
eligible parties (or their representatives) who are dissatisfied with 
the reconsideration would be able to request a hearing before an 
Administrative Law Judge (ALJ) (or review by an attorney adjudicator) 
if the claims under appeal meet the amount in controversy 
requirement.\5\ In Sec.  405.936(c), we are proposing a new method of 
calculating the amount in controversy that reflects the differences 
between these new appeals and typical claims appeals under existing 
procedures. In addition, under proposed Sec.  405.938, eligible parties 
(or their representatives), would be able to request review by the 
Medicare Appeals Council (hereinafter, Council). As with the first two 
levels of appeal, we are proposing that these new appeals before an ALJ 
(or attorney adjudicator) and the Council would generally follow 
existing procedures in 42 CFR 405.1000 through 1140, as appropriate, 
except as we have otherwise proposed in Sec. Sec.  405.936 through 
405.938. Eligible parties would also be able to request judicial review 
under the existing provisions in 42 CFR 405.1136.
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    \5\ The amount in controversy requirement for CY 2024 is $180 
for a hearing before an Administrative Law Judge, and $1,840 for 
judicial review. See https://www.govinfo.gov/content/pkg/FR-2023-09-29/pdf/2023-21500.pdf.
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    In Sec.  405.932(a)(2), we are proposing to limit the time to file 
a request for a retrospective appeal to 365 calendar days following the 
implementation date of the final rule. We have provided notice of the 
pending appeals process for class members since July 2022 on both 
Medicare.gov and CMS.gov and we will continue to update those websites 
with information as this rulemaking proceeds and as we begin to 
implement the final rule. Thus, when this rulemaking is concluded and 
procedures are finalized, effective, and operational, we believe we 
would have afforded eligible beneficiaries ample time to gather 
necessary documentation in anticipation of filing appeal requests.
2. Party Status, Authorized Representatives, and Appointed 
Representatives
    The court order instructs HHS to establish new appeals procedures 
for certain beneficiaries, specifically, beneficiaries who are members 
of the defined class, as previously described in the overview and in 
proposed Sec.  405.931(b). The court's decision noted that some class 
members suffered financial or other consequences as a result of the 
change in their status from inpatient to outpatient receiving 
observation services, including having to pay for the costs of post-
hospital extended care services in a SNF out of pocket because they did 
not satisfy the statutory requirement for SNF coverage of having a 3 
consecutive day qualifying inpatient stay (see section 1861(i) of the 
Act). In addition, other class members had to pay for their hospital 
services themselves because they lacked Medicare Part B coverage. The 
court directed HHS to afford class members a right to appeal certain 
denials of Part A coverage which are defined later is this section. The 
court ordered an appeal process be made available to those class 
members who did not have such a process available if their hospital 
stays, dating back to January 1, 2009, met the conditions of the order. 
Accordingly, in Sec.  405.931(b)(1) we are proposing to define an 
eligible party as an individual who meets the definition of a class 
member in Alexander v. Azar. In that case, the court adopted the 
following class definition: a Medicare beneficiary who, on or after 
January 1, 2009--
     Was formally admitted as a hospital inpatient;
     While in the hospital was subsequently reclassified as an 
outpatient receiving observation services (as defined in Sec.  
405.931(h));
     Has received an initial determination (as defined in Sec.  
405.920) or a Medicare Outpatient Observation Notice (MOON) (as 
described in Sec.  489.20(y)) indicating that the observation services 
are not covered under Medicare Part A; and
     Either--
    ++ Was not enrolled in the Supplementary Medical Insurance program 
(that is, Medicare Part B coverage) at the time of beneficiary's 
hospitalization; or
    ++ Stayed at the hospital for 3 or more consecutive days but was 
designated as an inpatient for fewer than 3 days, unless more than 30 
calendar days has passed after the hospital stay without the 
beneficiary's having been admitted to a SNF.
    An eligible party would be entitled to request an appeal under the 
proposed retrospective process.
    In contrast, the court's decision did not include providers as 
class members entitled to additional appeals procedures and did not 
require HHS to afford new appeal rights to providers in these new 
appeals proceedings. Accordingly, in Sec.  405.931(b) and (c), we are 
proposing to limit party status in these new appeals to beneficiaries 
who meet the definition of a class member as specified in the court 
order.
    As we believe some beneficiaries who are members of the class may 
require assistance with their appeal requests, we are proposing to 
apply existing rules regarding appointed representatives and authorized 
representatives (see Sec. Sec.  405.902 and 405.910) to these new 
appeals.\6\ There may also be some

[[Page 89512]]

situations in which a class member has died since their hospitalization 
and, as applicable, admission to a SNF. Our existing rules in Sec.  
405.906(a)(1) permit certain successors in interest to file appeals on 
behalf of a deceased beneficiary. Thus, in Sec.  405.931(d)(3) we are 
proposing to apply those rules to deceased class members who would have 
been eligible to request an appeal under the proposed procedures for 
retrospective appeals. However, contrary to existing claims appeals 
procedures, in Sec.  405.931(d)(1)(i) we are proposing to exclude 
providers from representing beneficiaries in these new appeals, and we 
are proposing to prohibit the assignment of appeal rights to providers 
as well. Since the decision to change a patient's status is made by the 
hospital, we have concerns that the interests of a class member could 
conflict with the interests of a hospital or SNF, and we are concerned 
that a class member's challenge to their denial of Part A coverage 
resulting from a change in status from inpatient to outpatient 
receiving observation services may not be appropriately represented by 
the hospital that initiated that change, determined that outpatient 
services were appropriate for the beneficiary, and in most cases, 
previously received payment for outpatient services. We have similar 
concerns regarding representation by SNFs that already received payment 
for the SNF services at issue. Unlike most existing claims appeals, 
where the primary issue under review is the denied coverage and payment 
for items and/or services billed on a claim, the issue on appeal under 
these procedures is whether services meet the relevant criteria for 
coverage and payment under the inpatient hospital benefit under Part A 
of the program rather than under the Part B outpatient benefit where 
payment was, in most cases,\7\ previously made to the hospital, and the 
consequences of that decision on coverage of SNF services. Moreover, as 
we are implementing procedures required under the court's order under 
the Secretary's rulemaking authority in sections 205(a), 1871, and 1872 
of the Act, we believe the provisions of section 1869 of the Act guide, 
but do not explicitly govern, the appeals procedures for the new 
retrospective appeals ordered by the court and proposed in this 
proposed rule.
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    \6\ Appointed representative means an individual appointed by a 
party to represent the party in a Medicare claim or claim appeal. 
Authorized representative means an individual authorized under State 
or other applicable law to act on behalf of a beneficiary involved 
in the appeal (for example, a beneficiary's legal guardian, 
surrogate decision-maker for an incapacitated beneficiary, or an 
SSA-appointed representative payee). The authorized representative 
will have all of the rights and responsibilities of a beneficiary or 
party, as applicable, throughout the appeals process and does not 
need a further appointment.
    \7\ We acknowledge that payment by Medicare would not have been 
made in appeals brought by a beneficiary who was not enrolled in 
Part B at the time of hospitalization. In those situations, the 
beneficiary would have been responsible for payment for outpatient 
services furnished by the hospital.
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    We are proposing to include a definition of ``unrepresented 
beneficiary'' applicable to appeals under proposed Sec. Sec.  405.931 
through 405.938. In the existing claims appeals process in 42 CFR part 
405 Subpart I, certain procedural requirements do not apply to an 
unrepresented beneficiary. However, that term is not defined in 
existing regulations. Therefore, in Sec.  405.931(d)(5), we propose to 
define an unrepresented beneficiary as a beneficiary who is an eligible 
party and: (1) has not appointed a representative under Sec.  405.910; 
or (2) has an authorized representative as defined in Sec.  405.902; 
\8\ or (3) has appointed as its representative, a member of the 
beneficiary's family, a legal guardian, or an individual who routinely 
acts on behalf of the beneficiary, such as a family member or friend 
who has a power of attorney; or (4) in the case of a deceased 
beneficiary, the appeal request is filed by an eligible party who meets 
the conditions set forth in Sec.  405.906(a)(1).
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    \8\ Typically, an authorized representative will be a legal 
guardian, representative payee or someone acting under state law on 
behalf of a beneficiary (for example, a family member with a durable 
power of attorney). Often these authorized representatives are 
family members or other individuals who are unfamiliar with the 
technical requirements of the existing claim appeals process. We 
believe it is reasonable to treat appeals filed by authorized 
representatives under these proposed procedures, like other existing 
claim appeals filed by family members (that is, as if the appeal was 
filed by an unrepresented beneficiary).
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    We are also proposing to incorporate certain existing policies that 
would apply in the new appeals procedures for the convenience of 
appellants and adjudicators. For example, in Sec.  405.931(f), we 
propose that the date of receipt of a notice or decision sent by the 
eligibility contractor, processing contractor or other appeals 
adjudicator is presumed to be 5 calendar days following the date on the 
notice unless there is evidence to the contrary. In addition, in Sec.  
405.931(g) we propose that for the purposes of determining whether a 
beneficiary has a qualifying inpatient stay for SNF eligibility and for 
eligibility as a class member, days are counted consistent with 
existing policy in Sec.  409.30 (that is, 3 consecutive calendar days 
starting with the admission day but not counting the discharge day).
    In proposed Sec.  405.931(h), we explain that for the purposes of 
determining eligibility for an appeal under these procedures, a 
beneficiary is considered an outpatient receiving observation services 
when the hospital changes a beneficiary's status from inpatient to 
outpatient while the beneficiary is in the hospital and the beneficiary 
subsequently receives observation services following a valid order for 
such services.
3. Appeal Requests and Determinations of Eligibility by the Eligibility 
Contractor
    In Sec.  405.932, we are proposing to channel all retrospective 
appeal requests from eligible parties through a single point of 
contact, the eligibility contractor. We are proposing, in Sec.  
405.932(a)(2) for a retrospective appeal, that the appeal request filed 
by an eligible party (or their representative) must be received by the 
eligibility contractor within 365 calendar days from the implementation 
date specified when this rule is finalized.\9\ Details regarding the 
deadline to file an appeal and where such appeals should be filed would 
be posted to Medicare.gov once the retrospective appeals process is 
operational. A single point of contact will relieve beneficiaries of 
the burden of determining which contractor is currently responsible for 
claims processed many years ago in order to file their appeal request. 
In addition, due to the complexity of the requirements for determining 
eligibility as a class member for an appeal, we believe having a single 
point of contact would promote consistency in such determinations and 
would provide a better overall experience for eligible beneficiaries 
pursuing their appeal rights.
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    \9\ For example, under these proposed procedures, if the final 
rule specifies an implementation date of April 1, 2025, an eligible 
party who was hospitalized after January 1, 2009 (through the 
implementation date of the prospective appeals process) would have 
until March 31, 2026, to file a request for appeal with the 
eligibility contractor. Details regarding the filing location will 
be specified once the retrospective process is operational.
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    We anticipate eligible parties (or their representatives) will 
provide relevant information to demonstrate their eligibility as a 
member of the class afforded appeal rights in the court order as 
proposed in Sec.  405.932(a) through (c), including medical records 
that may serve to document certain conditions of eligibility under the 
court order. Medical records would also assist in determining whether 
the beneficiary received observation services following the 
reclassification from inpatient to

[[Page 89513]]

outpatient receiving observation services. However, we understand the 
challenges beneficiaries and their representatives may face in 
obtaining and producing such information in situations where 
significant time may have passed since a beneficiary was hospitalized. 
Therefore, we are proposing in Sec.  405.932(c)(2), that the 
eligibility contractor would work with MACs, eligible parties, and 
providers, whenever necessary, to attempt to obtain the information 
needed to make such determinations. In our existing claims appeals 
process, contractors routinely seek records from providers to assist 
beneficiaries filing appeals when the beneficiary is unable to provide 
records needed to adjudicate the appeal.
    In Sec.  405.932(b), we are proposing that eligible parties (or 
their representatives) provide, in writing, certain minimum basic 
information in their appeal request, so the eligibility and processing 
contractors may identify the prior claims filed for the hospital stay 
and SNF services, as applicable, that serve as the basis for the 
retrospective appeal. These required elements for an appeal request 
(which are similar to existing requirements for requesting a 
redetermination under Sec.  405.944) include the beneficiary's name, 
Medicare number (the number on the beneficiary's Medicare card), name 
of the hospital and the dates of hospitalization, and the name of the 
skilled nursing facility and the dates of stay (as applicable). If the 
appeal includes SNF services not covered by Medicare, the written 
request must also include an attestation to the out-of-pocket 
payment(s) made by the beneficiary for such SNF services and must 
include documentation of payments made to the SNF for such services. 
CMS would prepare a model form that appellants may use to file requests 
for a retrospective appeal under these provisions. Once the appeal 
process is operational, this notice would be available online at 
Medicare.gov to download and complete and would be available to request 
in printed or accessible form by calling 1-800-MEDICARE.
    We are also proposing in Sec.  405.932(b)(2) that eligible parties 
attest to their out-of-pocket costs (other than customary cost sharing 
paid to a third-party payer or insurer) paid for SNF services not 
covered by Medicare because the statutory requisite, 3 consecutive day 
inpatient hospital stay, was not met. (We note that for the purposes of 
determining coverage of SNF services under section 1861 of the Act, 
inpatient hospital days are counted in accordance with longstanding, 
existing policy in Sec.  409.30, that is, a patient must have a 
qualifying inpatient stay of at least 3 consecutive calendar days 
starting with the admission day but not counting the discharge day. See 
proposed Sec.  405.931(g).)
    In cases where a third-party payer or insurer covered all of the 
cost of SNF services of an eligible party, we are proposing that such 
services be excluded from consideration in the retrospective appeals 
process. (Payments for SNF services made by a family member would not 
be considered payment by a third-party payer but would be considered 
out-of-pocket payment for the eligible party.) In light of the 
clarification to the court order indicating that the new appeal 
processes are intended to provide a remedy for class members who 
already endured uncompensated or undercompensated stays at skilled 
nursing facilities, we do not believe the court order requires the 
readjudication of such paid services under a Medicare appeal process if 
payment for that care is provided by another insurer.\10\ Moreover, 
readjudicating these claims potentially puts Medicare trust fund 
dollars at risk for making duplicate payments to providers for 
previously compensated care, as Medicare does not have authority to 
compel refunds with respect to payments made by third-party payers to 
providers. In addition, focusing our efforts on situations involving 
payments for denied services made by beneficiaries (or their families) 
focuses resources for appeals for beneficiaries (or their families) 
that paid out of pocket for the cost of care.
---------------------------------------------------------------------------

    \10\ However, if an eligible party paid out of pocket for some 
or all of the SNF services, including situations where a denial by a 
third-party insurer resulted in the beneficiary making out of pocket 
payments for some or all of the SNF services, then those SNF 
services that resulted in out of pocket payments would be eligible 
for an appeal under these proposed processes.
---------------------------------------------------------------------------

    We are proposing in Sec.  405.932(d) that the eligibility 
contractor would be responsible for determining the validity of 
requests for appeal under these provisions, that is, whether the 
request is filed by an eligible party, is timely filed, and contains 
the required elements for a valid request specified in Sec.  
405.932(b)(1) and (2). The eligibility contractor would issue a 
decision to approve or deny such requests. In proposed Sec.  
405.932(d)(1)(ii), we would require the eligibility contractor to issue 
a written decision within 60 calendar days of receipt of a valid appeal 
request from the eligible party (or their representative). We propose 
in Sec.  405.932(d)(2) that approved requests (meaning those meeting 
both eligibility and filing requirements), would be forwarded to the 
processing contractor (the MAC with jurisdiction over the hospital 
claim), and the processing contractor would perform the appeal. Under 
proposed Sec.  405.932(d)(3), requests that are not eligible for an 
appeal or do not meet the requirements under proposed in Sec. Sec.  
405.931 and 405.932 would be denied. However, we are proposing that 
individuals receiving a notice of denial of an appeal request would 
have an opportunity to request a review of the denial by the 
eligibility contractor in order to provide additional clarification, or 
correct any deficiencies in the filing, under the provisions proposed 
in Sec.  405.932(e). Our proposed approach to handling requests that 
are ineligible for an appeal differs slightly from how similar appeal 
requests are handled under existing claims appeals procedures in Sec.  
405.952. Under existing rules, such requests are dismissed, and 
dismissals may be reviewed and vacated by the adjudicator who issued 
the dismissal or appealed to the next level adjudicator to determine if 
the dismissal was appropriate. However, given the complexity of the 
eligibility requirements, the age of the service in question and in 
many cases, the lack of a claim to review, in our view the most 
effective and efficient approach to resolving eligibility concerns is 
to keep these disputes with the eligibility contractor, requiring 
review by an individual not involved with the initial denial 
determination.
4. Conduct of Appeals by Processing Contractors
    Currently, MACs perform the first level of administrative appeal 
for Medicare claims (see 42 CFR 405.940 through 405.958). We are 
proposing a similar process for these new appeals, utilizing existing 
procedures, as appropriate, with MACs performing the first level of 
retrospective appeals under this rule. Specifically, we are proposing 
that the MAC that currently has jurisdiction over Part A claims from 
the relevant hospital would be responsible for conducting the 
retrospective appeal as the processing contractor. Where we believe the 
procedures for the new retrospective appeals would need to differ from 
existing claims appeals procedures, we are proposing new processes. For 
example, in Sec.  405.931(b)(1) and (c), we are proposing that party 
status for these appeals be limited to the eligible class members (or 
their authorized representatives).
    In Sec.  405.932(f)(1), we are proposing that if the processing 
contractor determines there is necessary information missing from the 
appeal

[[Page 89514]]

case file, the processing contractor would attempt to obtain the 
information from the provider and/or the eligible party (or their 
representative), as applicable. We are proposing that the processing 
contractor afford entities up to 60 calendar days to submit requested 
information. If the requested information is not submitted in the 
specified timeframe, we propose that the processing contractor would 
make a decision based on the information available.
    In proposed Sec.  405.932(f)(3), we are requiring processing 
contractors to issue a written decision within 60 calendar days of 
receipt of a valid appeal request from the eligibility contractor. 
However, in cases where the processing contractor needs additional 
information to conduct the appeal from the eligible party (or their 
representative) or a provider, in Sec.  405.932(f)(1), we are proposing 
that the time between the request for such information and when it is 
received (up to 60 calendar days) would not count towards the 60-day 
adjudication timeframe. If the requested information is not sent to the 
processing contractor, then we are proposing that the time afforded by 
the contractor for submission of the information would not count 
towards the adjudication timeframe. In effect, the 60-day timeline on 
which the processing contractor must make its decision will be tolled 
during the period between the date the processing contractor requests 
information from the provider and/or the eligible party and the later 
of the date that information is received or the deadline by which the 
information is requested has passed.
    Under proposed Sec.  405.932(f) and (g), based on the information 
available, the processing contractors would determine whether the 
hospital admission, and as applicable, SNF services, satisfied the 
relevant criteria for Part A coverage at the time of the admission, 
notwithstanding subsequent reclassification by the hospital, and 
whether the hospital services, and as applicable, SNF services, should 
have been covered under Part A. If the processing contractor determines 
that the hospital admission and, as applicable, SNF services satisfied 
the relevant criteria for Part A coverage at the time services were 
furnished, it would render a favorable decision and would send written 
notice to the eligible party (or their representative). The notice 
would explain the rationale for, and effect of, the decision, similar 
to existing notices for redeterminations.
    In Sec.  405.932(g)(4), when applicable, we are proposing that 
processing contractors would send notice of a favorable decision to the 
SNF that furnished services to the beneficiary in order to inform the 
SNF of the reason for the decision and the effect of the decision. In 
addition, under Sec.  405.932(g)(2) and (6), processing contractors 
would send SNFs notice of a partially favorable decision where the 
beneficiary's hospital inpatient admission would have met the criteria 
for Part A coverage, but the SNF services subsequently received by the 
beneficiary do not meet the relevant criteria for Part A coverage (for 
example, if the services are determined not medically reasonable and 
necessary under Sec.  1862(a)(1)(A) of the Act). The notice of a 
partially favorable decision sent to a SNF informs the SNF of the 
reason the hospital services were determined to meet the relevant 
criteria for Part A coverage, and the reasons the SNF services were 
determined not to be covered under Part A. We are proposing that the 
processing contractor also explain that the notice is being sent to the 
SNF for informational purposes only, and that only the eligible party 
(or the eligible party's representative) may appeal the decision to the 
QIC under proposed Sec.  405.934. An eligible party may appeal a 
partially favorable decision with respect to coverage of SNF services 
to the QIC under proposed Sec.  405.934 in the same manner as 
unfavorable decisions with respect to Part A coverage of the hospital 
services. In addition, in Sec.  405.932(g)(5), with respect to an 
appeal filed by a beneficiary not enrolled in Medicare Part B at the 
time of hospitalization, we are proposing that processing contractors 
would send notice of a favorable decision to the hospital to inform the 
hospital of the reason for the decision and the effect of the decision.
    Providers are reminded that under sections 1814 and 1866 of the 
Act, Sec. Sec.  489.20 and 489.21, and the terms of the provider 
agreement, providers may not collect any amounts for covered services 
other than applicable coinsurance and deductible. Accordingly, in the 
case of a favorable appeal decision that involves SNF services paid for 
by the beneficiary, we are proposing in Sec.  405.932(g)(4) and 
(h)(2)(i) that SNFs would be required to refund any payments collected 
from the beneficiary for the covered SNF services (see 42 CFR part 489 
Subpart D regarding the requirements for handling of incorrect 
collections). Similarly, in the case of a favorable appeal decision 
rendered for a beneficiary who was not enrolled in Medicare Part B at 
the time of hospitalization, we are proposing in Sec.  405.932(g)(5) 
and (h)(2)(ii) that hospitals would be required to refund any payments 
collected for the outpatient hospital services.
    Furthermore, we believe that the Medicare statute requires a 
provider of services to submit new claims in order to determine the 
amount of benefits due for covered services and to receive payment 
under Part A of the program. Under section 1814(a)(1) of the Act, and 
42 CFR 424.33, and 42 CFR 424.51, payment for Part A services furnished 
to an individual may be made only to a provider of services eligible to 
receive payment under section 1866 of the Act after a request for 
payment (a claim) is filed with Medicare by the provider. The 
clarifying order issued by the court stated that the program is not 
required to unwind previously filed Part B outpatient hospital claims 
in order to make payment for covered SNF services in the case of a 
favorable decision (meaning for the purposes of effectuating a 
favorable decision, any existing Part B outpatient hospital claim will 
not be reopened or revised by the MAC to reflect an appeal decision 
that the class member's hospital admission satisfied the relevant 
criteria for Part A coverage at the time of the admission, and the 
hospital will not be required to submit a claim for inpatient services 
under Medicare Part A \11\). However, the clarification only applies to 
beneficiary class members who were enrolled in Medicare Part B at the 
time of hospitalization. Thus, in the case of a beneficiary class 
member who was not enrolled in Medicare Part B at the time of 
hospitalization, we are proposing in Sec.  405.932(h)(2)(ii) that 
following a favorable appeal decision and making any required refund 
for payments received for covered services, the hospital may submit a 
new Part A inpatient claim to Medicare in order to determine the 
appropriate amount of benefits and for Medicare to make payment for 
inpatient hospital services under Part A. We are also proposing in 
Sec.  405.932(h)(2)(ii) that the claim must be submitted by the 
hospital within 180 calendar days after the hospital receives its 
notice of a favorable appeal decision for the eligible party.
---------------------------------------------------------------------------

    \11\ We note that a previously paid claim is still subject to 
reopening under Sec.  405.980 for other reasons unrelated to the 
appeal decision (for example, if payment for the claim was procured 
by fraud or similar fault).
---------------------------------------------------------------------------

    In addition, if a favorable appeal decision includes eligible SNF 
services that are covered, in Sec.  405.932(h)(2)(i), we are proposing 
that following a refund of amounts collected from the beneficiary, the 
SNF may then submit a claim (or claims) for such services to Medicare 
in order to determine the

[[Page 89515]]

appropriate amount of benefits, and for Medicare to make payment for 
the covered SNF services. The SNF claim, following a favorable appeal 
decision (that is, the hospital admission satisfied the relevant 
criteria for Part A coverage as an inpatient at the time of admission 
and the SNF services met relevant Part A coverage criteria), would be 
processed without regard to the hospital's erroneous reclassification 
of the beneficiary as an outpatient receiving observation services. We 
are also proposing in Sec.  405.932(h)(2)(i) that the SNF submit the 
claim within 180 calendar days after receiving the notice of a 
favorable appeal decision for the eligible party. CMS would issue 
operating instructions related to the submission of new claims by a SNF 
and a hospital when this rulemaking is finalized and effective.
    If the processing contractor determines that the hospitalization 
did not meet applicable Part A inpatient coverage requirements, we are 
proposing in Sec.  405.932(g)(3) the MAC would send notice of its 
unfavorable decision to the eligible party (or their representative). 
If the processing contractor determines that the hospital admission 
meets applicable Part A inpatient coverage requirements, but the SNF 
services eligible for the appeal do not meet applicable coverage 
requirements, we are also proposing in Sec.  405.932(g)(2) that the 
processing contractor would send notice of its partially favorable 
decision to the eligible party (or their representative). The notice of 
an unfavorable or partially favorable decision would inform the 
eligible party (or their representative) of the right to request a 
reconsideration with a QIC under proposed Sec.  405.934 and would 
provide detailed information about the requirements for filing the 
request and where the request must be filed.
5. Conduct of Reconsiderations by Qualified Independent Contractors
    In Sec.  405.934(a), we are proposing that the second level of 
retrospective appeals be performed by QICs. As with the first level of 
appeal, we are proposing that the second level of retrospective appeal 
generally follow existing procedures for reconsiderations outlined in 
Sec. Sec.  405.960 through 405.978, as appropriate, except as specified 
in the provisions proposed in this rule. Under proposed Sec.  
405.934(a), eligible parties (or their representative) who are 
dissatisfied with a MAC's unfavorable decision in proposed Sec.  
405.932(g)(2) may file a request for reconsideration with the QIC 
within 180 calendar days of receipt of the MAC's notice. The MAC's 
decision would specify the elements required for the request for 
reconsideration, and we propose that those elements would be the same 
as the existing requirements for a reconsideration set forth in Sec.  
405.964. Requests for reconsideration under Sec.  405.934 that are 
untimely or incomplete would be handled consistent with existing 
procedures for dismissals in Sec.  405.972.
    Consistent with the conduct of reconsiderations under existing 
procedures in Sec.  405.968, the QICs shall review all evidence 
furnished during the first level of appeal and any additional evidence 
submitted with the request for reconsideration. Under proposed Sec.  
405.934(c), the QIC determines if the inpatient admission, and as 
applicable, SNF services, satisfied the relevant criteria for Part A 
coverage at the time the services were furnished, then the QIC issues 
notice of its decision to the eligible party (or their representative).
    We are proposing in Sec.  405.934(c)(3) that the QIC mail or 
otherwise transmit notice of its decision within 60 calendar days of 
receipt of the request for reconsideration. We are also proposing to 
apply existing procedures in Sec.  405.970 regarding the calculation of 
decision-making timeframes, and the provisions regarding the escalation 
of cases for a QIC's failure to meet such timeframes, as appropriate, 
to these new appeals. In proposed Sec.  405.934(c)(4), the notice of a 
favorable decision sent by the QIC to the eligible party (or their 
representative) would include an explanation of the decision and 
information regarding the effect of the decision, as well as other 
information similar to that found in existing reconsideration notices 
under Sec.  405.974.
    In Sec.  405.934(c)(5), when applicable, we are proposing that QICs 
would send notice of a favorable reconsideration to the SNF that 
furnished services to the beneficiary in order to inform the SNF of the 
reason for its decision and the effect of the decision. In addition, in 
Sec.  405.934(c)(6), with respect to an appeal filed by a beneficiary 
not enrolled in Medicare Part B at the time of hospitalization, we are 
proposing that the QIC would send notice of a favorable decision to the 
hospital to inform the hospital of the reason for its decision and the 
effect of the decision. In addition, we are proposing that the QIC 
would send the SNF notice of a partially favorable decision where the 
inpatient admission meets the criteria for Part A coverage, but the SNF 
services do not meet the relevant criteria for Part A coverage (for 
example, if the services are determined not medically reasonable and 
necessary under section 1862(a)(1)(A) of the Act). The notice of a 
partially favorable decision sent to a SNF would inform the SNF of the 
reason the hospital services were determined to meet the relevant 
criteria for Part A coverage, and the reason the SNF services were 
determined not to be covered under Part A. We are proposing that the 
QIC also explain that the notice is being sent to the SNF for 
informational purposes only, and that only the eligible party may 
appeal the decision to an ALJ under Sec.  405.936. An eligible party 
would have the right to appeal such a partially favorable decision with 
respect to the coverage of SNF services under proposed Sec.  405.936 in 
the same manner as unfavorable decisions with respect to Part A 
coverage of the hospital services.
    Consistent with the processes following a favorable first level of 
appeal decision, as previously described, in the case of a beneficiary 
who was not enrolled in Medicare Part B at the time of hospitalization, 
we are proposing in Sec.  405.934(d)(2)(ii) that following a favorable 
appeal decision and making any required refund for payments received 
for covered services, the hospital may submit a new Part A inpatient 
claim to Medicare in order to determine the appropriate amount of 
benefits, and for Medicare to make payment for inpatient hospital 
services. We are also proposing in Sec.  405.934(d)(2)(ii) that the 
claim must be submitted by the hospital within 180 calendar days after 
the hospital receives its notice of favorable reconsideration for the 
eligible party.
    In addition, if a favorable appeal decision includes eligible SNF 
services that are covered, in Sec.  405.934(d)(2)(i), we are proposing 
that following a refund of amounts collected from the beneficiary, the 
SNF may then submit a claim (or claims) for such services in order to 
determine the appropriate amount of benefits, and that Medicare would 
make payment for the covered SNF services. We are also proposing in 
Sec.  405.934(d)(2)(ii) that the SNF submit the claim within 180 
calendar days after receiving the notice of a favorable appeal decision 
for the eligible party.
    If the QIC determines that the hospitalization did not meet 
applicable Part A inpatient coverage requirements, we are proposing in 
Sec.  405.934(c)(2) that the QIC would send notice of its unfavorable 
decision to the eligible party (or their representative). If the QIC 
determines that the hospital admission meets applicable Part A 
inpatient coverage requirements, but the SNF services eligible for the 
appeal do not meet applicable coverage requirements, we are also 
proposing in Sec.  405.934(c)(2)

[[Page 89516]]

that the QIC would send notice of its partially favorable decision to 
the eligible party (or their representative). The notice of an 
unfavorable or partially favorable decision would inform the eligible 
party (or their representative) of the right to request a hearing 
before an ALJ (or review by an attorney adjudicator) under proposed 
Sec.  405.936 and would provide detailed information about the 
requirements for filing the request and where the request must be 
filed.
6. Conduct of Hearings Before Administrative Law Judges and Decisions 
by Administrative Law Judges or Attorney Adjudicators
    Currently, the third level of claims appeals are performed by ALJs 
and attorney adjudicators within the HHS Office of Medicare Hearings 
and Appeals (OMHA). As with the first two levels of appeal, we are 
proposing in Sec.  405.936(b) that the third level of retrospective 
appeal generally follow existing procedures for claims appeals in 
Sec. Sec.  405.1000 through 405.1063, as appropriate, except as 
specified in the provisions proposed in this rule. Under proposed Sec.  
405.936(a), eligible parties (or their representative) who are 
dissatisfied with either a QIC's dismissal of a request for 
reconsideration, or an unfavorable reconsideration in proposed Sec.  
405.934(c)(2), may file a request in writing with the OMHA within 60 
calendar days of receipt of the QIC's notice. The reconsideration 
notice would specify the elements required for the request for hearing, 
and we propose that these elements would mirror existing requirements 
for appeal requests in Sec.  405.1014(a)(1). We are also proposing that 
untimely or incomplete requests would be handled under existing 
procedures for dismissals in Sec.  405.1014(e) and Sec.  405.1052.
    As we previously noted, in some respects, the nature of the appeals 
required by the court order dictate a new implementation approach that 
cannot utilize existing procedures. For example, ordinarily under 
current claims appeals procedures, adjudicators review claims that 
contain denied items or services to determine whether items and/or 
services billed on a Medicare claim are covered and whether payment may 
be made. In addition, under Sec.  405.1006, billed charges on claims 
submitted to Medicare serve as the basis for determining the amount in 
controversy required for an appeal at the third level of appeal and for 
judicial review in federal district court. However, under this proposed 
process, with respect to the relevant hospital stay, there is no 
inpatient hospital claim and no denial of billed services.
    For retrospective appeals, we are proposing to incorporate the 
existing amount in controversy requirement required for a hearing 
before an ALJ or judicial review in federal court consistent with 
section 1869(b)(1)(E) of the Act and Sec.  405.1006.\12\ However, with 
respect to the methodology for calculating the amount in controversy, 
we cannot utilize the existing method for claims appeals in Sec.  
405.1006(d)(1) to calculate such amount. The procedures in existing 
regulations require the use of actual charges from the disputed 
claim(s) billed to Medicare, and in the scenario giving rise to appeal 
rights in the court order, no Part A inpatient claim will have been 
filed. Without a Part A inpatient claim, there are no billed charges 
for the denied Part A coverage to serve as the basis for calculating 
the amount in controversy. Other methods in Sec.  405.1006(d) for 
calculating the amount in controversy are designed for appeals that are 
factually different than these new appeals, and thus, we do not believe 
it would be appropriate to adopt other existing calculation methods to 
apply them here.
---------------------------------------------------------------------------

    \12\ For calendar year 2024, the minimum amount in controversy 
for a hearing at the OMHA level is $180, and for judicial review the 
minimum amount in controversy is $1,840. These amounts are 
calculated annually in accordance with section1869(b)(1)(E) of the 
Act, and notice of the minimum amounts for the following calendar 
year is published in the Federal Register and is available on 
https://www.cms.gov/medicare/appeals-grievances/fee-for-service/third-level-appeal.
---------------------------------------------------------------------------

    In the case of a beneficiary who was enrolled in Medicare Part B at 
the time of hospitalization, we believe it would be appropriate to 
utilize the billed charges on a claim filed by the hospital for Part B 
outpatient hospital services as the basis for calculating the amount in 
controversy for these new appeals. Since we do not have a Part A 
inpatient claim for the hospital services furnished to the beneficiary, 
we do not have available to us the costs of the denied Part A services 
that are at issue in the appeal to serve as the basis for the amount in 
controversy. While the billed charges for outpatient services will 
differ from those that would have been billed on an inpatient claim, we 
believe it is reasonable to use the billed charges on the approved 
outpatient claim for the purposes of determining the amount in 
controversy, and in Sec.  405.936(c)(2) we propose including those 
charges in calculating the amount in controversy for a hearing before 
an ALJ and for judicial review in federal district court. We emphasize 
that, as explained in section III.A.4 of this proposed rule, for 
beneficiaries enrolled in Part B at the time of hospitalization, we 
will not make an adjustment of payment related to the previously 
submitted Part B outpatient hospital claim (including any deductible 
and coinsurance amounts) when effectuating a favorable appeal decision. 
Nevertheless, we are proposing that the billed charges for the 
outpatient hospital services would be included in determining whether 
the amount in controversy requirement is met because we do not have 
available to us the costs of the denied Part A hospital services at 
issue in the appeal and because we believe that for purposes of 
determining the amount in controversy it is appropriate to attribute a 
dollar amount to the hospital services at issue, even if ultimately we 
would not adjust the payment for the hospital services.
    For any billed SNF services that are included in the appeal, the 
billed charges on a claim submitted by the SNF would be utilized in 
calculating the amount in controversy. However, in cases where a claim 
was not submitted by the SNF because the services were not covered, the 
amount the beneficiary was charged for SNF services, as reflected in an 
itemized statement received by the beneficiary or evidence of payments 
made by the beneficiary to the SNF, would be used in determining the 
amount in controversy.
    Thus, we are proposing in Sec.  405.936(c)(2) that the billed 
charges on the Part B outpatient claim and the billed charges for any 
SNF claim at issue in the appeal, or the billed charges paid by the 
beneficiary in the absence of a claim, would serve as the amount in 
controversy for hearings before an ALJ and for judicial review in 
federal district court. Furthermore, as the cost sharing for a Part A 
inpatient claim will be different than the cost sharing for the Part B 
outpatient claim, we are not reducing the amount in controversy by any 
applicable cost sharing, or other payments made for the Part B 
outpatient hospital claim as we do for existing calculation methods. 
Nor are we factoring in any cost sharing or payments made related to 
the SNF claim, as applicable, to reduce the amount in controversy.
    For beneficiaries who are eligible parties because they were not 
enrolled in Medicare Part B at the time of their hospitalization, in 
most situations, we do not believe hospitals would have submitted a 
claim to the program for Part B outpatient services. Therefore, for 
beneficiaries who were not enrolled in Part B at the time of 
hospitalization and did not have a claim submitted to Medicare on their 
behalf for hospital

[[Page 89517]]

outpatient services, we are proposing in Sec.  405.936(c)(3) to 
calculate the amount in controversy by using the hospital's billed 
charges to the beneficiary for such outpatient services. We believe the 
hospital's charges to the beneficiary, as reflected in an itemized 
statement received by the beneficiary, or evidence of payments made to 
the hospital, are a reasonable estimation of the financial impact of 
the denial of Part A coverage to the beneficiary and the amount at 
issue in the appeal. In addition, the billed charges for SNF services, 
if any, paid by the beneficiary would also be used in computing the 
amount in controversy for appeals involving beneficiaries not enrolled 
in Medicare Part B at the time of hospitalization.
    Consistent with the conduct of appeals before ALJs and attorney 
adjudicators under existing procedures in Sec. Sec.  405.1028 through 
405.1030, we are proposing that ALJs and attorney adjudicators review 
all evidence furnished during the first two levels of appeal and any 
additional evidence submitted by the beneficiary with the request for 
hearing or request for review of a dismissal. Under proposed Sec.  
405.936(d), the ALJ or attorney adjudicator determines if the inpatient 
admission, and as applicable, SNF services, satisfied the relevant 
criteria for Part A coverage at the time the services were furnished, 
and then issues notice of the decision to the eligible party (or their 
representative). In proposed Sec.  405.936(d)(2), we explain that the 
notice of an unfavorable decision or partially favorable decision (that 
is, a decision where Part A coverage is approved for the hospital 
admission, but Part A coverage is not approved for applicable SNF 
services that are at issue in the appeal) would be sent to the eligible 
party (or their representative). In proposed Sec.  405.936(d)(3), the 
notice of a favorable decision sent to the eligible party (or their 
representative) would include an explanation of the decision and 
information regarding the effect of the decision, as well as other 
information similar to that found in existing notices under Sec.  
405.1046.
    In Sec.  405.936(d)(4), when applicable, we are proposing that the 
ALJ or attorney adjudicator would send notice of a favorable 
reconsideration to the SNF that furnished services to the beneficiary 
in order to inform the SNF of the reason for the decision and the 
effect of the decision. In addition, in Sec.  405.936(d)(5), with 
respect to an appeal filed by a beneficiary not enrolled in Medicare 
Part B at the time of hospitalization, we are proposing that the ALJ or 
attorney adjudicator would send notice of a favorable decision to the 
hospital to inform the hospital of the reason for the decision and the 
effect of the decision. In the case of a partially favorable decision, 
we are proposing in Sec.  405.936(d)(2) that notice would be sent to 
the SNF as an informational copy, and in proposed Sec.  405.936(d)(6) 
we specify the elements included in the notice sent to the SNF. The 
notice of a partially favorable decision sent to a SNF would inform the 
SNF of the reason the hospital services were determined meet the 
relevant criteria for Part A coverage, and the reason the SNF services 
were determined not to be covered under Part A. We are proposing that 
the ALJ or attorney adjudicator also explain that the notice is being 
sent to the SNF for informational purposes only, and that only the 
eligible party may appeal the decision to the Council under Sec.  
405.938.
    In Sec.  405.936(d)(7), we are proposing to utilize the existing 
procedures in Sec.  405.1016 regarding the calculation of timeframes 
within which ALJs and attorney adjudicators must issue decisions, 
including applicable waivers and extensions to the adjudication 
timeframe, and the option for an eligible party (or their 
representative) to escalate an appeal for failure to issue a decision 
in the applicable timeframe.
    Consistent with the processes at the first two levels of appeal, as 
previously described, in the case of a beneficiary who was not enrolled 
in Medicare Part B at the time of hospitalization, we are proposing in 
Sec.  405.936(e)(2)(ii) that following a favorable appeal decision and 
making any required refund for payments received for covered services, 
the hospital may submit a new Part A inpatient claim to Medicare in 
order to determine the appropriate amount of benefits, and for Medicare 
to make payment for inpatient hospital services. We are also proposing 
in Sec.  405.936(e)(2)(ii) that the claim must be submitted by the 
hospital within 180 calendar days after the hospital receives its 
notice of favorable decision for the eligible party.
    In addition, if a favorable appeal decision includes eligible SNF 
services that are covered, in Sec.  405.936(e)(2)(i), we are proposing 
that following a refund of amounts collected from the beneficiary, the 
SNF may then submit a claim (or claims) for such services in order to 
determine the appropriate amount of benefits, and for Medicare to make 
payment for the covered SNF services. We are also proposing in Sec.  
405.936(e)(2)(i) that the SNF submit the claim within 180 calendar days 
after receiving the notice of a favorable appeal decision for the 
eligible party.
    If the ALJ or attorney adjudicator determines that the hospital 
admission did not meet applicable Part A inpatient coverage 
requirements, we are proposing in Sec.  405.936(d)(2) and (d)(3)(vii) 
the ALJ or attorney adjudicator would send notice of the unfavorable 
decision to the eligible party (or their representative). If the ALJ or 
attorney adjudicator determines that the hospital admission meets 
applicable Part A inpatient coverage requirements, but the SNF services 
eligible for the appeal do not meet applicable coverage requirements, 
we are also proposing in Sec.  405.936(d)(2) that the ALJ or attorney 
adjudicator would send notice of its partially favorable decision to 
the eligible party (or their representative). The notice of an 
unfavorable or partially favorable decision would inform the eligible 
party (or their representative) of the right to request review by the 
Council under proposed Sec.  405.938 and would provide detailed 
information about the requirements for filing the request and where the 
request must be filed.
    In proposed Sec.  405.936(e) and (f), we explain the effect of an 
ALJ or attorney adjudicator decision as binding on the eligible party 
unless it is further appealed or reopened. The reopening of an ALJ or 
attorney adjudicator decision would be processed under existing 
procedures in Sec.  405.980(d) and (e). The effect of an ALJ or 
attorney adjudicator decision is consistent with the effect of 
decisions at other levels in the appeals process, as previously 
described. We are proposing that an eligible party (or their 
representative) who is dissatisfied with an unfavorable decision by an 
ALJ or attorney adjudicator may request review by the Council under 
proposed Sec.  405.938(a), and the ALJ or attorney adjudicator decision 
notice would provide detailed information about the process for filing 
such a request.
7. Conduct of Review by the Medicare Appeals Council
    Under Sec.  405.938, we are proposing that retrospective reviews at 
the fourth level of appeal would be conducted by the Council and would 
generally follow existing procedures for claims appeals in Sec. Sec.  
405.1100 through 405.1130, except as specified in the provisions 
proposed in this rule. Under proposed Sec.  405.938(a), eligible 
parties (or their representative) who are dissatisfied with either a 
dismissal of a request for hearing by an ALJ or attorney adjudicator, 
or an unfavorable ALJ or attorney adjudicator decision in proposed 
Sec.  405.936(d)(2) may file a request in writing with the Council 
within 60 calendar days of receipt of the

[[Page 89518]]

notice from the ALJ or attorney adjudicator. The request must include 
the elements specified in the notice issued by the ALJ or attorney 
adjudicator, and we propose to use the existing requirements for 
requests for Council review in Sec.  405.1112. We are proposing that 
untimely or incomplete requests would be handled under existing 
procedures in Sec. Sec.  405.1100 through 405.1116.
    We are proposing that the Council would review appeal requests and 
requests for review of dismissal actions under existing procedures in 
Sec. Sec.  405.1100 through 405.1132, as applicable. Under proposed 
Sec.  405.938(c)(1), the Council makes a decision or remands the case 
to an ALJ or attorney adjudicator. We are proposing in Sec.  
405.938(c)(2) that the Council may adopt, modify, or reverse the 
decision of an ALJ or attorney adjudicator, consistent with existing 
Council procedures. In Sec.  405.938(c)(3), we are proposing the 
Council would send notice of its decision, or its remand to an ALJ or 
attorney adjudicator, to the eligible party (or their representative), 
and we propose that a decision would contain information regarding the 
effect of a favorable decision. In the case of an unfavorable or 
partially favorable decision, we are proposing that the Council include 
information about filing a request for judicial review under existing 
procedures in 405.1136. We also explain in proposed Sec.  405.938(c)(3) 
that a partially favorable decision issued by the Council refers to a 
determination that the inpatient admission satisfied the relevant 
criteria for Part A coverage, but the SNF services did not satisfy the 
relevant criteria for Part A coverage. Notice of a partially favorable 
decision is sent to the eligible party (or their representative), and 
to the SNF that furnished services under appeal, but for informational 
purposes only.
    In addition, we are proposing in Sec.  405.938(c)(4), when 
applicable, the Council would send notice of a decision favorable to an 
eligible party to the hospital and the SNF that furnished services. The 
notice would explain the effect of the decision as specified in 
proposed Sec.  405.938(d), including the provider's obligation to 
refund payments collected for services determined to be covered 
following the appeal. The notice would also explain, as applicable, the 
process for a SNF or a hospital to submit a claim for the covered 
services to determine the amount of benefits due following the refund 
of payments previously collected.
    In Sec.  405.938(c)(5), we are proposing to utilize the existing 
procedures in Sec.  405.1100 regarding the calculation of timeframes 
within which the Council must issue decisions, including applicable 
waivers and extensions to the adjudication timeframe,\13\ and the 
option for an eligible party (or their representative) to escalate an 
appeal for failure to issue a decision in the applicable timeframe.
---------------------------------------------------------------------------

    \13\ For example, under Sec.  405.1106(a), if a party submits a 
timely filed request for Council review with an entity other than 
the entity specified in the notice of the ALJ's or attorney 
adjudicator's action, the Council's adjudication period to conduct a 
review begins on the date the request for review is received by the 
entity specified in the notice of the ALJ's or attorney 
adjudicator's action. In other words, if an ALJ decision specifies 
that a party must submit a request for Council review with the 
Council, and the party mistakenly files their request with, for 
example, OMHA, then the Council's adjudication time period does not 
begin until the Council receives the request for review from OMHA.
---------------------------------------------------------------------------

    In proposed Sec.  405.938(e) and (f), we explain that a Council 
decision is considered final and binding on the eligible party unless 
it is reopened and revised, or in the case of an unfavorable decision, 
a Federal district court issues a decision modifying the Council 
decision. The reopening of a Council decision would be processed under 
existing procedures in Sec.  405.980(d) and (e). The effect of a 
favorable Council decision is consistent with the effect of decisions 
at other levels in the appeals process, as previously described. We are 
proposing in Sec.  405.938(e)(1) that an eligible party (or their 
representative) who meets the requirements to escalate a case under 
Sec.  405.1132 or is dissatisfied with an unfavorable decision by the 
Council, may request judicial review consistent with existing 
procedures in Sec. Sec.  405.1132 through 405.1136. Based on its 
existing procedures, the Council's decision notice would provide 
detailed information about the process for filing such a request.
8. Judicial Review
    We are proposing in Sec.  405.938(f)(1) that eligible parties 
dissatisfied with a final decision of the Council whose claims meet the 
amount in controversy requirement in proposed Sec.  405.936(c) may 
request judicial review in Federal district court under the existing 
procedures in Sec.  405.1136. In addition, under proposed Sec.  
405.938(f)(2), an eligible party (or their representative) who 
satisfies the amount in controversy requirement in proposed Sec.  
405.936(c) and is entitled to escalate a case from the Council to 
Federal district court upon satisfying the criteria set forth in Sec.  
405.1132, may request judicial review under the existing procedures in 
Sec.  405.1136.

B. Prospective Appeal Rights

1. Overview
    This proposed rule would also establish and implement a new notice 
requirement and an expedited appeals process, on a prospective basis, 
for certain beneficiaries whose status was changed from inpatient to 
outpatient receiving observation services while they were still in the 
hospital. The proposed expedited appeals process parallels the process 
in effect for inpatient hospital discharge appeals set forth at 42 CFR 
405.1205 through 1206, with some differences. In its order dated March 
26, 2020, the court indicated that HHS should use a process for the 
expedited appeals that is ``substantially similar'' to the existing 
process for expedited hospital discharge appeals at Sec. Sec.  405.1205 
through 405.1208; under that hospital discharge appeals process, 
beneficiaries receive a notice of their rights and may request an 
expedited determination by a Quality Improvement Organization (QIO) 
about the hospital's decision to discharge the beneficiary. While the 
processes are largely similar, a notable difference is that the issue 
under appeal in this proposed process relates to the change of status 
from an inpatient to an outpatient receiving observation services. This 
change of status may affect cost sharing for the hospital stay as well 
as whether any post hospital care in a skilled nursing facility would 
be covered by Medicare.
    CMS contracts with QIOs, pursuant to Title XI, Part B of the Act 
and section 1862(g) of the Act, to perform certain statutorily required 
functions and contractual quality improvement and other activities for 
the purposes of improving the quality of care furnished to Medicare 
beneficiaries with respect to Medicare covered items and services. The 
QIO Program is part of the HHS' national quality strategy for providing 
quality and patient centered care to Medicare beneficiaries. Section 
1154(a)(1) of the Act establishes certain review functions of QIOs, 
including that QIOs review the services furnished to Medicare 
beneficiaries by physicians, other healthcare practitioners, and 
institutional and non-institutional providers of services (as defined 
in section 1861(u) of the Act and including hospitals). In addition, 
under section 1154(a)(18) of the Act, QIOs must also provide, subject 
to the terms of their contract with CMS, such other activities as the 
Secretary determines may be necessary for the purposes of improving the 
quality of care furnished to individuals with respect to items and 
services for which payment may be

[[Page 89519]]

made under Medicare. This flexibility allows CMS to establish and 
further define the types of reviews performed by the QIOs in order to 
meet evolving needs and issues pertaining to healthcare delivered under 
the Medicare program.
    As discussed in sections II. and III.A. of this rule, a recent 
court decision requires the Secretary to implement an appeal process 
for certain Medicare beneficiaries that is substantially similar to the 
existing hospital discharge appeals conducted by QIOs under Sec. Sec.  
405.1205 through 405.1208. See Alexander v. Azar, 613 F. Supp. 3d 559 
(D. Conn. 2020)), aff'd sub nom., Barrows v. Becerra, 24 F.4th 116 (2d 
Cir. 2022). These new review and appeals activities are within the 
scope of the Secretary's authority under section 1154(a)(18) of the Act 
to contract with QIOs to perform additional activities that are not 
already specified in section 1154 of the Act or other provisions. 
Section 1155 of the Act governs appeals of QIO determinations that are 
made under Title XI, subpart B, which includes section 1154 of the Act. 
Therefore, the proposed new QIO determinations, performed under section 
1154(a)(18) of the Act, are subject to the appeal process specified in 
section 1155 of the Act.\14\ Based on the QIOs' expertise and 
longstanding performance of similar functions, CMS has determined that 
the QIOs are the most appropriate entity to perform beneficiary-
initiated appeals of hospital reclassifications of inpatients to 
outpatients receiving observation services proposed in Sec. Sec.  
405.1211 through 405.1212.
---------------------------------------------------------------------------

    \14\ Under section 1155 of the Act, a beneficiary who is 
entitled to benefits under title XVIII (that is, a Medicare 
beneficiary) and who is dissatisfied with a determination made by a 
QIO in conducting its review responsibilities shall be entitled to a 
reconsideration of such determination by the reviewing organization 
(that is, the QIO). For the purposes of these proposed appeals, 
section 1155 of the Act authorizes the QIO to conduct a 
reconsideration of its expedited determination regarding the 
hospital reclassification under proposed Sec.  405.1211 to determine 
if an eligible beneficiary is entitled to coverage under Part A of 
the program.
---------------------------------------------------------------------------

    This proposed expedited appeals process would be available to 
beneficiaries \15\ who, after formally being admitted as an inpatient, 
have subsequently been reclassified by the hospital as an outpatient 
while the beneficiary is still in the hospital, receive observation 
services following the reclassification, and met one of the following 
two criteria:
---------------------------------------------------------------------------

    \15\ Since the court order specifically requires the provision 
of appeal rights to a defined set of class members, and that 
definition does not include the provider of services (that is, 
hospitals and SNFs), we are limiting party status for these new 
appeals to the defined class members. We note that this limitation 
currently exists for hospital discharge appeals procedures in 
Sec. Sec.  405.1205 and 405.1206, where a provider of services does 
not have party status.
---------------------------------------------------------------------------

     Their stay in the hospital was at least 3 days.
     Did not have Medicare Part B coverage (these eligible 
beneficiaries would not need to remain in the hospital for at least 3 
days to be eligible for an appeal).
    We are proposing in new Sec.  405.1210(a)(3) the criteria that must 
be met for a beneficiary to be eligible for the new prospective appeal 
rights. We are proposing to require hospitals to deliver, as soon as 
possible after certain conditions are met and prior to release from the 
hospital, a new standardized beneficiary notice, informing eligible 
beneficiaries of the change in their status, the resulting effect on 
Medicare coverage of their stay, and their appeal rights if they wish 
to challenge that change. This new notice will be called the Medicare 
Change of Status Notice (MCSN). This new notice follows the format and 
structure of the Important Message from Medicare (IM), which is the 
notice hospitals are required, by Sec.  405.1205, to provide to 
beneficiaries to inform them of their right to appeal an inpatient 
hospital discharge. See section IV.D. of this proposed rule for details 
on how to obtain a copy of the proposed MCSN form.
    We considered alternatives to creating a new notice for this 
process. One consideration was standardizing and adding appeals 
information to the required written Condition Code 44 notification used 
by hospitals to inform beneficiaries when their status is changed from 
inpatient to outpatient after review by a hospital utilization review 
committee and the entire episode will be billed as outpatient. However, 
those eligible for this new process would be a small subset of the 
population receiving the existing Condition Code 44 notification. 
Specifically, individuals would not only require a change of status 
from inpatient to outpatient, they must also meet the criteria set 
forth in proposed Sec.  405.1210 (a)(2) and (3) to pursue an appeal 
regarding a change in status. The vast majority of beneficiaries 
receiving the existing notification of inpatient to outpatient change 
will not be eligible for this new appeals process and would likely find 
the inclusion of information about an appeals process for which they 
are not eligible confusing. We also considered adding appeals 
information to the Medicare Outpatient Observation Notice (MOON). The 
MOON (42 CFR 489.20(y)) is used to inform beneficiaries who receive 
observation services for a certain amount of time that they are not 
hospital inpatients, but rather outpatients receiving observation 
services. However, like the change in status notice mentioned earlier, 
the MOON would be overbroad and the vast majority of beneficiaries 
receiving it would not be eligible for an appeal in this new process. 
Further, per section 1866(a)(1)(Y) of the Act, the MOON is only 
required for beneficiaries who have been outpatients receiving 
observation services for more than 24 hours, yet we are proposing that, 
for prospective appeals, beneficiaries reclassified from inpatients to 
outpatients receiving observation services be eligible for an appeal if 
any amount of time is spent in observation following the status change 
(in this respect, we are expanding the population of beneficiaries 
eligible for an appeal beyond the class as defined by the court, and 
not limiting eligibility to those beneficiaries who have received a 
MOON). Because the MOON is not required for observation stays shorter 
than 24 hours, using the MOON would likely result in not all eligible 
beneficiaries receiving notification of their appeal rights under the 
proposed new process. We concluded that a targeted appeals notice, 
delivered only to those beneficiaries eligible for this specific 
appeal, would be the most effective and efficient means of informing 
eligible beneficiaries of their appeal rights.
    The proposed MCSN contains a similar layout and language to the IM 
and includes information on the change in coverage, a description of 
appeal rights and how to appeal, and the implications for skilled 
nursing facility coverage following the hospital stay. We believe that 
by proposing the delivery of this largely generic notice, the notice 
delivery burden on hospitals would be as minimal as possible, without 
any adverse effect on patient rights. Much of the verbiage in the MCSN 
has been used in similar, consumer-tested CMS beneficiary notices which 
were subject to multiple comment periods during the PRA renewal process 
as language included in the IM and another similar Medicare appeals 
notice, the Notice of Medicare Non-Coverage.
    We have reviewed the notice delivery procedures for the IM notice 
related to inpatient hospital discharges and have mirrored that process 
in this new process, wherever possible. In proposing this approach, our 
goal is to design notice procedures that balance a beneficiary's need 
to be informed about his or her appeal rights in an appropriate and 
timely manner, without

[[Page 89520]]

imposing unnecessary burdens on hospitals.
    We are proposing to require hospitals to deliver the notice to 
eligible beneficiaries as soon as possible after a beneficiary is 
eligible for this process per Sec.  405.1210(a)(2) and (3), but no 
later than 4 hours prior to discharge. For beneficiaries with Part B, 
we propose that the notice must be delivered as soon as possible after 
the hospital reclassifies the beneficiary from inpatient to outpatient 
receiving observation services and the third day in the hospital is 
reached. Beneficiaries will likely not reach this required third day in 
the hospital until very close to release from the hospital. This is 
because these will be beneficiaries that hospitals have determined do 
not need an inpatient level of care and thus, the overall length of the 
hospital stay is not expected to exceed a few days. For beneficiaries 
without Medicare Part B coverage, we are proposing that hospitals must 
deliver the notice as soon as possible after the change in status from 
inpatient to outpatient receiving observation services because a 3-day 
hospital stay is not required for these beneficiaries to be part of the 
class specified in the court order.
    We believe the approach we are proposing would not be overly 
burdensome for hospitals as the proposed notice is standardized and 
requires very little customization by the hospital before delivery. The 
proposed notice is modeled after the existing hospital discharge 
appeals notice (Important Message from Medicare-IM), and like that 
notice, does not require extensive time for hospitals to prepare and 
deliver to beneficiaries. We believe that the number of beneficiaries 
that are eligible for this proposed appeal process would be 
significantly lower than the volume that receive the hospital discharge 
appeals notification. (Please see section IV.B. for more information on 
assumptions and estimates related to this proposed appeals process.) 
Additionally, the delivery of the MCSN notice to the beneficiary would 
mimic the process already in place for hospitals delivering the IM, so 
implementing this process should not be overly difficult or burdensome.
    One notable difference, as compared to that for inpatient hospital 
discharge appeals, is that beneficiaries would not have financial 
liability protection during this new appeals process. Section 
1869(c)(3)(C)(iii)(III) of the Act, which provides beneficiaries with 
coverage during the inpatient hospital discharge appeal, only applies 
to beneficiaries being discharged from a Medicare covered inpatient 
hospital stay, and thus would not be applicable to beneficiaries 
pursuing an appeal regarding the change in status from inpatient to 
outpatient receiving observation services.
    We are proposing that the Quality Improvement Organizations (QIOs) 
perform these reviews. The nature of these reviews is consistent with 
the mission and functions of the QIO Program. QIOs have contracts with 
CMS under section 1862(g) of the Act and Part B of Title XI of the Act 
to perform certain statutorily required reviews of the services 
furnished to Medicare beneficiaries and to implement quality 
improvement initiatives involving Medicare beneficiaries, providers, 
and their communities. (See 42 CFR parts 475 through 480.) 
Historically, QIOs have performed expedited discharge reviews for 
beneficiaries appealing inpatient discharges (42 CFR 405.1205 through 
405.1208, 422.620 and 422.622) as well as similar expedited reviews for 
termination of provider services in non-hospital settings (42 CFR 
405.1202 through 405.1204, 422.624, and 422.626). Currently, these 
reviews, as well as other case reviews related to the quality of care 
received by Medicare beneficiaries, compliance with certain conditions 
of coverage for inpatient services, and reviews of the validity of 
certain diagnostic and procedural information supplied by hospitals 
among other types of care reviews, are performed by the Beneficiary and 
Family Centered Care QIOs (BFCC-QIOs), while quality improvement 
initiatives are performed by a different type of QIO. If our proposal 
is finalized, we intend to require the BFCC-QIOs to perform this new 
type of appeal because their scope of knowledge, expertise and 
experience with beneficiary appeals and Medicare coverage ensures an 
adequate and reliable review.
    Finally, the court order only requires that an expedited appeals 
process be made available to class members ``who have stayed, or will 
have stayed, at the hospital for 3 or more consecutive days.'' For 
class members who lacked Part B and did not stay in the hospital for 3 
or more consecutive days, it would appear that a non-expedited appeals 
process might be sufficient. Nonetheless, we are proposing to use the 
expedited process for all prospective appeals, with minor differences 
depending on whether the expedited appeal request is made timely. In 
other words, an eligible beneficiary may request the QIO review at or 
around the time of receiving the notice in a hospital, or after a claim 
is filed, and in both instances, beneficiaries will be afforded a 
review and determination by the QIO. An appeal filed outside of the 
expedited timeframes may also be referred to herein as a standard 
appeal.
2. Notifying Eligible Beneficiaries of Appeal Rights When a Beneficiary 
Is Reclassified From an Inpatient to an Outpatient Receiving 
Observation Services (Sec.  405.1210)
    To implement the changes we are proposing, we would revise Subpart 
J of 42 CFR 405 to add new Sec. Sec.  405.1210 through 405.1212. These 
new proposed regulations are largely modeled after the existing 
regulations at Sec. Sec.  405.1205 through 405.1206 controlling notices 
to beneficiaries and the QIO review of hospital discharges.
    Proposed new Sec.  405.1210(a) sets forth the applicability and 
scope of this new appeals process along with definitions of specific 
terms used in the proposed new regulations. Specifically, in Sec.  
405.1210(a)(1) we propose to define a hospital as, for purposes of the 
new notice requirements and appeals process, any facility providing 
care at the inpatient hospital level, to include short term or long 
term, acute or non-acute, paid through a prospective payment system or 
other reimbursement basis, limited to specialty care or providing a 
broader spectrum of services and including critical access hospitals 
(CAHs). This broad definition tracks Sec.  405.1205(a).
    Paragraphs (a)(2) and (a)(3) of proposed Sec.  405.1210 address the 
circumstance and eligibility of beneficiaries for appeals in this new 
process. A change in status occurs when a hospital reclassifies a 
beneficiary from an inpatient to an outpatient receiving observation 
services. The phrase ``outpatient receiving observation services'' used 
in Sec. Sec.  405.1210 through 405.1212 is used as defined in proposed 
Sec.  405.931(h) to mean when the hospital changes beneficiary's status 
from inpatient to outpatient while the beneficiary is in the hospital 
and the beneficiary subsequently receives observation services 
following a valid order for such services. An eligible beneficiary, 
consistent with the court order, would be one who: (1) was formally 
admitted as a hospital inpatient; (2) while in the hospital was 
subsequently reclassified as an outpatient receiving observation 
services; and (3) either (A) was not enrolled in Part B coverage at the 
time of the beneficiary's hospitalization, or (B) stayed at the 
hospital for 3 or more consecutive days but was classified as an 
inpatient for fewer than 3 days. We are also proposing to be explicit 
in new Sec.  405.1210(a)(iv)) that the period ``3 or more consecutive 
days'' is counted

[[Page 89521]]

using the existing rules for determining coverage of SNF services under 
section 1861 of the Act and Sec.  409.30 of this chapter. This means 
that the admission day is counted as a day, but the discharge day is 
not. For example, if a beneficiary is admitted to a Medicare covered 
inpatient hospital stay on a Monday and discharges on the following 
Wednesday, Monday and Tuesday are counted towards the ``3 or more 
consecutive days'', but Wednesday is not.
    The provisions of proposed Sec.  405.1210(b) are designed to track 
closely with the provisions of Sec.  405.1205 that require delivery of 
a notice to beneficiary about inpatient hospital discharges. We are 
proposing in Sec.  405.1210(b)(1) that hospitals would be required to 
deliver a standardized, largely generic, notice informing eligible 
beneficiaries about the availability of the new appeals process.
    We are proposing to require hospitals to deliver the notice to 
eligible beneficiaries as soon as possible after a beneficiary is 
eligible for this process per Sec.  405.1210(a)(2) and (3) and no later 
than 4 hours prior to discharge. For beneficiaries with Part B, we 
propose that the notice must be delivered as soon as possible after the 
hospital reclassifies the beneficiary from inpatient to outpatient 
receiving observation services and the third day in the hospital is 
reached. For beneficiaries without Medicare Part B coverage, we propose 
that hospitals must deliver the notice as soon as possible after the 
change in status from inpatient to outpatient receiving observation 
services because a 3-day hospital stay is not required for these 
beneficiaries to be eligible for an appeal.
    Per proposed Sec.  405.1210(b)(2), the new notice would include (1) 
the beneficiary's right to request an expedited determination regarding 
the decision to change the beneficiary's status from an inpatient to an 
outpatient receiving observation services, including a description of 
the process as specified in Sec.  405.1211, and the availability of 
possible appeals procedures if the beneficiary's request is untimely; 
(2) an explanation of the implications of the decision to change the 
status of the eligible beneficiary from an inpatient to an outpatient 
receiving observation services, the potential change in beneficiary 
hospital charges resulting from a favorable decision, and subsequent 
eligibility for Medicare coverage for SNF services; and (3) any other 
information required by CMS. As to category (2) (see Sec.  
405.1210(b)(2)(ii) of this proposed rule) regarding the implications of 
the decision, this notice would describe for eligible beneficiaries the 
possible changes in the charges for their hospital stay as well as the 
potential for non-coverage if they enter a skilled nursing facility 
after the hospital stay.
    Proposed new Sec.  405.1210(b)(3) and (4) provide that notice 
delivery would be valid when the notice is delivered as required in 
Sec.  405.1210(a)(3) and the beneficiary signs and dates the notice to 
indicate receipt and that the beneficiary understands the notice. 
Further, if a beneficiary refuses to sign the notice to acknowledge 
receipt, the hospital may annotate its copy of the beneficiary's notice 
to indicate the refusal. The date of refusal would be considered the 
date of receipt of the notice. The hospital would be required to 
maintain a copy of the signed or annotated notice as part of its 
records regarding the stay, per federal or state law.
    As with existing beneficiary notice requirements, hospitals 
generally would need to determine whether a patient is capable of 
comprehending and signing the notice. Hospitals would be required to 
comply with applicable State laws and CMS guidance regarding the use of 
representatives and have procedures in place to determine an 
appropriate representative.
3. Expedited Determination Procedures When a Beneficiary Is 
Reclassified From an Inpatient to an Outpatient Receiving Observation 
Services (Sec.  405.1211)
    Proposed new Sec.  405.1211 sets forth the procedures for the 
proposed new expedited QIO review leading up to issuance and effect of 
the QIO's determination. Proposed Sec.  405.1211 would establish the 
responsibilities of the hospitals, QIOs, and beneficiaries relative to 
the process.
    Proposed Sec.  405.1211(a) describes a beneficiary's right to 
request an expedited determination by a QIO when they are reclassified 
by their hospital from an inpatient to an outpatient receiving 
observation services, and the beneficiary meets the criteria to be 
eligible for an appeal as established in Sec.  405.1210(a)(3). As 
previously discussed, QIOs are experienced in performing expedited 
appeals for beneficiaries in a hospital setting and thus, are well 
prepared to implement and execute this new appeals process in an 
effective and expeditious manner. Currently, Beneficiary and Family 
Centered QIOs (BFCC-QIOs) perform the case review functions that are 
similar to the reviews that would be required by Sec. Sec.  405.1211 
and 405.1212, so we intend to assign these new reviews to BFCC-QIOs 
under our contracts with them; in the event that CMS reconsiders in the 
future how QIO functions are assigned and the categorization of QIOs, 
we intend that the type of QIOs that perform case review functions (see 
42 CFR 405.1200 through 405.1208, 475.102, 476.1 et. seq.) would also 
perform these new reviews of changes in status.
    In new Sec.  405.1211(b), we are proposing the process for eligible 
beneficiaries to request an expedited determination by the QIO. First, 
the eligible beneficiary's request must be by telephone to the QIO, or 
in writing. We are not proposing any parameters of what a request in 
writing would constitute, but it could be an email or fax transmitted 
to the QIO. We are also proposing at Sec.  405.1211(b)(1) the timeframe 
for requesting such an appeal: eligible beneficiaries would be required 
to request an appeal to the QIO prior to release from the hospital. The 
notice required under proposed Sec.  405.1210 would identify the BFCC-
QIO that serves the geographic area that includes the hospital so that 
this information is available to the eligible beneficiary.
    Proposed sections 405.1211(b)(2) and (b)(3) would explain the 
responsibilities of beneficiaries to discuss the case, if requested by 
the QIO, and their right to submit written evidence to be considered by 
the QIO. Per proposed Sec.  405.1211(b)(4), if an eligible beneficiary 
requests an appeal timely, they would not be billed during the QIO 
appeals process. However, if the appeal is untimely, the hospital may 
bill a beneficiary before this QIO process is complete; proposed 
paragraphs (b)(4) and (e) make this clear. Finally, we are also 
proposing, in Sec.  405.1211(b)(5), that an eligible beneficiary may 
file a request for review by the QIO regarding the change in status 
after the deadline established in proposed Sec.  405.1211(b)(1) (that 
is, the beneficiary may file the request after release from the 
hospital) but that the QIO's determination will be provided on a 
different timeframe and the eligible beneficiary will not be entitled 
to the billing protection proposed in paragraph (e). Keeping untimely 
appeals with the QIO will provide beneficiaries with a decision far 
sooner though (two calendar days), than if those beneficiaries were 
provided with the timeframes set forth in the standard claims appeals 
(60 days at the first level of the claims appeals process). We are 
proposing that these untimely requests may be made at any time in order 
to afford maximum opportunity for beneficiaries to exercise their 
appeal rights. Of most concern is those beneficiaries who may have had 
a SNF stay following their change in status

[[Page 89522]]

from an inpatient to an outpatient receiving observation services. 
These beneficiaries should have the maximum opportunity to appeal and 
potentially obtain coverage for what might have been a costly out-of-
pocket outlay.
    Proposed Sec.  405.1211(c)(1) through (c)(5) describe the 
procedures that the QIO would be required to follow in performing the 
expedited determination. We propose at Sec.  405.1211(c)(1) that the 
QIO must immediately notify the hospital that a request for an 
expedited appeal has been made. In addition, as proposed in Sec.  
405.1211(c)(2) and (3), the QIO would be required to determine whether 
valid notice was delivered and examine medical and other relevant 
records that pertain to change in status. As proposed at Sec.  
405.1211(c)(4) and (5), the QIO would be required to solicit the views 
of the beneficiary and provide the hospital an opportunity to explain 
why the reclassification of the beneficiary from an inpatient to an 
outpatient receiving observations services is appropriate. The QIO will 
review the information submitted with the appeal request and any 
additional information it obtains to determine if the inpatient 
admission satisfied the relevant criteria for Part A coverage at the 
time the services were furnished.
    Proposed section 405.1211(c)(6) addresses the timing of the QIO's 
determination. Per proposed paragraph (c)(6)(i), the QIO must render a 
decision and notify all relevant persons and entities within one 
calendar day of receiving all requested pertinent information if the 
eligible beneficiary requested the expedited determination as specified 
in proposed Sec.  405.1211(b)(1) (that is, no later than the day of 
release from the hospital). Based on current experience regarding 
documentation submitted by hospitals under other expedited beneficiary 
appeal timeframes, we do not anticipate that the QIO will encounter 
delays in receiving any information necessary from the hospital once 
the hospital is notified of the appeal (see proposed Sec.  
405.1211(d)(1)). This timeframe is as rapid as possible to minimize 
potential liability for beneficiaries as well as to maximize their 
potential for coverage in a skilled nursing facility should they obtain 
a favorable decision by the QIO. A Medicare covered skilled nursing 
facility stay must begin within 30 days of a beneficiary's discharge 
from a hospital. To that end, QIOs would make their decisions as 
quickly as possible so beneficiaries receiving favorable decisions will 
have time to plan for and begin a SNF stay within the 30-day parameter.
    Proposed Sec.  405.1211(c)(6)(ii) provides that the 1 calendar day 
QIO decision deadline does not apply if a beneficiary makes an untimely 
request for an expedited appeal, but that the QIO would still accept 
the request and render a decision within two calendar days after the 
QIO receives all requested information that the hospital must provide 
per proposed Sec.  405.1211(d)(1). This provides a beneficiary with the 
maximum ability to exercise their right to an expedited appeal, and the 
opportunity to obtain SNF coverage within the Medicare coverage 
limitation of 30 days after leaving a hospital, should their appeal to 
the QIO be favorable. Both proposed paragraphs (c)(6)(i) and (ii) 
require the QIO to provide notice of its expedited determination.
    In Sec.  405.1211(c)(7) we propose that if the QIO does not receive 
the information needed to make its decision, the QIO may move forward 
and make a decision based on the information it has at the time. This 
is to protect the interests of the beneficiary by ensuring they receive 
their decision within the QIO's required timeframes of 1 calendar day 
for a timely request and two calendar days for an untimely request.
    The QIO decision, as required by proposed Sec.  405.1211(c)(8), 
must be conveyed to the eligible beneficiary, the hospital, and SNF (if 
applicable) by telephone followed by a written notice. We are proposing 
that the QIO's written notice of its determination must include the 
basis for the determination, a detailed rationale for the QIO decision, 
an explanation of the Medicare payment consequences of the 
determination, and information about the beneficiary's right to an 
expedited reconsideration as set forth in Sec.  405.1212, including how 
and in what time period a beneficiary may make that reconsideration 
request. The basis of a decision is a description of, and citations to, 
the Medicare coverage rule, instruction, or other policies applicable 
to the review. A detailed rationale is an explanation of why services 
do or do not meet the relevant criteria for Part A coverage based on 
the facts specific to the beneficiary's situation and the QIO's review 
of the pertinent information provided by the hospital (as with other 
expedited beneficiary appeals of hospital discharges and service 
terminations).
    Proposed Sec.  405.1211(d) sets forth the responsibilities of 
hospitals in the expedited appeals process. Section 405.1211(d)(1) 
provides that the hospital must supply all information that the QIO 
needs, no later than noon of the calendar day after the QIO notifies 
the hospital of the appeals request. We are also proposing that at the 
discretion of the QIO, the hospital must make the information available 
by phone or in writing (with a written record of any information not 
transmitted initially in writing). Section 405.1211(d)(2) requires that 
hospitals, upon request, must provide the beneficiary any 
documentation, including written records of any information provided by 
telephone, it provides to the QIO. We are proposing that this 
obligation work the same way that it does under Sec.  405.1206(d)(3), 
specifically that the hospital may charge a reasonable amount to cover 
the costs of duplicating and delivering the requested materials and 
must accommodate such a request by no later than close of business of 
the first day after the material is requested by the beneficiary or the 
beneficiary's representative.
    In Sec.  405.1211(e), we propose that a hospital may not bill a 
beneficiary who has appealed timely for any services at issue in the 
appeal until the expedited determination process (and reconsideration 
process) is complete. Although there is liability protection in the 
inpatient discharge expedited appeals process under section 
1869(c)(3)(C)(iii) of the Act (incorporating the financial liability 
protection in section 1154(e)(4) of the Act in effect prior to the 
enactment of section 1869(c)(3)(C)) of the Act, there is no statutory 
provision protecting the beneficiary from financial liability for the 
hospital stay and services furnished during the pendency of the QIO's 
review proposed here. Therefore, we are proposing only that the 
hospital may not bill the beneficiary until after the QIO has issued 
its determination. This proposal mirrors existing procedures for the 
similar expedited appeals procedures the termination of non-hospital 
services found at Sec.  405.1202(g). This process would not extend 
coverage available to beneficiaries during an appeal, which is 
consistent with Sec.  405.1202(g).
    Proposed Sec.  405.1211(f) sets forth that a QIO determination is 
binding for payment purposes on the beneficiary, hospital, and MAC, 
unless the beneficiary pursues an expedited reconsideration per Sec.  
405.1212. The decision is binding for purposes of payment only, such 
that if the hospital submits a claim under Part A, CMS will make 
payment.

[[Page 89523]]

4. Expedited Reconsideration Procedures When a Beneficiary Is 
Reclassified From an Inpatient to an Outpatient Receiving Observation 
Services (Sec.  405.1212)
    In new Sec.  405.1212 we propose to set forth the procedures for 
the new expedited reconsideration process. Proposed Sec.  405.1212 
contains the responsibilities of the hospitals, QIOs, and beneficiaries 
relative to the reconsideration process.
    Proposed Sec.  405.1212(a) describes an eligible beneficiary's 
right to request an expedited reconsideration by a QIO when they are 
dissatisfied with the expedited determination decision by the QIO.
    In Sec.  405.1212(b) we are proposing a process for beneficiaries 
to request an expedited reconsideration by a QIO. Proposed paragraph 
(b)(1) provides that beneficiaries must request an appeal to the QIO no 
later than noon of the calendar day following the initial notification 
of the expedited determination by the QIO. Under this proposal, the 
earlier of the calendar day of the QIO's notification of the 
beneficiary by telephone or in writing of its determination (under 
Sec.  405.1211(c)(8)) would start the timeframe for the beneficiary to 
request an expedited reconsideration. The beneficiary's request for a 
reconsideration may be in writing or by telephone.
    Proposed Sec. Sec.  405.1212(b)(2) and (b)(3) also explain the 
responsibilities of beneficiaries to discuss the case, if requested by 
the QIO, as well as beneficiaries' right to submit written evidence to 
be considered by the QIO. Finally, proposed (b)(4) and (b)(5) state 
that if a beneficiary requests an appeal timely, they would not be 
billed until the QIO makes its reconsideration decision; however, if 
the beneficiary's request for an expedited reconsideration is untimely, 
the hospital may bill a beneficiary before the reconsideration 
determination has been made.
    Proposed Sec. Sec.  405.1212(c)(1) through 405.1212(c)(4) describe 
the procedures that the QIO must follow in performing the expedited 
reconsideration. Specifically, we propose in Sec.  405.1212(c)(1) that 
the QIO must immediately notify a hospital that a request for an 
expedited reconsideration has been made; this means that the notice to 
the hospital must be the day the QIO receives the request for expedited 
reconsideration. Per proposed Sec.  405.1212(c)(2), the QIO would be 
required to offer both the beneficiary and the hospital an opportunity 
to provide further information. An example of further information from 
the hospital could include an explanation of why the beneficiary was 
reclassified from an inpatient to an outpatient receiving observation 
services. Similarly, an example of further information from the 
eligible beneficiary could include an explanation of why inpatient 
status should have been maintained.
    Proposed Sec.  405.1212(c)(3)(i) provides that the QIO must render 
a decision and notify all relevant persons and entities within two 
calendar days of receiving all information necessary to complete the 
appeal if the beneficiary requested the reconsideration by noon of the 
day after receiving notice of the QIO's determination under Sec.  
405.1211. This timeframe is as rapid as possible to minimize potential 
liability for beneficiaries as well as to maximize their potential for 
coverage in a SNF should they obtain a favorable reconsideration 
decision by the QIO. A Medicare covered skilled nursing facility stay 
must begin within 30 days of a beneficiary's discharge from a hospital. 
To that end, we are proposing a review process for QIOs to make their 
decisions as quickly as possible so beneficiaries receiving favorable 
decisions will have time to plan for and begin a SNF stay within the 
30-day limit for coverage.
    Proposed Sec.  405.1212(c)(3)(ii) provides that if a beneficiary 
makes an untimely request for an expedited reconsideration, the QIO 
must still accept the request and render a decision within 3 calendar 
days. Under this proposal, the two-calendar day QIO decision deadline 
does not apply in the case of an untimely request for an expedited 
reconsideration. However, the expeditious 3-day untimely timeframe 
affords a beneficiary the ability to exercise their right to an 
expedited appeal and potentially be entitled to SNF coverage within the 
30-calendar day time limit for SNF coverage following hospital release, 
should they receive a favorable expedited reconsideration determination 
from a QIO.
    The QIO decision, as required by proposed Sec.  405.1212(c)(4)(i-
iv), must include the basis and detailed rationale for the QIO 
decision. The basis of a decision is a description of, and citations 
to, the Medicare coverage rule, instruction, or other policies 
applicable to the review. A detailed rationale includes the facts 
specific to the beneficiary's situation and a detailed explanation of 
why the inpatient admission did or did not satisfy the relevant 
criteria for Part A coverage at the time the services were furnished. 
The decision must also include the potential financial ramifications, 
such as deductibles or coinsurance for the beneficiary, the 
beneficiary's right to a hearing by an ALJ, and how a beneficiary may 
make a request for an expedited reconsideration.
    Proposed Sec.  405.1212(d) sets forth the responsibilities of 
hospitals in the expedited appeals process. As proposed, a hospital 
may, but is not required to, submit evidence to be considered by a QIO 
in making its reconsideration decision. If a hospital does not furnish 
a QIO with requested additional information, the QIO may proceed to 
make a decision based on the information used in the expedited 
determination. This is to protect the interests of the beneficiary by 
ensuring they receive their decision within the BFCC-QIO's required 
timeframes of two calendar days for a timely request and 3 calendar 
days for an untimely request. This proposed policy is consistent with 
obligations on hospitals in the second level expedited review of a 
hospital discharge and on providers of services in the second level 
expedited review of a termination of provider services (Sec.  
422.1204(e)).
    In Sec.  405.1212(e) we propose that a hospital may not bill a 
beneficiary who has appealed timely for any services at issue in the 
appeal until the expedited reconsideration process is complete.
    Proposed Sec.  405.1212(f) sets forth that a QIO reconsideration is 
binding on the beneficiary, hospital, and MAC unless the beneficiary 
pursues an appeal with an ALJ in accordance with 42 CFR part 478 
subpart B. This concept is consistent with the existing claims appeals 
process currently established under Sec. Sec.  405.1000 through 
405.1140. The decision is binding for purposes of payment only, such 
that if the hospital submits a claim under Part A, CMS will make 
payment.
    Per section 1155 of the Act, a beneficiary who is dissatisfied by a 
QIO's reconsideration of its initial decision may seek additional 
administrative review and, ultimately, judicial review, if the amount 
in controversy limits are met.\16\ Our proposal follows that process.
---------------------------------------------------------------------------

    \16\ Under section 1155 of the Act, for an appeal with an ALJ, 
the amount in controversy must be $200 or more, and for judicial 
review, the amount in controversy must be $2,000 or more.
---------------------------------------------------------------------------

5. Conforming Changes Beneficiary Notice of Discharge or Change in 
Status Rights (Sec.  489.27)
    In conjunction with the proposed notice provisions Sec. Sec.  
405.1210 through 405.1212, we are proposing to make

[[Page 89524]]

conforming changes to a related existing regulatory provision. We 
propose to amend the provider agreement requirements in Sec.  489.27(b) 
to cross-reference the proposed notice requirements. Thus, proposed 
Sec.  489.27(b) would specify that delivery of the proposed appeals 
notice is required as part of the Medicare provider agreement. Lastly, 
to account for this conforming change, we are proposing to change the 
title of Sec.  489.27 to include ``change in status'' to more 
accurately reflect the actions that would require the issuance of a 
notice.
6. Conforming Changes to Quality Improvement Organization (QIO) Review 
Regulations
    We are also proposing to amend the QIO regulations at Sec.  
476.71(a) to conform with the proposed changes in review 
responsibilities at Sec. Sec.  405.1210 through 405.1212. The proposed 
amendment to the QIO regulations would add a new review type to the 
currently enumerated list of reviews performed by QIOs, specifically 
for beneficiary appeals of hospital reclassifications of a fee-for-
service beneficiary's inpatient status to that of outpatient receiving 
observation services. The beneficiary eligibility requirements for 
filing expedited appeals and the required processes for those appeals 
are proposed in sections III.B.1 through III.B.5 of this proposed rule. 
This proposed amendment to the QIO regulation would specify that QIO 
perform review functions for these beneficiary appeals in a manner that 
is consistent with other QIO review functions while ensuring alignment 
with the proposed beneficiary eligibility and process requirements for 
such appeals.
    The QIO regulations at 42 CFR 476.1(a) define ``QIO review'' as a 
review performed in fulfillment of a contract with CMS, either by the 
QIO or its subcontractors. Under regulations at Sec.  476.71, the QIO's 
review responsibilities currently include: (1) whether services are or 
were reasonable and medically necessary for diagnosis or treatment; (2) 
whether the quality of the services meets professionally recognized 
standards of health care, as determined through the resolution of oral 
beneficiary complaints; (3) whether care and services furnished or 
proposed on an inpatient basis could be effectively furnished more 
economically on an outpatient basis or in another inpatient setting; 
(4) diagnostic related group (DRG) validation of diagnosis and 
procedure information provided by hospitals; (5) the completeness, 
adequacy and quality of hospital care provided; (6) medical necessity, 
reasonableness and appropriateness of hospital admissions and 
discharges; (7) medical necessity, reasonableness and appropriateness 
of inpatient hospital care for which additional outlier payment is 
sought; and (8) whether a hospital has misrepresented admission or 
discharge information resulting in unnecessary or multiple admissions, 
or inappropriate billing.
    Our proposed amendment to Sec.  476.71(a) would add paragraph (9) 
to this list of QIO review responsibilities to include the new 
beneficiary-initiated appeals proposed here for when a hospital 
reclassifies certain fee-for-service beneficiaries' admission status 
from inpatient to that of outpatient.
    In considering the existing hospital discharge appeals process, CMS 
determined that the circumstances for these new appeals, and the 
potential impact of such appeal decisions on Part A coverage for 
subsequent care in other settings, necessitated a new notification 
process and review timelines which differ from the processes that 
govern the existing hospital discharge appeals process. These new 
appeals are proposed in section III.B of this proposed rule and would 
be in new appeals regulations at Sec. Sec.  405.1210 through 405.1212.
    The proposed amendment to the QIO regulations, as previously 
discussed, applies to the processes and timeframes for the new appeals 
discussed in section III.B of this proposed rule, which have been 
designed to meet the needs of beneficiaries who have had their 
inpatient status reclassified to outpatient receiving observation 
services.
    We welcome public comment on the addition of these appeals.

C. Severability

    Finally, we note that while the various provisions of this proposed 
rule are intended to implement the District Court order in Alexander v. 
Azar, 613 F. Supp. 3d 559 (D. Conn. 2020), aff'd sub nom., Barrows v. 
Becerra, 24 F.4th 116 (2d Cir. 2022), the proposals described 
previously for retrospective appeals and prospective appeals would be, 
if finalized, distinct provisions. We believe these distinct processes 
may function independent of each other. To the extent a court may 
enjoin any part of a final rule, the Department intends that other 
provisions or parts of provisions should remain in effect. Should they 
be finalized, we intend that any provision of the proposals described 
in this section or in another section held to be invalid or 
unenforceable by its terms, or as applied to any person or 
circumstance, would be construed so as to continue to give maximum 
effect to the provision permitted by law, unless such holding is one of 
utter invalidity or unenforceability, in which event we intend that the 
provision would be severable from the other finalized provisions 
described in this section and in other sections and would not affect 
the remainder thereof or the application of the provision to persons 
not similarly situated or to dissimilar circumstances.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.) we are required to provide 30-day notice in the Federal Register 
and solicit public comment before a ``collection of information'' 
requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval. For the purpose of the PRA and this section of 
the proposed rule, collection of information is defined under 5 CFR 
1320.3(c) of the PRA's implementing regulations.
    To fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we 
solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment (see section IV.D of this proposed 
rule) on each of these issues for the following sections of this 
document that contain information collection requirements. Comments, if 
received, will be responded to within the subsequent final rule.

A. Wage Estimates

    Private Sector: To derive average costs, we used wage data from the 
U.S. Bureau of Labor Statistics' (BLS) May 2022 National Occupational 
Employment and Wage Estimates (https://www.bls.gov/oes/2022/may/oes_nat.htm). In this regard, Table 1 presents BLS' mean hourly wage, 
our estimated cost of fringe benefits and other indirect costs, and our 
adjusted hourly wage.

[[Page 89525]]



                          Table 1--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                Fringe benefits
                                                                 Mean hourly       and other         Adjusted
              Occupation title                Occupation code    wage ($/hr)     indirect costs  hourly wage ($/
                                                                                     ($/hr)            hr)
----------------------------------------------------------------------------------------------------------------
Registered Nurse............................         29-1141            39.78            39.78            79.56
----------------------------------------------------------------------------------------------------------------

    As indicated, we are adjusting our hourly wage estimate by a factor 
of 100 percent. This is necessarily a rough adjustment, both because 
fringe benefits and other indirect costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. Nonetheless, we believe that doubling 
the hourly wage to estimate the total cost is a reasonably accurate 
estimation method.
    Beneficiaries: We believe that the cost for beneficiaries 
undertaking administrative and other tasks on their own time is a post-
tax wage of $21.98/hr.
    The Valuing Time in U.S. Department of Health and Human Services 
Regulatory Impact Analyses: Conceptual Framework and Best Practices 
\17\ identifies the approach for valuing time when individuals 
undertake activities on their own time. To derive the costs for 
beneficiaries, a measurement of the usual weekly earnings of wage and 
salary workers of $1,059 \18\ for 2022, divided by 40 hours to 
calculate an hourly pre-tax wage rate of $26.48/hr. This rate is 
adjusted downwards by an estimate of the effective tax rate for median 
income households of about 17 percent or $4.50/hr ($26.48/hr x 0.17), 
resulting in the post-tax hourly wage rate of $21.98/hr ($26.48/hr-
$4.50/hr). Unlike our State and private sector wage adjustments, we are 
not adjusting beneficiary wages for fringe benefits and other indirect 
costs since the individuals' activities, if any, would occur outside 
the scope of their employment.
---------------------------------------------------------------------------

    \17\ https://aspe.hhs.gov/sites/default/files/migrated_legacy_files//176806/VOT.pdf.
    \18\ https://fred.stlouisfed.org/series/LEU0252881500A.
---------------------------------------------------------------------------

B. Proposed Information Collection Requirements (ICRs)

    This proposed rule sets forth new appeals procedures as required by 
the court order in the case Alexander v. Azar, 613 F. Supp. 3d 559 (D. 
Conn. 2020)), aff'd sub nom., Barrows v. Becerra, 24 F.4th 116 (2d Cir. 
2022). Certain beneficiaries in Original Medicare, who are initially 
admitted to a hospital as an inpatient by a physician but whose status 
during their stay was changed to outpatient receiving observation 
services by the hospital, thereby effectively denying Part A coverage 
for their hospital stay, may pursue an appeal under this proposed rule. 
In some cases, the status change also affects coverage of a 
beneficiary's post-hospital extended care services furnished in a 
skilled nursing facility (SNF). The appeal is filed with Medicare to 
decide if the inpatient admission meets the relevant criteria for Part 
A coverage.
1. ICRs Regarding Retrospective Appeals Requests (Sec.  405.932)
    The proposals in new Sec.  405.932 will be submitted to OMB for 
review under control number 0938-TBD (CMS-10885). At this time, the 
control number has yet to be determined, but will be assigned by OMB 
upon their clearance of this proposed collection of information 
request. CMS will include that number in the subsequent CMS-4204-F 
final rule. OMB will issue the control number's expiration date upon 
their approval of the final rule's collection of information request. 
The issuance of that date can be monitored at www.Reginfo.gov.
    As discussed in section III.A.3, Sec.  405.932 proposes that 
eligible parties may file in writing an appeal related to a change in 
patient status which resulted in the denial of Part A coverage. A 
written appeal request must be received by the eligibility contractor 
no later than 365 days after the implementation date of the final rule. 
Details regarding the deadline to file an appeal and where such appeals 
should be filed would be posted to Medicare.gov once the retrospective 
appeals process is operational. The written request must include the 
following information:
     Beneficiary name.
     Beneficiary Medicare number (the number on the 
beneficiary's Medicare card).
     Name of the hospital and dates of hospitalization.
     Name of the SNF and the dates of stay (as applicable).
    If the appeal includes SNF services not covered by Medicare, the 
written request must also include an attestation to the out-of-pocket 
payment(s) made by the beneficiary for such SNF services and must 
include documentation of payments made to the SNF for such services.
    We estimate that it would take an individual approximately 30 
minutes (0.5 hr) to complete the appeal request including the 
attestation and documentation of out-of-pocket payments for SNF 
services and submit the completed information to the eligibility 
contractor.
    Because this is a new appeal right and associated process, CMS does 
not have precise data and cannot meaningfully estimate how many 
individuals may request an appeal under the new appeals process. 
However, we believe that the closest equivalent is using the rate of 
individuals who appeal denials of initial claim determinations under 
the claim appeals process at the first level of appeal to a MAC (which 
is 3 percent), and aligning it with the appeal rates of higher levels 
of appeal (ranging from 21 percent to 27 percent) to arrive at an 
estimate of 20 percent. This estimate reflects our expectation that 
eligible parties in this process will be more motivated than in the 
claim appeals process to avail themselves of this unique opportunity 
for a retrospective appeal on potentially high dollar claims.
    Based on these data, we estimate that the total number of eligible 
beneficiaries is 32,894.\19\ Assuming that 20 percent of individuals 
(6,579 = 32,894 x 0.20) who are eligible to appeal will file a request, 
we estimate a one-time burden of 3,290 hours (6,579 requests x 0.5 hr/
request) at a cost of $72,314 (3,290 hr x $21.98/hr).
---------------------------------------------------------------------------

    \19\ The data used in this report came from the 2022 CMS Part B 
institutional administrative claims data for 100 percent of Medicare 
beneficiaries enrolled in the fee-for-service (FFS) program, which 
are available from the Integrated Data Repository (IDR). The IDR 
contains a subset of data transmitted by the Common Working File 
(CWF), a computerized database maintained by CMS in connection with 
its processing and payment of Medicare claims.

---------------------------------------------------------------------------

[[Page 89526]]

2. ICRs Regarding Notifying Beneficiaries of Appeal Rights When 
Hospital Inpatient Coverage Is Reclassified to Coverage as an 
Outpatient Receiving Observation Services (Sec.  405.1210)
    The proposals in new Sec.  405.1210 will be submitted to OMB for 
review under control number 0938-TBD (CMS-10868). At this time, the 
control number has yet to be determined, but will be assigned by OMB 
upon their clearance of this proposed collection of information 
request. CMS will include that number in the subsequent CMS-4204-F 
final rule. OMB will issue the control number's expiration date upon 
their approval of the final rule's collection of information request. 
The issuance of that date can be monitored at reginfo.gov.
    Section 405.1210 proposes to require hospitals to deliver, prior to 
discharge, a standardized notice informing eligible beneficiaries of 
the change in status from an inpatient to an outpatient receiving 
observation services, and their appeal rights if they wish to challenge 
that change.
    The proposed Medicare Change of Status Notice (MCSN) is new and is 
intended to be furnished only to those beneficiaries eligible for this 
specific proposed new appeal. The proposed MCSN notice contains only 
two fields that hospitals must complete: (1) the beneficiary's name, 
and (2) the beneficiary's identifier number. The remaining information 
(information on the change in coverage, a description of appeal rights 
and how to appeal, and the implications for skilled nursing facility 
coverage following the hospital stay) is standardized.
    For beneficiaries with Medicare Part B coverage, hospitals would be 
required to deliver the notice to eligible beneficiaries as soon as 
possible after hospital reclassifies the beneficiary from an inpatient 
to an outpatient and the beneficiary has stayed in the hospital for 3 
or more consecutive days but was an inpatient for fewer than 3 days. 
The notice must be delivered no later than 4 hours before the 
beneficiary is released from the hospital.
    For beneficiaries without Medicare Part B coverage, hospitals would 
be required to deliver the notice to eligible beneficiaries as soon as 
possible after the change from inpatient to outpatient with observation 
services is made as a 3-day hospital stay is not required for these 
beneficiaries. The notice must be delivered no later than 4 hours 
before the beneficiary is released from the hospital.
    We estimate it would take 10 minutes (0.1667 hr) at $79.56/hr for a 
Registered Nurse to complete the two data fields and deliver each 
notice to the applicable beneficiary.
    The 10-minute estimate is same as that for our Important Message 
from Medicare (CMS-10065/10066; OMB 0938-1019), which the proposed MCSN 
notice is modeled after.
    In 2022 there were approximately 15,655 instances where hospital 
stays met the criteria for an appeal.20 21 With regard to 
this proposed rule we estimate that hospitals would be required to give 
an estimated 15,655 MCSN notices to beneficiaries each year. In 
aggregate, we estimate an annual hospital burden of 2,610 hours (15,655 
notices x 0.1667 hr/notice) at a cost of $207,652 (2,610 hr x $79.56/
hr).
---------------------------------------------------------------------------

    \20\ The data used in this report come from the 2022 CMS Part B 
institutional administrative claims data for 100 percent of Medicare 
beneficiaries enrolled in the fee-for-service (FFS) program, which 
are available from the CMS Chronic Condition Data Warehouse 
(www2.ccwdata.org/web/guest/home), accessed August 2023.
    \21\ The data used in this report come from the 2022 CMC Part B 
institutional administrative claims data for 100 percent of Medicare 
beneficiaries enrolled in the fee-for-service (FFS) program, which 
are available from the CMS Chronic Condition Data Warehouse 
(www2.ccwdata.org/web/guest/home), accessed August 2023.
---------------------------------------------------------------------------

    Please note, our data does not permit us to determine whether the 
observation services occurred prior to the initial inpatient stay or 
followed the change in status from inpatient to outpatient, as required 
to qualify for an appeal. As a result, 15,655 MCSN notices likely 
overstates the number of beneficiaries eligible for an appeal.
    Please see section IV.D. of this proposed rule if you wish to view 
the draft standardized notice and supporting documentation.
3. ICRs Regarding Applicable QIO Review Regulations (Sec.  476.71 and 
Sec.  476.78)
    In section III.B. of this proposed rule, we are proposing that the 
QIOs would review the prospective expedited appeals under their 
contracts with the Secretary. CMS expects to revise the BFCC-QIO's 
contracts under the 13th Statement of Work to include the new 
prospective expedited appeals requirements after publication of the 
subsequent final rule. The additional costs to the government for the 
BFCC-QIOs to review the new appeals would include payment for the 
additional level of effort associated with communicating with 
beneficiaries and hospitals for the duration of the appeal, collecting 
and reviewing patient records, performing reconsiderations if 
requested, and providing case files requested for further levels of 
review if needed. It also would include the cost of reimbursing 
hospitals for the submission of patient records for prospective 
expedited appeals. Hospitals would submit patient records and request 
reimbursement from the QIO using the process established in the 
existing memorandums of agreement (MOAs) under Sec.  476.78(a) between 
hospitals and the QIO having jurisdiction over the particular State in 
which the hospital stay occurred.
    As discussed in section III.B. of this proposed rule, hospitals 
would be required to submit patient records to the QIOs for prospective 
expedited appeals under proposed Sec.  405.1211(d). Existing QIO 
regulations at Sec.  476.78(b)(2) and (c) require providers and 
practitioners to electronically submit patient records to the QIOs for 
purposes of one or more QIO functions and allow for the reimbursement 
of providers and practitioners by the QIO for the electronic submission 
of patient records for one or more QIO functions at a rate of $3.00 per 
submission under Sec.  476.78(e)(2). Hospitals that have waivers for 
the required electronic submission of records under Sec.  476.78(d) may 
be reimbursed by the QIO at a rate of $0.15 per page for submission of 
the patient records under Sec.  476.78(e)(3).
    The estimation methodology used to determine the reimbursement 
rates for electronic and non-electronic submission of patient records 
for one or more QIO functions is discussed further in section IX.A. of 
the Fiscal Year (FY) 2021 Hospital Inpatient Prospective Payment System 
(IPPS)/Long-Term Care Prospective Payment System (LTCH PPS) final rule 
(85 FR 58977 through 58985). This estimation methodology is appropriate 
when applied to the proposed prospective expedited appeals due to the 
substantial similarity of its requirements and processes to those of 
other QIO functions upon which these rates were determined.
    In section III.B.6 of this proposed rule, we are proposing the 
addition of a QIO review type at Sec.  476.71(a)(9) making the QIO's 
review of the prospective expedited appeals under proposed Sec.  
405.1211(d) a QIO function using our authority in section 1154(a)(18) 
of the Act. As established earlier in the ICR section, the proposed 
prospective appeals process would constitute a CMS administrative 
action toward a specific individual or entity. Thus, the preparation 
and submission of the appeal, supporting documentation needed for the 
appeal, and communications between the QIO and parties to the appeal 
are not subject to

[[Page 89527]]

the PRA as stipulated under 5 CFR 1320.4(a)(2).

C. Summary of Annual Burden Estimates for Proposed Changes

                                               Table 2--Proposed Annual Requirements and Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Total    Labor
Regulation section(s) under Title 42  OMB control No. (CMS ID        Respondents          Total       Time per  response      time   cost ($/ Total cost
             of the CFR                         No.)                                    responses          (hours)          (hours)    hr)        ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   405.932......................  0938-TBD (CMS-10885)...  32,894 beneficiaries..       6,579  0.5 (30 min)...........    3,290    21.98      72,314
Sec.   405.1210.....................  0938-TBD (CMS-10868)...  6,162 hospitals.......      15,655  0.1667 (10 min)........    2,610    79.56     207,652
                                                              ------------------------------------------------------------------------------------------
    Total...........................  .......................  39,056................      22,234  varies.................    5,900   varies     279,966
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Submission of Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection requirements. The 
requirements are not effective until they have been approved by OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections discussed previously, please visit the CMS 
website at https://www.cms.gov/regulations-and-guidance/legislation/paperworkreductionactof1995/pra-listing, or call the Reports Clearance 
Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the DATES and ADDRESSES section of this 
proposed rule and identify the rule (CMS-4204-P), the ICR's CFR 
citation, and OMB control number.

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), Executive Order 14094 entitled ``Modernizing 
Regulatory Review'' (April 6, 2023), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). The 
Executive Order 14094 entitled ``Modernizing Regulatory Review'' 
(hereinafter, the Modernizing E.O.) amended section 3(f) of Executive 
Order 12866 (Regulatory Planning and Review). The amended section 
3(f)(1) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) having an 
annual effect on the economy of $200 million or more in any 1 year. A 
regulatory impact analysis (RIA) must be prepared for the rules with 
significant regulatory action/s as per section 3(f)(1) ($200 million or 
more in any 1 year). This rule does not reach the economic threshold 
and thus is not considered a significant rule under section 3(f)(1).
    We are making the determination that the proposed new appeals 
process will not have a significant financial impact on the Medicare 
program or interested parties based on our assumption about the overall 
number of projected appeals. While it is difficult to project how many 
beneficiaries will pursue appeals under this new process, overall, we 
anticipate a relatively low volume of retrospective appeals. We 
estimate that the total number of eligible beneficiaries is 32,894.\22\ 
We are projecting approximately 6,600 appeals at the first level of 
appeal (MAC level); 5,000 appeals at the second level of appeal (QIC 
Level); 2,800 appeals at the third level of appeal (ALJ level); and 150 
at the Medicare Appeals Council. There will be administrative costs 
associated with tasking a contractor to serve as a point of contact and 
clearinghouse for incoming retrospective appeals requests.
---------------------------------------------------------------------------

    \22\ The data used in this report came from the 2022 CMS Part B 
institutional administrative claims data for 100 percent of Medicare 
beneficiaries enrolled in the fee-for-service (FFS) program, which 
are available from the Integrated Data Repository (IDR). The IDR 
contains a subset of data transmitted by the Common Working File 
(CWF), a computerized database maintained by CMS in connection with 
its processing and payment of Medicare claims.
---------------------------------------------------------------------------

    We also anticipate a very low volume of prospective and standard 
appeals on an ongoing basis. We estimate that around 15,000 notices 
informing beneficiaries of their change in status and informing them of 
their right to appeal will be delivered annually.\23\ We are estimating 
an appeal rate of 50 percent, which would result in about 7,500 appeals 
per year.
---------------------------------------------------------------------------

    \23\ The data used in this report come from the 2022 CMS Part B 
institutional administrative claims data for 100 percent of Medicare 
beneficiaries enrolled in the fee-for-service (FFS) program, which 
are available from the CMS Chronic Condition Data Warehouse 
(www2.ccwdata.org/web/guest/home), accessed August 2023.
---------------------------------------------------------------------------

    While our estimates reflect a relatively low number of appeals, we 
acknowledge that there will be administrative costs for hospitals to 
accommodate the new appeals process, as well as costs associated with 
modifying contracts for MACs, QICs, and the BFCC-QIOs to perform the 
retrospective, prospective and standard appeals. We welcome comment on 
these proposed estimates.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
less than $9.0 million to $47.0 million in any 1 year. Individuals and 
states are not included in the definition of a small entity. We are not 
preparing an analysis for the RFA because we have determined, and the 
Secretary certifies, that this would not have a significant economic 
impact on a substantial number of small entities. In addition, section 
1102(b) of the Act requires us to

[[Page 89528]]

prepare an RIA if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital at 42 CFR 412.108 as a hospital that is located outside of a 
Metropolitan Statistical Area for Medicare payment regulations and has 
fewer than 100 beds. We are not preparing an analysis for section 
1102(b) of the Act because we have determined, and the Secretary 
certifies, that this proposed regulation would not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2023, that 
threshold is approximately $177 million. This rule will have no 
consequential effect on state, local, or tribal governments or on the 
private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on state 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by the Office of Management and Budget.

VI. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.
    Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on December 18, 2023.

List of Subjects

42 CFR Part 405

    Administrative practice and procedure, Diseases, Health facilities, 
Health professions, Medical devices, Medicare, Reporting and 
recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 476

    Grant programs--health, Health care, Health facilities, Health 
professions, Health records, Peer Review Organization (PRO), Penalties, 
Privacy, Reporting and recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0
1. The authority citation for part 405 continues to read as follows:

    Authority:  42 U.S.C. 263a, 405(a), 1302, 1320b-12, 1395x, 
1395y(a), 1395ff, 1395hh, 1395kk, 1395rr, and 1395ww(k).

0
2. Subpart I is amended by adding an undesignated center heading after 
Sec.  405.930 and Sec. Sec.  405.931, 405.932, 405.934, 405.936, and 
405.938 to read as follows:
    Retrospective Appeals for Changes in Patient Status That 
Resulted in Denial of Part A Coverage for Hospital Services.
Sec.
405.931 Scope, basis, and definitions.
405.932 Right to appeal a denial of Part A coverage resulting from a 
change in patient status.
405.934 Reconsideration.
405.936 Hearings before an ALJ and decisions by an ALJ or Attorney 
Adjudicator.
405.938 Review by the Medicare Appeals Council and judicial review.


Sec.  405.931  Scope, basis, and definitions.

    (a) Scope and basis. The provisions in Sec. Sec.  405.931 through 
405.938--
    (1) Implement a federal district court order requiring appeal 
rights for hospital stays on or after January 1, 2009, for a specified 
class of beneficiaries under certain conditions (defined in Sec.  
405.931(b)(1)) who were admitted to a hospital as inpatients, but were 
subsequently reclassified by the hospital as outpatients receiving 
observation services; and
    (2) Apply to retrospective appeals, that is, appeals for hospital 
outpatient services, and as applicable, post-hospital extended care 
services in a skilled nursing facility (SNF services), furnished to 
eligible parties as defined in paragraph (b) of this section before the 
implementation of the prospective appeal process set forth in 
Sec. Sec.  405.1210 through 405.1212.
    (b) Definitions. For the purposes of the appeals conducted under 
Sec. Sec.  405.931 through 405.938, the following definitions apply:
    Eligible party means a beneficiary who, on or after January 1, 
2009, meets the following criteria, and is, thus, eligible to request 
an appeal under Sec. Sec.  405.931 through 405.938:
    (i) Was formally admitted as a hospital inpatient.
    (ii) While in the hospital was subsequently reclassified as an 
outpatient receiving observation services (as defined in Sec.  
405.931(h)).
    (iii) Has received an initial determination (as defined in Sec.  
405.920) or a Medicare Outpatient Observation Notice (MOON) (as 
described in Sec.  489.20(y)) indicating that the observation services 
are not covered under Medicare Part A.
    (iv)(A) Was not enrolled in the Supplementary Medical Insurance 
program (that is, Medicare Part B coverage) at the time of 
beneficiary's hospitalization; or
    (B) Stayed at the hospital for 3 or more consecutive days but was 
designated as an inpatient for fewer than 3 days, unless more than 30 
calendar days has passed after the hospital stay without the 
beneficiary's having been admitted to a SNF.
    (v) Medicare beneficiaries who meet the requirements of the 
paragraph (iv)(A) or (B) of this definition but who pursued an 
administrative appeal and received a final decision of the Secretary 
before September 4, 2011, are excluded from the definition of an 
eligible party.
    Eligibility contractor means the contractor who meets all of the 
following:
    (i) Is identified on the Medicare.gov website for accepting appeal 
requests.
    (ii) Receives appeal requests and makes determinations regarding 
eligibility for the appeal under Sec. Sec.  405.931 through 405.938.
    (iii) Issues notices of eligibility.
    (iv) Refers valid appeal requests to the processing contractor for 
a decision on the merits of the appeal.
    Processing contractor means the contractor responsible for 
conducting the first-level appeal and issuing a decision on the merits 
of the appeal. Appeals under Sec.  405.932 are conducted by the MAC 
who, at the time of the referral of the request for appeal under Sec.  
405.932(d)(2), has jurisdiction over claims submitted by the hospital 
where the eligible party received the services at issue.
    (c) Party to an appeal. For the purposes of the appeals conducted

[[Page 89529]]

under Sec. Sec.  405.931 through 405.938, an eligible party is the only 
party to the appeal. The provisions of Sec.  405.906 do not apply to 
appeals processed under these provisions, and the provider that 
furnished services to an eligible party may not file a request for an 
appeal and is not considered a party to any appeal decision or 
determination.
    (d) Authorized representatives, appointed representatives, or 
representatives of a deceased eligible party. For the purposes of 
appeals conducted under Sec. Sec.  405.931 through 405.938:
    (1) The provisions of Sec.  405.910 apply to an eligible party 
appointing a representative to assist in such appeal, as appropriate, 
except as follows:
    (i) A provider of services who furnished items or services to a 
beneficiary whose claims are the subject of an appeal under the 
provisions of Sec. Sec.  405.931 through 405.938 is prohibited from 
representing the beneficiary or eligible party in such appeal.
    (ii) [Reserved.]
    (2) An authorized representative (as defined in Sec.  405.902) may 
act on behalf of an eligible party and has all of the same rights and 
responsibilities of an eligible party throughout the appeals process.
    (3) The provisions of Sec.  405.906(a)(1) apply to a deceased 
eligible party in the same manner in which such provisions apply to a 
deceased beneficiary.
    (4) The provisions of Sec.  405.906(c) do not apply.
    (5) A beneficiary who is an eligible party is considered 
unrepresented if the beneficiary meets any of the following:
    (i) Has not appointed a representative under Sec.  405.910.
    (ii) Has an authorized representative as defined in Sec.  405.902.
    (iii) Has appointed as its representative a member of the 
beneficiary's family, a legal guardian, or an individual who routinely 
acts on behalf of the beneficiary, such as a family member or friend 
who has a power of attorney.
    (iv) Is deceased but met the conditions for an eligible party in 
paragraph (b)(1) of this section and the appeal is filed by an 
individual who meets the conditions set forth in Sec.  405.906(a)(1).
    (e) Prohibition on assignment of appeal rights. For the purposes of 
the appeals conducted under Sec. Sec.  405.931 through 405.938, an 
eligible party may not assign appeal rights to a provider under the 
provisions of Sec.  405.912.
    (f) Date of receipt of a notice or decision. For the purposes of 
the appeals conducted under Sec. Sec.  405.931 through 405.938, the 
date of receipt of a notice or decision sent by the eligibility 
contractor, processing contractor or other appeals adjudicator is 
presumed to be 5 calendar days following the date on the notice unless 
there is evidence to the contrary.
    (g) Three or more consecutive days. For the purposes of the appeals 
conducted under Sec. Sec.  405.931 through 405.938, when determining if 
a beneficiary is an eligible party and for the purposes of determining 
coverage of SNF services under section 1861 of the Act, inpatient 
hospital days are counted in accordance with Sec.  409.30, that is, a 
patient must have a qualifying inpatient stay of at least 3 consecutive 
calendar days starting with the admission day but not counting the 
discharge day.
    (h) Outpatient receiving observation services. For the purposes of 
appeals conducted under Sec. Sec.  405.931 through 405.938 when 
determining if a beneficiary is an eligible party, a beneficiary is 
considered an outpatient receiving observation services when the 
hospital changes beneficiary's status from inpatient to outpatient 
while the beneficiary is in the hospital and the beneficiary 
subsequently receives observation services following a valid order for 
such services.


Sec.  405.932  Right to appeal a denial of Part A coverage resulting 
from a change in patient status.

    (a) Filing an appeal request related to a change in patient status 
which resulted in the denial of Part A coverage. (1) Only an eligible 
party, the party's appointed representative, or an authorized 
representative of an eligible party may request an appeal at any level 
of the appeals process under Sec. Sec.  405.931 through 405.938.
    (2) To initiate an appeal under Sec. Sec.  405.931 through 405.938, 
an eligible party, the party's appointed representative, or an 
authorized representative of an eligible party must meet the following 
requirements:
    (i) Submit a request for an appeal in writing to the eligibility 
contractor.
    (ii) The request must be received by the eligibility contractor no 
later than 365 days after the implementation date of the final rule. 
The eligibility contractor denies the written request if it is not 
received by the applicable filing timeframe under Sec.  405.932(d)(3), 
unless the eligible party established good cause for late submission as 
specified in Sec.  405.942(b)(2) and (3).
    (3) If an eligible party (or the party's representative) misfiles a 
request for appeal with a contractor or government entity other than 
the eligibility contractor, then for the purpose of determining 
timeliness of the request for appeal, the date the misfiled request was 
received by the contractor or government agency is considered the date 
of receipt. The misfiled request and all documentation must be 
forwarded to the eligibility contractor within 30 calendar days of 
receipt, or as soon as practicable.
    (b) Content of the appeal request. (1) The written request filed by 
an eligible party, the party's appointed representative, or an 
authorized representative of an eligible party may be made on a model 
CMS form. If the model form is not used, to be valid, the written 
request must include all of the following identifying information:
    (i) Beneficiary name.
    (ii) Beneficiary Medicare number (the number on the beneficiary's 
Medicare card).
    (iii) Name of the hospital and dates of hospitalization.
    (iv) Name of the SNF and the dates of stay (as applicable).
    (2) If the appeal includes SNF services not covered by Medicare, 
the written request must also include an attestation to the out-of-
pocket payment(s) made by the beneficiary for such SNF services and 
must include documentation of payments made to the SNF for such 
services.
    (i) Payments for an eligible party's SNF services made by a third-
party payer do not constitute out-of-pocket expenses or payment for an 
eligible party. If a third-party payer made payment for the eligible 
party's SNF services, then the services are excluded from consideration 
in the appeal.
    (ii) Payments made for cost sharing (including, but not limited to, 
coinsurance and deductible) for SNF services covered by a third-party 
payer are not considered an out-of-pocket payment for the purposes of 
this provision.
    (iii) Payments made by a family member for an eligible party's SNF 
services are considered an out-of-pocket payment for the eligible 
party.
    (3) In the written request for an appeal, an eligible party (or 
their representative) may include an explanation of why the hospital 
admission satisfied the relevant criteria for Part A coverage and 
should have been covered under the Part A hospital insurance benefit 
instead of under the Part B supplementary medical insurance benefit.
    (c) Evidence and other information to be submitted with the appeal 
request. (1) Eligible parties (or their representatives) are encouraged 
to submit all available information and documentation, including 
medical

[[Page 89530]]

records related to the hospital stay and SNF services, as applicable, 
at issue in the appeal with the written request for an appeal.
    (2) If the eligibility contractor determines there is information 
missing from the request that is needed to establish the beneficiary's 
eligibility as a party under Sec.  405.931(b)(1) or satisfy other 
conditions for eligibility for an appeal, the eligibility contractor 
works with the appropriate MAC and attempts to obtain the information 
from the provider or the eligible party (or the party's representative) 
or both, as applicable. The eligibility contractor allows up to 60 
calendar days for submission of missing information.
    (3) If the necessary information cannot be obtained from either the 
provider or the eligible party (or the party's representative), the 
eligibility contractor makes an eligibility determination based on the 
information available.
    (d) Determining eligibility for an appeal. (1)(i) The eligibility 
contractor reviews the information submitted with the appeal request 
and any additional information it obtains to determine if the 
individual submitting the appeal request is an eligible party and that 
the services previously furnished are eligible for an appeal under 
Sec.  405.931.
    (ii) The eligibility contractor mails or otherwise transmits the 
notice of its determination to the eligible party (or the party's 
representative) within 60 calendar days of receipt of the appeal 
request.
    (iii) The time between the eligibility contractor's request for 
missing information and receipt of such information (or in the case of 
information that is requested but is not received, the time allowed by 
the contractor to submit the information) does not count toward the 
timeframe for issuing a notice to the eligible party (or the party's 
representative).
    (2) If the eligibility contractor determines that the individual is 
an eligible party and the services previously furnished are eligible 
for an appeal, the eligibility contractor--
    (i) Issues a notice of acceptance to the eligible party (or the 
party's representative), explaining that the appeal has been accepted 
for processing; and
    (ii) Refers the appeal to the processing contractor for 
adjudication under Sec.  405.932(e).
    (3)(i) If the eligibility contractor determines that the request 
for appeal is untimely or incomplete, the individual does not satisfy 
the requirements for an eligible party, or the services previously 
furnished are not eligible for an appeal, the eligibility contractor 
issues a denial notice to the individual (or the party's 
representative) in writing.
    (ii) The denial notice explains that the request is not eligible 
for an appeal, the reason(s) for the denial of the appeal request, and 
the process for requesting a review of the eligibility denial under 
Sec.  405.932(e).
    (4) Notices regarding eligibility for an appeal issued by the 
eligibility contractor are written in a manner to be understood by the 
eligible party or the party's representative.
    (e) Review of an eligibility contractor's denial of a request for 
an appeal. (1)(i) An individual (or their representative) may request a 
review of the eligibility contractor's denial of a request for an 
appeal by filing a request in writing with the eligibility contractor.
    (ii) The request for review should explain the reason(s) the denial 
of the request for an appeal was incorrect, and should include 
additional information, as applicable, to support the validity of the 
original appeal request.
    (2) The request for review, with any additional information, must 
be received by the eligibility contractor no later than 60 calendar 
days from the date of receipt of the denial notice. If the request for 
review is received after this deadline, the individual (or the 
individual's representative) must establish good cause for untimely 
filing. In determining whether good cause for untimely filing exists, 
the eligibility contractor applies the provisions in Sec.  
405.942(b)(2) and (3).
    (3) The review by the eligibility contractor must be conducted by 
individuals not involved in the initial denial of the request for an 
appeal.
    (4) The eligibility contractor may issue a decision that affirms or 
reverses the denial of the request for an appeal or may dismiss the 
request for review. The notice of the eligibility contractor's decision 
must meet both of the following requirements:
    (i) Be written in a manner to be understood by the individual or 
the individual's representative.
    (ii) Be mailed or otherwise transmitted in writing within 60 
calendar days of the date of receipt of the request for review.
    (5) If the decision is to affirm the denial, or dismiss the 
request, the eligibility contractor must explain the rationale for the 
decision.
    (6) A denial notice under paragraph (d)(3) of this section issued 
due to receipt of an untimely appeal request must be reversed if the 
eligible party (or the party's representative) establishes good cause 
for late filing under Sec.  405.942(b)(2) and (3).
    (7) If the eligibility contractor reverses the initial denial of 
the request for appeal, the eligibility contractor forwards the request 
for appeal to the processing contractor under Sec.  405.932(f).
    (8) The eligibility contractor's decision that affirms the initial 
denial of a request for an appeal is binding and not subject to further 
review.
    (9) If the eligibility contractor determines that the request for 
review of the eligibility denial under paragraph (e)(2) of this section 
was not submitted timely, and the eligibility contractor did not find 
good cause for the untimely submission, then the eligibility contractor 
dismisses the request for review, and such dismissal is binding and not 
subject to further review.
    (f) Processing eligible requests for appeal. (1) If the processing 
contractor determines there is necessary information missing from the 
appeal case file, the processing contractor attempts to obtain the 
information from the provider or the eligible party (or the party's 
representative), as applicable.
    (i) The processing contractor allows the provider or eligible party 
(or the party's representative), or both, up to 60 calendar days to 
submit missing information.
    (ii) If the provider or eligible party (or the party's 
representative) does not submit the missing information within the 
allotted time, the processing contractor makes a decision on the 
request for appeal based on the information available.
    (iii) The time between the processing contractor's request for 
information and receipt of such information (or in the case of 
information that is requested but is not received, the time allowed by 
the contractor to submit the information) does not count toward the 
timeframe for issuing the processing contractor's decision.
    (2) The processing contractor reviews the information submitted 
with the appeal request and any additional information it obtains to 
determine if the inpatient admission satisfied the relevant criteria 
for Part A coverage at the time services were furnished. If the appeal 
request also includes a request to review denied SNF services that are 
eligible for an appeal, the processing contractor also determines if 
such eligible SNF services satisfied relevant criteria for Part A 
coverage at the time the services were furnished.
    (3) Subject to the provisions in paragraph (e)(1) of this section, 
the processing contractor mails or otherwise transmits its written 
decision on the request for appeal within 60 calendar days of receipt 
of the request.

[[Page 89531]]

    (g) Notice and content of the decision. (1) If the processing 
contractor determines that the inpatient admission, and as applicable, 
SNF services, satisfied the relevant criteria for Part A coverage at 
the time the services were furnished, then the processing contractor 
issues notice of the favorable decision to the eligible party (or the 
party's representative). The processing contractor also notifies the 
hospital and SNF, as applicable, in the case of a favorable 
determination for Part A coverage.
    (2)(i) If the processing contractor determines that the inpatient 
admission, or as applicable, SNF services, did not satisfy the relevant 
criteria for Part A coverage at the time the services were furnished, 
then the processing contractor issues notice of the unfavorable or 
partially favorable decision to the eligible party (or the party's 
representative).
    (ii) The processing contractor issues a notice of a partially 
favorable decision to the SNF if the inpatient admission satisfied the 
relevant criteria for Part A coverage, but the SNF services did not 
satisfy the relevant criteria for Part A coverage.
    (3) The notice issued to the eligible party (or the party's 
representative) must be written in a manner calculated to be understood 
by the eligible party (or the party's representative) and include all 
of the following:
    (i) A clear statement of the decision made by the processing 
contractor.
    (ii) The reason the hospital admission, and as applicable, the SNF 
services, satisfied or did not satisfy the relevant criteria for Part A 
coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) If a favorable decision, the effect of such decision, 
including, as applicable, a statement about the obligation of the SNF 
to refund any amounts collected for the covered SNF services, and that 
the SNF may then submit a new claim(s) for services covered under Part 
A in order to determine the amounts of benefits due.
    (vi) If an unfavorable or partially favorable decision, a statement 
of any specific missing documentation that should be submitted with a 
request for reconsideration, if applicable.
    (vii) The procedures for obtaining additional information 
concerning the decision, such as specific provisions of the policy, 
manual, regulations, or other rules used in making the decision.
    (viii) If an unfavorable or partially favorable decision, 
information about the procedures for filing a request for 
reconsideration under Sec.  405.934.
    (ix) Any other requirements specified by CMS.
    (4) As applicable, a notice of a favorable decision issued to the 
SNF (including a decision for a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of beneficiary's hospitalization), includes all of the following:
    (i) A clear statement of the decision made by the processing 
contractor.
    (ii) The reason the SNF services satisfied the relevant criteria 
for Part A coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
that the SNF must refund any payments collected from the beneficiary 
for the covered SNF services, and that the SNF may then submit a new 
claim(s) to determine the amount of benefits due for covered services.
    (vi) Any other requirements specified by CMS.
    (5) In the case of a favorable decision for a beneficiary not 
enrolled in the Supplementary Medical Insurance program (Medicare Part 
B) at the time of the beneficiary's hospitalization, notice is issued 
to the hospital that includes all of the following:
    (i) A clear statement of the decision made by the processing 
contractor.
    (ii) The reason the hospital admission satisfied the relevant 
criteria for Part A coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
that the hospital must refund any payments collected for the outpatient 
hospital services, and that the hospital may then submit a new Part A 
inpatient claim in order to determine the amount of benefits due for 
covered services.
    (vi) Any other requirements specified by CMS.
    (6) In the case of a partially favorable decision issued to a SNF, 
the notice includes the following:
    (i) A clear statement of the decision made by the processing 
contractor.
    (ii) The reason the hospital admission satisfied the relevant 
criteria for Part A coverage at the time the services were furnished, 
and the reason the SNF services did not satisfy the relevant criteria 
for Part A coverage.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
that the decision is being sent for informational purposes only, and 
that only the eligible party may appeal the decision to a QIC under 
Sec.  405.934.
    (vi) Any other requirements specified by CMS.
    (h) Effect of a favorable appeal decision. (1)(i) If the processing 
contractor issues a decision that the beneficiary's inpatient admission 
satisfied the relevant criteria for Part A coverage and the hospital's 
decision to change the inpatient admission to outpatient receiving 
observation services was therefore erroneous, the beneficiary's 
reclassification as an outpatient is disregarded for the purposes of 
determining Part A benefits, including Part A SNF coverage, if 
applicable.
    (ii) For the purposes of effectuating a favorable decision by the 
processing contractor, any claims previously submitted for outpatient 
hospital services and payments made for such services (including any 
applicable deductible and coinsurance amounts) are not reopened or 
revised by the MAC, and payment, as applicable, for covered SNF 
services may be made by the MAC to the SNF without regard to the 
hospital claim.
    (2) In order to determine Part A benefits to be paid and to make 
payment for covered services as a result of a favorable decision, as 
applicable:
    (i) The SNF that furnished services to the beneficiary must refund 
payments previously collected from the beneficiary for the covered 
services and may then submit a Part A claim(s) for such services within 
180 calendar days of receipt of the notice of a favorable decision.
    (ii) In the case of an appeal for a beneficiary not enrolled in the

[[Page 89532]]

Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization, the hospital that furnished 
services must refund any payments collected for the outpatient hospital 
services and may then submit a Part A inpatient claim for such services 
within 180 calendar days of receipt of the notice of a favorable 
decision.
    (3) The hospital, and as applicable, the SNF, must comply with all 
applicable provisions regarding charges to the beneficiary for covered 
services, including but not limited to relevant provisions in part 489 
Subparts B through D of this chapter.
    (i) A favorable appeal decision is considered binding unless it is 
reopened and revised under the provisions of Sec. Sec.  405.980 through 
405.986.
    (ii) The provisions regarding reopening of a redetermination in 
Sec.  405.980(b) and (c) apply in the same manner to favorable 
decisions issued under this section.
    (4) The notice of a favorable decision issued to a hospital and, as 
applicable, a SNF does not convey party status to such provider.
    (i) Effect of an unfavorable or partially favorable decision. (1) 
An unfavorable or partially favorable appeal decision is considered 
binding unless--
    (A) It is reopened and revised under the provisions of Sec. Sec.  
405.980 through 405.986; or
    (B) An eligible party (or the party's representative) files a 
request for reconsideration under Sec.  405.934.
    (2) The provisions regarding reopening of a redetermination in 
Sec. Sec.  405.980(b) and (c) apply in the same manner to unfavorable 
or partially favorable decisions issued under this section.


Sec.  405.934  Reconsideration.

    (a) Filing a request for reconsideration. An eligible party, the 
party's appointed representative, or an authorized representative who 
is dissatisfied with the decision rendered by a processing contractor 
in Sec.  405.932(g)(2) may request a reconsideration with a QIC within 
180 calendar days of receipt of the processing contractor's notice. The 
request for reconsideration must include the elements specified in the 
processing contractor's notice.
    (b) Applicability of other provisions. The provisions in Sec. Sec.  
405.960 through 405.978 that apply to reconsiderations of initial 
determinations apply to the extent they are appropriate/in the same 
manner to reconsiderations performed by a QIC under this section unless 
otherwise specified.
    (c) Notice and content of a reconsideration. (1) If the QIC 
determines that the inpatient admission, and as applicable, eligible 
SNF services, satisfied the relevant criteria for Part A coverage at 
the time the services were furnished, then the QIC issues notice of the 
favorable reconsideration to the eligible party (or the party's 
representative). The QIC also notifies the hospital and SNF, as 
applicable, in the case of a favorable determination for Part A 
coverage.
    (2)(i) If the QIC determines that the inpatient admission, or as 
applicable, SNF services, did not satisfy the relevant criteria for 
Part A coverage at the time the services were furnished, then the QIC 
issues notice of the unfavorable or partially favorable reconsideration 
to the eligible party (or the party's representative).
    (ii) The QIC issues a notice of a partially favorable 
reconsideration to the SNF if the inpatient admission satisfied the 
relevant criteria for Part A coverage, but the SNF services did not 
satisfy the relevant criteria for Part A coverage.
    (3) The notice of reconsideration must be mailed or otherwise 
transmitted within 60 calendar days of the QIC's receipt of the request 
for reconsideration, subject to the exceptions specified in Sec.  
405.970.
    (4) The notice of reconsideration issued to the eligible party (or 
the party's representative) must be written in a manner calculated to 
be understood by the eligible party (or the party's representative) and 
include all of the following:
    (i) A clear statement of the decision made by the QIC.
    (ii) The reason the hospital admission, and as applicable, the SNF 
services, satisfied or did not satisfy the relevant criteria for Part A 
coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) If a favorable decision, the effect of such decision, including 
a statement about the obligation of the SNF to refund any amounts 
collected for the covered SNF services, and that the SNF may then 
submit a new claim(s) for services covered under Part A in order to 
determine the amounts of benefits due.
    (vi) If the decision in Sec.  405.932(f) indicated that specific 
documentation should be submitted with the reconsideration request, and 
the documentation was not submitted with the request for 
reconsideration, the summary must indicate how the missing 
documentation affected the reconsideration.
    (vii) The procedures for obtaining additional information 
concerning the decision, such as specific provisions of the policy, 
manual, regulations, or other rules used in making the decision.
    (viii) If an unfavorable or partially favorable decision, 
information concerning an eligible parties' right to an ALJ hearing, 
including the applicable amount in controversy requirement and 
aggregation provisions and other procedures for filing a request for an 
ALJ hearing under Sec.  405.936.
    (ix) Any other requirements specified by CMS.
    (5) As applicable, a notice of a favorable reconsideration issued 
to the SNF (including a decision for a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization), includes all of the following:
    (i) A clear statement of the decision made by the QIC.
    (ii) The reason the SNF services, satisfied the relevant criteria 
for Part A coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
the SNF must refund any payments collected from the beneficiary for the 
covered SNF services, and that the SNF may then submit a new claim(s) 
to determine the amount of benefits due for the covered services.
    (vi) Any other requirements specified by CMS.
    (6) In the case of a favorable reconsideration for a beneficiary 
not enrolled in the Supplementary Medical Insurance program (Medicare 
Part B) at the time of the beneficiary's hospitalization, notice is 
issued to the hospital that includes all the following:
    (i) A clear statement of the decision made by the QIC.
    (ii) The reason the hospital admission satisfied the relevant 
criteria for Part A coverage at the time the services were furnished.
    (iii) A summary of the facts, including as appropriate, a summary 
of any

[[Page 89533]]

clinical or scientific evidence used in making the determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
that the hospital must refund any payments collected for the outpatient 
hospital services, and that the hospital may then submit a new Part A 
inpatient claim in order to determine the amount of benefits due for 
covered services.
    (vi) Any other requirements specified by CMS.
    (7) In the case of a partially favorable reconsideration issued to 
a SNF the notice includes the following:
    (i) A clear statement of the decision made by the QIC.
    (ii) The reason the hospital admission satisfied the relevant 
criteria for Part A coverage at the time the services were furnished, 
and the reason the SNF services did not satisfy the relevant criteria 
for Part A coverage.
    (iii) A summary of the facts, including as appropriate, a summary 
of any clinical or scientific evidence used in making the 
determination.
    (iv) An explanation of how pertinent laws, regulations, coverage 
rules, and CMS policies apply to the facts of the case.
    (v) The effect of such decision, including a statement explaining 
that the decision is being sent for informational purposes only, and 
that only the eligible party may appeal the decision to an ALJ under 
Sec.  405.936.
    (vi) Any other requirements specified by CMS.
    (d) Effect of a favorable reconsideration. (1)(i) If the QIC issues 
a reconsideration decision that the beneficiary's inpatient admission 
satisfied the relevant criteria for Part A coverage and the hospital's 
decision to change the inpatient admission to outpatient receiving 
observation services was therefore erroneous, the beneficiary's 
reclassification as an outpatient is disregarded for the purposes of 
determining Part A benefits, including both Part A hospital coverage 
and Part A SNF coverage, if applicable.
    (ii) For the purposes of effectuating a favorable reconsideration, 
any claims previously submitted for outpatient hospital services and 
payments made for such services (including any applicable deductible 
and coinsurance amounts) are not reopened or revised by the MAC, and 
payment, as applicable, for covered SNF services may be made by the MAC 
to the SNF without regard to the hospital claim.
    (2) In order to determine Part A benefits to be paid and to make 
payment for covered services as a result of a favorable decision, as 
applicable:
    (i) The SNF that furnished services to the beneficiary must refund 
payments previously collected from the beneficiary for the covered 
services and may then submit a Part A claim(s) for such services within 
180 calendar days of receipt of the notice of a favorable decision;
    (ii) In the case of an appeal for a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization, the hospital that furnished 
services must refund any payments collected for the outpatient hospital 
services and may then submit a Part A inpatient claim for such services 
within 180 calendar days of receipt of the notice of a favorable 
decision.
    (3) The hospital, and as applicable, the SNF, must comply with all 
applicable provisions regarding charges to the beneficiary for covered 
services, including but not limited to relevant provisions in part 489 
Subparts B through D of this chapter.
    (4) A favorable reconsideration is considered binding unless it is 
reopened and revised under the provisions of Sec. Sec.  405.980 through 
405.986. The provisions regarding reopening of a reconsideration in 
Sec.  405.980(d) and (e) apply in the same manner to favorable 
reconsiderations issued under this section.
    (5) The notice of a favorable reconsideration sent to a hospital 
and, as applicable, a favorable or partially favorable reconsideration 
sent to a SNF does not convey party status.
    (e) Effect of an unfavorable or partially favorable 
reconsideration. (1) An unfavorable or partially favorable 
reconsideration is considered binding unless--
    (i) It is reopened and revised under the provisions of Sec.  
405.980(d) or (e); or
    (ii) An eligible party (or the party's representative) files a 
request for a hearing by an ALJ under Sec.  405.936.
    (2) The provisions regarding reopening of a reconsideration in 
Sec.  405.980(d) and (e) apply in the same manner to unfavorable and 
partially favorable decisions issued under this section.


Sec.  405.936  Hearings before an ALJ and decisions by an ALJ or 
Attorney Adjudicator.

    (a) Filing a request for hearing. An eligible party, the party's 
appointed representative, or an authorized representative who is 
dissatisfied with the reconsideration rendered by a QIC in Sec.  
405.934(c)(2), or a dismissal of a request for reconsideration, may 
request a hearing before an ALJ within 60 calendar days of receipt of 
the reconsideration. The request for hearing must include the elements 
specified in the QIC's reconsideration.
    (b) Applicability of other provisions. The provisions in Sec. Sec.  
405.1000 through 405.1064 that apply to ALJ hearings and decisions by 
an ALJ or an attorney adjudicator apply to the extent they are 
appropriate/in the same manner to ALJ hearings and decisions by an ALJ 
or an attorney adjudicator under this section unless otherwise 
specified.
    (c) Calculating the amount remaining in controversy for an ALJ 
hearing or judicial review. (1)(i) A request for ALJ hearing for an 
appeal under the provisions of Sec. Sec.  405.931 through 405.938 must 
meet the amount in controversy requirement in Sec.  405.1006(b).
    (ii) A request for judicial review in federal district court for an 
appeal under the provisions of Sec. Sec.  405.931 through 405.938 must 
meet the amount in controversy requirement in Sec.  405.1006(c), 
subject to the calculation methodology set forth in this paragraph.
    (2) For appeals under the provisions of Sec. Sec.  405.931 through 
405.938, the amount remaining in controversy for an ALJ hearing or for 
judicial review in federal district court under Sec.  405.1136 is 
determined by the sum of the billed charges on the Part B outpatient 
hospital claim and, as applicable, any billed charges for the SNF claim 
at issue, if such claims were submitted to Medicare. If no SNF claim 
was submitted for services furnished to the beneficiary, then the 
billed charges to the beneficiary as indicated on an itemized statement 
or evidence of payment made by the beneficiary for such services are 
used in calculating the amount remaining in controversy.
    (3) In the case of an appeal under the provisions of Sec. Sec.  
405.931 through 405.938 filed by an eligible party who was not enrolled 
in Part B at the time of hospitalization, and no Part B outpatient 
hospital claim was billed to Medicare, the amount remaining in 
controversy is determined by the charges billed to the beneficiary by 
the hospital for the outpatient hospital stay and billed charges for 
SNF services, if applicable. An itemized statement from the provider 
such services, or evidence of the payment made by the beneficiary to 
the provider is acceptable for the purpose of calculating the amount 
remaining in controversy.
    (4) Any payments made, including coinsurance and deductible, for 
the Part

[[Page 89534]]

B outpatient hospital claim, and as applicable, the SNF claim must not 
reduce the calculation of the amount in controversy for the purposes of 
a hearing or judicial review under this paragraph.
    (d) Notice and content of an ALJ or attorney adjudicator decision. 
(1) If the ALJ or attorney adjudicator determines that the inpatient 
admission, and as applicable, eligible SNF services, satisfied the 
relevant criteria for Part A coverage at the time the services were 
furnished, then the ALJ or attorney adjudicator issues notice of the 
favorable decision to the eligible party (or the party's 
representative).
    (ii) The ALJ or attorney adjudicator also notifies the hospital and 
SNF, as applicable, in the case of a favorable determination for Part A 
coverage.
    (2)(i) If the ALJ or attorney adjudicator determines that the 
inpatient admission, or as applicable, SNF services, did not satisfy 
the relevant criteria for Part A coverage at the time the services were 
furnished, then the ALJ or attorney adjudicator issues notice of the 
unfavorable or partially favorable decision to the eligible party (or 
the party's representative).
    (ii) The ALJ or attorney adjudicator issues a notice of a partially 
favorable decision to the SNF if the inpatient admission satisfied the 
relevant criteria for Part A coverage, but the SNF services did not 
satisfy the relevant criteria for Part A coverage.
    (3) The ALJ or attorney adjudicator decision issued to the eligible 
party (or the party's representative) must be written in a manner 
calculated to be understood by the eligible party (or the party's 
representative) and include all of the following:
    (i) A clear statement of the decision made by the ALJ or attorney 
adjudicator.
    (ii) The findings of fact.
    (iii) The conclusions of law.
    (iv) The reason for the determination that the hospital admission, 
and as applicable SNF services, satisfied or did not satisfy the 
relevant criteria for Part A coverage at the time the services were 
furnished, and, to the extent appropriate, a summary of any clinical or 
scientific evidence used in making the determination.
    (v) The procedures for obtaining additional information concerning 
the decision, such as specific provisions of the policy, manual, 
regulations, or other rules used in making the decision.
    (vi) If a favorable decision, the effect of such decision, 
including, as applicable, a statement about the obligation of the SNF 
to refund any amounts collected for the covered SNF services, and that 
the SNF may then submit a new claim(s) for services covered under Part 
A in order to determine the amount of benefits due.
    (vii) If an unfavorable decision or a partially favorable decision, 
information about the procedures for filing a request for review by the 
Appeals Council under Sec.  405.938.
    (4) As applicable, a notice of a favorable ALJ or attorney 
adjudicator decision (including a decision for a beneficiary not 
enrolled in the Supplementary Medical Insurance program (Medicare Part 
B) at the time of the beneficiary's hospitalization) issued to the SNF, 
includes the following:
    (i) A clear statement of the decision made by the ALJ or attorney 
adjudicator.
    (ii) The findings of fact.
    (iii) The conclusions of law.
    (iv) The reason for the determination that the SNF services, 
satisfied the relevant criteria for Part A coverage at the time the 
services were furnished, and to the extent appropriate, a summary of 
any clinical or scientific evidence used in making the determination.
    (v) The effect of such decision, including a statement explaining 
that the SNF must refund any payments collected from the beneficiary 
for the covered SNF services, and that the SNF may then submit a new 
claim(s) to determine the amount of benefits due for the covered 
services.
    (5) In the case of a favorable ALJ or attorney adjudicator decision 
for a beneficiary not enrolled in the Supplementary Medical Insurance 
program (Medicare Part B) at the time of beneficiary's hospitalization, 
notice is issued to the hospital that includes all of the following:
    (i) A clear statement of the decision made by the ALJ or attorney 
adjudicator.
    (ii) The findings of fact.
    (iii) The conclusions of law.
    (iv) The reason for the determination that the hospital admission 
satisfied the relevant criteria for Part A coverage at the time the 
services were furnished, and to the extent appropriate, a summary of 
any clinical or scientific evidence used in making the determination.
    (v) The effect of such decision, including a statement explaining 
that the hospital must refund any payments collected for the outpatient 
hospital services, and that the hospital may then submit a new Part A 
inpatient claim in order to determine the amount of benefits due for 
covered services.
    (6) In the case of a partially favorable decision issued to a SNF, 
the notice includes the following:
    (i) A clear statement of the decision made by the ALJ or attorney 
adjudicator.
    (ii) The findings of fact.
    (iii) The conclusions of law.
    (iv) The reason for the determination that the hospital admission 
satisfied the relevant criteria for Part A coverage at the time the 
services were furnished, and the reason the SNF services did not 
satisfy the relevant criteria for Part A coverage, and to the extent 
appropriate, a summary of any clinical or scientific evidence used in 
making the determination.
    (v) The effect of such decision, including a statement explaining 
that the decision is being sent for informational purposes only, and 
that only the eligible party may appeal the decision to the Medicare 
Appeals Council under Sec.  405.938.
    (7) The timeframe within which notices must be issued under this 
paragraph are determined under the provisions in Sec.  405.1016.
    (e) Effect of a favorable ALJ or attorney adjudicator decision. 
(1)(i) If the ALJ or attorney adjudicator issues a decision that the 
beneficiary's inpatient admission satisfied the relevant criteria for 
Part A coverage and the hospital's decision to change the inpatient 
admission to outpatient receiving observation services was therefore 
erroneous, the beneficiary's reclassification as an outpatient is 
disregarded for the purposes of determining Part A benefits, including 
Part A SNF coverage, if applicable.
    (ii) For the purposes of effectuating a favorable decision by an 
ALJ or attorney adjudicator any claims previously submitted for 
outpatient hospital services and payments made for such services 
(including any applicable deductible and coinsurance amounts) are not 
reopened or revised by the MAC, and payment, as applicable, for covered 
SNF services may be made by the MAC to the SNF without regard to the 
hospital claim.
    (2) In order to determine Part A benefits to be paid and to make 
payment for covered services as a result of a favorable decision, as 
applicable:
    (i) The SNF that furnished services to the beneficiary must refund 
payments previously collected from the beneficiary for the covered 
services and may then submit a Part A claim(s) for such services within 
180 calendar days of receipt of the notice of a favorable decision;
    (ii) In the case of an appeal for a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization, the hospital that furnished 
services must refund any payments collected for the outpatient hospital 
services and may

[[Page 89535]]

then submit a Part A inpatient claim for such services within 180 
calendar days of receipt of the notice of a favorable decision.
    (3) The hospital, and as applicable, the SNF, must comply with all 
applicable provisions regarding charges to the beneficiary for covered 
services, including but not limited to relevant provisions in part 489 
Subparts B through D of this chapter.
    (4) A favorable ALJ or attorney adjudicator decision is considered 
binding unless it is reopened and revised under the provisions of 
Sec. Sec.  405.980 through 405.986. The provisions regarding reopening 
of an ALJ or attorney adjudicator decision in Sec.  405.980(d) and (e) 
apply in the same manner to favorable ALJ or attorney adjudicator 
decisions issued under this section.
    (5) The notice of a favorable decision issued to a hospital and, as 
applicable, notice of a favorable or partially favorable decision sent 
to a SNF does not convey party status to such provider.
    (f) Effect of an unfavorable or partially favorable ALJ or attorney 
adjudicator decision. (1) An unfavorable or partially favorable ALJ or 
attorney adjudicator decision is considered binding unless--
    (i) It is reopened and revised under the provisions of Sec.  
405.980(d) or (e); or
    (ii) An eligible party (or the party's representative) files a 
request for Medicare Appeals Council review under Sec.  405.938.
    (2) The provisions regarding reopening of an ALJ or attorney 
adjudicator decision in Sec.  405.980(d) and (e) apply in the same 
manner to unfavorable and partially favorable decisions issued under 
this section.


Sec.  405.938  Review by the Medicare Appeals Council and judicial 
review.

    (a) Filing a request for Council review. An eligible party, the 
party's appointed representative, or an authorized representative who 
is dissatisfied with the unfavorable decision of an ALJ or an attorney 
adjudicator in Sec.  405.936(d)(2) may request the Council review the 
decision within 60 calendar days of receipt of the decision. The 
request for review must contain the elements specified in the ALJ or 
attorney adjudicator's decision notice.
    (b) Applicability of other provisions. The provisions in Sec. Sec.  
405.1100 through 405.1130 that apply to Council review apply to the 
extent they are appropriate/in the same manner to Council review under 
this section unless otherwise specified.
    (c) Notice of the Council's action. (1) After it has reviewed all 
the evidence in the administrative record and any additional evidence 
received, subject to the limitations on consideration of additional 
evidence in Sec.  405.1122, the Council makes a decision or remands the 
case to an ALJ or attorney adjudicator.
    (2) The Council may adopt, modify, or reverse the ALJ's or attorney 
adjudicator's decision or recommended decision.
    (3) Notice of the Council's decision or remand order is issued to 
the eligible party (or the party's representative).
    (i) In the case of a modification or reversal of the ALJ's or 
attorney adjudicator's decision that is favorable to the eligible 
party, the Council's decision includes information regarding the effect 
of such decision, including, as applicable, a statement about the 
obligation of the SNF to refund any amounts collected from the 
beneficiary for the covered SNF services, and that the SNF may then 
submit a new claim(s) for services covered under Part A in order to 
determine the amount of benefits due.
    (ii) If the appeal involves a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization, a modification or reversal of the 
ALJ's or attorney adjudicator's decision that is favorable to the 
eligible party with respect to hospital services also includes a 
statement about the obligation of the hospital to refund any amounts 
collected for the outpatient hospital services, and that the hospital 
may then submit a new claim for covered inpatient hospital services in 
order to determine the amount of benefits due.
    (iii)(A) If the Council adopts or modifies an ALJ or attorney 
adjudicator decision that is unfavorable or partially favorable to the 
eligible party, the decision includes information about the procedures 
for filing a request for judicial review under Sec.  405.1136, 
including information regarding the amount in controversy requirement 
in Sec.  405.936(c).
    (B) A partially favorable decision issued by the Council refers to 
a determination that the inpatient admission satisfied the relevant 
criteria for Part A coverage but the SNF services did not satisfy the 
relevant criteria for Part A coverage.
    (4) Notice of a Council decision, favorable or partially favorable 
to the eligible party, that modifies or reverses the decision or 
recommended decision by an ALJ or attorney adjudicator, or a remand 
order that is favorable to the eligible party, is issued to the SNF, as 
applicable, and to the hospital in the case of an appeal filed by, or 
on behalf of, a beneficiary not enrolled in the Supplementary Medical 
Insurance program (Medicare Part B) at the time of hospitalization.
    (i)(A) Notice issued to the SNF includes information regarding the 
effect of such decision, including, as applicable, a statement 
explaining that the SNF must refund any payments collected from the 
beneficiary for the covered SNF services, and that the SNF may then 
submit a new claim(s) to determine the amount of benefits due for the 
covered services.
    (B) A decision that is partially favorable to the eligible party is 
sent to the SNF and explains the reason the hospital admission 
satisfied the relevant criteria for Part A coverage at the time the 
services were furnished, the reason the SNF services did not satisfy 
the relevant criteria for Part A coverage and explains that the 
decision is being sent for informational purposes only.
    (ii) Notice issued to a hospital (in the case of an appeal filed 
by, or on behalf of, a beneficiary not enrolled in the Supplementary 
Medical Insurance program (Medicare Part B) at the time of 
hospitalization) includes information regarding the effect of such 
decision, including a statement explaining that the hospital must 
refund any payments collected for the outpatient hospital services, and 
that the hospital may then submit a new Part A inpatient claim in order 
to determine the amount of benefits due for covered services.
    (5) The timeframe within which notices must be sent under this 
paragraph are determined under the provisions in Sec.  405.1100.
    (d) Effect of a favorable Council decision. (1)(i) If the Council 
issues a decision that the beneficiary's inpatient admission satisfied 
the relevant criteria for Part A coverage and the hospital's decision 
to change the inpatient admission to outpatient receiving observation 
services was therefore erroneous, the beneficiary's reclassification as 
an outpatient is disregarded for the purposes of determining Part A 
benefits, including both Part A hospital coverage and Part A SNF 
coverage, if applicable.
    (ii) For the purposes of effectuating a favorable decision by the 
Council, any claims previously submitted for outpatient hospital 
services and payments made for such services (including any applicable 
deductible and coinsurance amounts) are not reopened or revised by the 
MAC, and payment, as applicable, for covered SNF services may be made 
by the MAC to the SNF without regard to the hospital claim.

[[Page 89536]]

    (2) In order to determine Part A benefits to be paid and to make 
payment for covered services as a result of a favorable decision, as 
applicable--
    (i) The SNF, that furnished services to the beneficiary must refund 
payments previously collected from the beneficiary for the covered 
services and may then submit a Part A claim(s) for such services within 
180 calendar days of receipt of the notice of a favorable decision;
    (ii) In the case of an appeal for a beneficiary not enrolled in the 
Supplementary Medical Insurance program (Medicare Part B) at the time 
of the beneficiary's hospitalization, the hospital that furnished 
services must refund any payments collected for the outpatient hospital 
services and may then submit a Part A inpatient claim for such services 
within 180 calendar days of receipt of the notice of a favorable 
decision.
    (3) The hospital, and as applicable, the SNF, must comply with all 
applicable provisions regarding charges to the beneficiary for covered 
services, including but not limited to relevant provisions in part 489 
Subparts B through D of this chapter.
    (4) A favorable Council decision is considered final and binding 
unless it is reopened and revised under the provisions of Sec. Sec.  
405.980 through 405.986. The provisions regarding reopening of a 
Council decision in Sec.  405.980(d) and (e) apply in the same manner 
to favorable Council decisions issued under this section.
    (5) The notice of a favorable decision issued to a hospital and, as 
applicable, notice of a favorable or partially favorable decision 
issued to SNF does not convey party status to such provider.
    (e) Effect of an unfavorable or partially favorable Appeals Council 
decision. (1) An unfavorable or partially favorable Appeals Council 
decision is considered final and binding unless it is reopened and 
revised under the provisions of Sec.  405.980(d) or (e), or a Federal 
district court issues a decision modifying the Council's decision.
    (2) The provisions regarding reopening of an Appeals Council 
decision in Sec.  405.980(d) and (e) apply in the same manner to 
unfavorable and partially favorable decisions issued under this 
section.
    (f) Judicial review. (1) An eligible party (or the party's 
representative) dissatisfied with a final and binding decision under 
paragraph (e) of this section who satisfies the amount in controversy 
requirement in Sec.  405.936(c) may request judicial review in Federal 
district court under the procedures set forth in Sec.  405.1136.
    (2) An eligible party (or the party's representative) who satisfies 
the amount in controversy requirement in Sec.  405.936(c) and the 
requirements to escalate a case from the Council in Sec.  405.1132 may 
request judicial review in Federal district court under the procedures 
set forth in Sec.  405.1136.
0
3. The heading of subpart J is revised to read as follows:

Subpart J--Procedures and Beneficiary Rights for Expedited 
Determinations and Reconsiderations When Coverage Is Changed or 
Terminated

0
4. Add Sec. Sec.  405.1210, 404.1211, and 405.1212 to read as follows:


Sec.  405.1210  Notifying eligible beneficiaries of appeal rights when 
a beneficiary is reclassified from an inpatient to an outpatient 
receiving observation services.

    (a) Applicability and scope. (1) For purposes of Sec. Sec.  
405.1210 through 405.1212, the term ``hospital'' is defined as any 
facility providing care at the inpatient hospital level, whether that 
care is short term or long term, acute or non-acute, paid through a 
prospective payment system or other reimbursement basis, limited to 
specialty care or providing a broader spectrum of services. This 
definition includes critical access hospitals (CAHs).
    (2) For purposes of Sec. Sec.  405.1210 through 405.1212, the 
change in status occurs when a beneficiary is reclassified from an 
inpatient to an outpatient receiving observation services (as defined 
in Sec.  405.931(h)).
    (3) For purposes of Sec. Sec.  405.1210 through 405.1212, a 
beneficiary is eligible to pursue an appeal regarding a change in 
status when the beneficiary meets all the following:
    (i) Was formally admitted as a hospital inpatient in accordance 
with an order for inpatient admission by a physician or other qualified 
practitioner.
    (ii) Was subsequently reclassified by the hospital as an outpatient 
receiving observation services after the admission.
    (iii)(A) Was not enrolled in Part B coverage at the time of the 
beneficiary's hospitalization; or
    (B) Stayed at the hospital for 3 or more consecutive days but was 
classified as an inpatient for fewer than 3 days.
    (iv) The period ``3 or more consecutive days'' is counted using the 
rules for determining coverage of SNF services under section 1861 of 
the Act and Sec.  409.30 of this chapter (that is, a beneficiary must 
have a qualifying inpatient stay of at least 3 consecutive calendar 
days starting with the admission day but not counting the discharge 
day).
    (b) Advance written notice of appeal rights. For all eligible 
beneficiaries, hospitals must deliver valid, written notice of an 
eligible beneficiary's' right to pursue an appeal regarding the 
decision to reclassify the beneficiary from an inpatient to an 
outpatient receiving observation services. The hospital must use a 
standardized notice specified by CMS in accordance with the following 
procedures:
    (1) Timing of notice. The hospital must provide the notice not 
later than 4 hours before release from the hospital and as soon as 
possible after the earliest of either of the following:
    (i) The hospital reclassifies the beneficiary from an inpatient to 
an outpatient receiving observation services and the beneficiary is not 
enrolled in Part B.
    (ii) The hospital reclassifies the beneficiary from an inpatient to 
an outpatient receiving observation services and the beneficiary has 
stayed in the hospital for 3 or more consecutive days but was an 
inpatient for fewer than 3 days.
    (2) Content of the notice. The notice must include the following 
information:
    (i) The eligible beneficiary's' change in status and the appeal 
rights under Sec.  405.1211 if the beneficiary wishes to pursue an 
appeal regarding that change.
    (ii) An explanation of the implications of the change in status, 
including the potential change in beneficiary hospital charges 
resulting from a favorable decision, and subsequent eligibility for 
Medicare coverage for SNF services.
    (iii) Any other information required by CMS.
    (3) When delivery of the notice is valid. Delivery of the written 
notice of appeal rights described in this section is valid if--
    (A) The eligible beneficiary (or the eligible beneficiary's 
representative) has signed and dated the notice to indicate that he or 
she has received the notice and can comprehend its contents and except 
as provided in paragraph (b)(4) of this section; and
    (B) The notice is delivered in accordance with paragraph (b)(1) of 
this section and contains all the elements described in paragraph 
(b)(2) of this section.
    (4) If an eligible beneficiary refuses to sign the notice. The 
hospital may annotate its notice to indicate the refusal, and the date 
of refusal is considered the date of receipt of the notice.

[[Page 89537]]

Sec.  405.1211  Expedited determination procedures when a beneficiary 
is reclassified from an inpatient to an outpatient receiving 
observation services.

    (a) Beneficiary's right to an expedited determination by the QIO. 
An eligible beneficiary has a right to request an expedited 
determination by the QIO when--
    (1) A hospital changes a beneficiary's status from an inpatient to 
an outpatient receiving observation services; and
    (2) The beneficiary meets other eligibility criteria as specified 
in Sec.  405.1210(a)(3).
    (b) Requesting an expedited determination. (1) A eligible 
beneficiary who wishes to exercise the right to an expedited 
determination must submit a request to the QIO that has an agreement 
with the hospital as specified in Sec.  476.78 of this chapter. The 
request must be made in writing or by telephone before release from the 
hospital.
    (2) The eligible beneficiary, or his or her representative, upon 
request by the QIO, must be available to discuss the case.
    (3) The eligible beneficiary may, but is not required to, submit 
written evidence to be considered by the QIO in making its decision.
    (4) An eligible beneficiary who makes a timely request for an 
expedited QIO review in accordance with paragraph (b)(1) of this 
section is subject to the billing protection under paragraph (e) of 
this section, as applicable.
    (5) An eligible beneficiary who fails to make a timely request for 
an expedited determination by a QIO, as described in paragraph (b)(1) 
of this section, may still request an expedited QIO determination at 
any time. The QIO issues a decision in accordance with paragraph 
(c)(ii) of this section, but the coverage protection under paragraph 
(e) of this section does not apply.
    (c) Procedures the QIO must follow. (1) When the QIO receives the 
request for an expedited determination under paragraph (b)(1) of this 
section, it must immediately notify the hospital that a request for an 
expedited determination has been made.
    (2) The QIO determines whether the hospital delivered valid notice 
consistent with Sec.  405.1210(b)(3).
    (3) The QIO examines the medical and other records that pertain to 
the change in status.
    (4) The QIO must solicit the views of the eligible beneficiary (or 
the eligible beneficiary's representative) who requested the expedited 
determination.
    (5) The QIO must provide an opportunity for the hospital to explain 
why the reclassification of the beneficiary from an inpatient to an 
outpatient receiving observation services is appropriate.
    (6) The following timeframes apply for the QIO's decision when an 
eligible beneficiary requests--
    (i) A timely expedited determination in accordance with paragraph 
(b)(1) of this section, the QIO must make a determination within 1 
calendar day of receiving all requested pertinent information specified 
in paragraph (d)(1)(i) of this section; or
    (ii) An untimely request for a QIO expedited determination, the QIO 
must make a determination within 1 calendar day after the QIO receives 
all requested information specified in paragraph (d)(1)(i) of this 
section.
    (7) If the QIO does not receive the information needed to make its 
decision, it may make its determination based on the evidence at hand, 
or it may defer a decision until it receives the necessary information.
    (8) When the QIO issues an expedited determination, the QIO must 
notify the eligible beneficiary, the hospital, and SNF (if applicable) 
of its decision by telephone, followed by a written notice that must 
include the following information:
    (i) The basis for the determination.
    (ii) A detailed rationale for the determination.
    (iii) An explanation of the Medicare payment consequences of the 
determination.
    (iv) Information about the eligible beneficiary's right to an 
expedited reconsideration of the QIO's determination as set forth in 
Sec.  405.1212, including how to request a reconsideration and the time 
period for doing so.
    (d) Responsibilities of hospitals. (1)(i) Upon notification by the 
QIO of the request for an expedited determination, the hospital must 
supply all information that the QIO needs to make its expedited 
determination, including a copy of the notice as required in Sec.  
405.1210(b) of this section.
    (ii) The hospital must furnish this information as soon as 
possible, but no later than by noon of the calendar day after the QIO 
notifies the hospital of the request for an expedited determination.
    (iii) At the discretion of the QIO, the hospital must make the 
information available by phone or in writing (with a written record of 
any information not transmitted initially in writing).
    (2)(i) At an eligible beneficiary's (or representative's) request, 
the hospital must furnish the beneficiary with a copy of, or access to, 
any documentation that it sends to the QIO, including written records 
of any information provided by telephone.
    (ii) The hospital may charge the beneficiary a reasonable amount to 
cover the costs of duplicating the documentation or delivering or both 
it to the beneficiary.
    (iii) The hospital must accommodate such a request by no later than 
close of business of the first calendar day after the material is 
requested.
    (e) Billing during QIO expedited review. When an eligible 
beneficiary requests an expedited determination in accordance with 
paragraphs (b)(1) through (b)(4) of this section, the hospital may not 
bill the beneficiary for any disputed services until the expedited 
determination process (and reconsideration process, if applicable) has 
been completed.
    (f) Effect of an expedited QIO determination. The QIO determination 
is binding for payment purposes upon the eligible beneficiary, 
hospital, and MAC, except if the eligible beneficiary is dissatisfied 
with the determination, he or she may request a reconsideration 
according to the procedures described in Sec.  405.1212.


Sec.  405.1212  Expedited reconsideration procedures regarding Part A 
coverage when a beneficiary is reclassified from an inpatient to an 
outpatient receiving observation services.

    (a) Beneficiary's right to an expedited reconsideration. An 
eligible beneficiary who is dissatisfied with a QIO's expedited 
determination per Sec.  405.1211(c)(6) may request an expedited 
reconsideration by the QIO identified in the written notice specified 
in Sec.  405.1211(c)(8)(iv).
    (b) Requesting an expedited reconsideration. (1) An eligible 
beneficiary who wishes to obtain an expedited reconsideration must 
submit a request for the reconsideration to the appropriate QIO, in 
writing or by telephone, by no later than noon of the calendar day 
following initial notification (whether by telephone or in writing) 
after receipt of the QIO's determination.
    (2) The eligible beneficiary, or his or her representative, must be 
available to answer questions or supply information that the QIO may 
request to conduct its reconsideration.
    (3) The eligible beneficiary may, but is not required to, submit 
evidence to be considered by the QIO in making the reconsideration.
    (4) An eligible beneficiary who makes a timely request for an 
expedited reconsideration in accordance with paragraph (b)(1) of this 
section is subject to the billing protection under paragraph (e) of 
this section, as applicable.

[[Page 89538]]

    (5) An eligible beneficiary who fails to make a timely request for 
an expedited reconsideration by a QIO, as described in paragraph (b)(1) 
of this section, may still request an expedited QIO reconsideration at 
any time. The QIO issues a reconsideration in accordance with paragraph 
(c)(3)(ii) of this section, but the billing protection under paragraph 
(e) of this section does not apply.
    (c) Procedures and responsibilities of the QIO. (1) On the day the 
QIO receives the request for an expedited reconsideration under 
paragraph (b) of this section, the QIO must immediately notify the 
hospital of the request for an expedited reconsideration.
    (2) The QIO must offer the eligible beneficiary and the hospital an 
opportunity to provide further information.
    (3) When the eligible beneficiary makes--
    (i) A timely request from in accordance with paragraph (b)(1) of 
this section, the QIO must make a reconsideration determination within 
2 calendar days of receiving all requested pertinent information; or
    (ii) An untimely request, the QIO must make a reconsideration 
determination within 3 calendar days of receiving all requested 
pertinent information.
    (4) When the QIO issues an reconsideration determination, the QIO 
must notify the eligible beneficiary, the hospital, and SNF, if 
applicable, of its decision by telephone, followed by a written notice 
that must include the following information:
    (i) The basis for the determination.
    (ii) A detailed rationale for the determination.
    (iii) An explanation of the Medicare payment consequences of the 
determination.
    (iv) Information about the eligible beneficiary's right to appeal 
the QIO's reconsideration decision to OMHA for an ALJ hearing in 
accordance with subpart I of this part, including how to request an 
appeal and the time period for doing so.
    (d) Responsibilities of the hospital. A hospital may, but is not 
required to, submit evidence to be considered by a QIO in making its 
reconsideration decision. If a hospital fails to comply with a QIO's 
request for additional information beyond that furnished to the BFCC-
QIO for purposes of the expedited determination, the QIO makes its 
reconsideration decision based on the information available.
    (e) Billing during QIO reconsideration. When an eligible 
beneficiary requests an expedited reconsideration in accordance with 
the deadline specified in paragraph (b)(1) of this section, the 
hospital may not bill the beneficiary for any disputed services until 
the QIO makes its reconsideration decision.
    (f) Effect of an expedited QIO reconsideration. The QIO expedited 
reconsideration is binding for payment purposes only, upon the eligible 
beneficiary, hospital, and MAC, except if a beneficiary elects to 
request a hearing by an ALJ in accordance with 42 CFR part 478 subpart 
B if he or she is dissatisfied with the expedited reconsideration 
decision.

PART 476--QUALITY IMPROVEMENT ORGANIZATION REVIEW

0
5. The authority citation for part 476 continues to read as follows:

    Authority: 42 U.S.C. 1302 and 1395hh.

0
6. Section 476.71 is amended by adding paragraph (a)(9) to read as 
follows:


Sec.  476.71  QIO review requirements.

    (a) * * *
    (9) Hospital reclassification of a beneficiary's inpatient 
admission status to that of an outpatient receiving observation 
services when a beneficiary meets the eligibility criteria at 
Sec. Sec.  405.1210 through 405.1212 of this chapter. Appeals of 
determinations are available as specified in Sec.  405.1212(f) of this 
chapter.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
7. The authority citation for part 489 continues to read as follows:

    Authority: 42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 1395cc, 
1395ff, and 1395hh.

0
8. Section 489.27 is amended by revising the section heading and 
paragraph (b) to read as follows:


Sec.  489.27  Beneficiary notice of discharge or change in status 
rights.

* * * * *
    (b) Notification by hospitals and other providers. Hospitals and 
other providers (as identified at Sec.  489.2(b)) that participate in 
the Medicare program must furnish each Medicare beneficiary, or 
representative, applicable CMS notices in advance of discharge, 
termination of Medicare services, or of changes from inpatient to 
outpatient status, including the notices required under Sec. Sec.  
405.1200, 405.1202, 405.1206, 405.1210, and 422.624 of this chapter.

    Dated: December 18, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-28152 Filed 12-21-23; 11:15 am]
BILLING CODE 4120-01-P