Issues Arise When Total Joint Replacements Lack Medical Necessity Documentation

This week we are going to flash back a few years. Our first stop is in 2011, when First Coast Services Organization, the Medicare Administrative Contractor (MAC) for Florida, Puerto Rico, and the Virgin Islands, denied 92 percent of all claims for total joint replacement in an audit for lack of documentation of medical necessity.

Of course, 92 percent of the patients who had a total joint replacement did not have it done needlessly; it was just that the documentation supporting medical necessity was not available in the hospital medical records.

Nonetheless, this audit and the publicity it received was quite a wake-up call for many hospitals around the country. But apparently not for all, because earlier this year Palmetto GBA, the MAC for the Carolinas and the Virginias, did a similar audit and denied about 30 percent of total joint replacements for lack of documentation for medical necessity.

Perhaps due to the astounding findings in that report, Palmetto has continued its audits. And according to Brian Moore, MD, physician advisor at Carolinas Healthcare, these audits are increasingly arriving as pre-payment chart requests, perhaps signaling an increased level of concern by Palmetto.

But Palmetto did not do this in a vacuum; Dr. Moore also pointed out that it sent out a notice reminding providers of the documentation requirements specified in L33456, their Local Coverage Determination (LCD), and reiterating that even though the documentation may be in the physician’s office record, it also must be in the hospital chart.  

This notice from Palmetto also invites a flashback to 2014, when the Centers for Medicare & Medicaid Services (CMS) released the infamous series of transmittals that ended with Transmittal 541. That last issuing allowed contractors that deny a hospital inpatient claim for a surgery to also deny related claims submitted by the surgeon without any further medical record review. In this new notice, Palmetto stated that a hospital claim denial may also trigger a review to determine if the physician claim should also be denied.

But I’ll warn readers: one can only cry wolf so many times to the doctors. In 2014, many physician advisors and case management staff went to surgical department meetings and warned that CMS was dropping the hammer, and that the MACs were going to start denying payments to surgeons.

And what happened after this warning? Nothing. Transmittal 541 was never invoked. No physicians got denied. So I think it might be best to wait for a physician to be actually denied under this provision before sounding the alarm again. Sometimes doctors have to see it happen to actually believe that it could happen to them.

Since it appears that these denials may be more prevalent, Dr. Moore also spoke about the effect they may have on bundled payment programs such as the Comprehensive Care for Joint Replacement (CJR) program. And who would have guessed: it is not simple. In fact, it almost can be described as ludicrous.

According to the commentary that accompanied the rule establishing the program, the determining factor is when the denial occurs. And this may actually be a time when a pre-payment audit is a good thing. With CJR, 14 months after the end of each calendar year, once all eligible claims have been submitted for the surgeries occurring during that calendar year, CMS will calculate the 90-day expenditures for each patient, compare them to the target prices (which are based on a formula that accounts for a hospital’s historic spending and regional spending, quality measures, and CMS’s “vig”), and return any savings to the hospital.

So in very simple terms (there are lots of caveats, but they only muddy an already nearly incomprehensible explanation), if an admission is denied prior to the admission being reconciled and the $20,000 (an average amount paid for DRG 470) is recouped in the event of a post-pay audit or not even paid with a pre-payment audit, then that admission’s reconciliation would show that the episode cost at least $20,000 less than anticipated and the hospital would get that sum as a bonus. In other words, hospitals will be denied, but will lose no money.

On the other hand, if the admission is denied after reconciliation has occurred, then the $20,000 would be recouped and not retroactively applied to the episode’s total cost. That’s $20,000 lost: no payment for the hospital stay, no payment for the cost of the implant, and if that episode had savings already shared with collaborators, those savings cannot be recouped.

The surgeon’s professional fee is similarly complex, but of course in a different way: if that fee is recouped prior to reconciliation (or again, not paid out, if the audit was pre-payment), that sum will be considered savings once the admission is reconciled. But as savings, that money will go back to the hospital, which can then share it with contracted collaborators.

If the surgeon whose claim is denied is a collaborator, the amount that can be shared with the surgeon is limited by the rule to 50 percent of the original fee paid to the surgeon. So it is actually beneficial to a hospital when a total joint replacement admission is denied prior to reconciliation under CJR if the denial also results in the non-payment of the surgeon’s fee. The hospital will not only get back its $20,000 payment, but will also get half of the surgeon’s fee. But if they also have collaborating agreements with other providers, such as skilled nursing facilities, home care agencies, or other physicians, then the hospital has to share part of those $20,000 savings – and the math gets far more complex.

And just when I gave up trying to understand any permutations of this issue, a new one arose. After my discussion of this topic on Monitor Mondays, the RACmonitor Internet broadcast, David Glaser, Esq. reminded listeners that if there is a denial for medical necessity for a surgery for lack of documentation in the medical record, an appeal should be filed and will likely be won.

Of course, he is correct. But this also reminded me of a scenario in which an admission is denied post-payment but pre-reconciliation. In that case, the $20,000 will be recouped and then paid back to the hospital as savings, once reconciled. But what happens when that denial is appealed and two or more years later, when the matter finally makes it to the Qualified Independent Contractor (QIC) or an administrative law judge (ALJ), the hospital wins, as is likely once it collects the documentation from the surgeon?

With a “normal” denial overturned, the amount that was recouped is paid back to the provider. But since that $20,000 contributed to the bonus received by the hospital, does that mean the overturn of the denial will not result in a repayment of the $20,000 recouped? Or will the hospital get the $20,000 repaid because although the majority of the “savings” were due to that recoupment, they were not all due to the lack of payment to the hospital for the admission (and therefore, there is no reason the hospital should not get paid). If the latter is true, what hospital would not want such a denial? It may take a couple of years, but getting paid twice for the same surgery sure sounds enticing.

The options here are myriad. But trying to wrap your head around them is nearly impossible. Denials, even if they are certain to be reversed on appeal, are never desirable. So the best strategy is to avoid this situation completely; if there is no documentation for medical necessity in the hospital record, get it. In fact, if there is no documentation, don’t let the surgery be scheduled. Then you can avoid the head-spinning I experienced trying to understand and explain this.


Ronald Hirsch, MD, FACP, CHCQM, CHRI

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at R1 Physician Advisory Services. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute-care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the Advisory Board of the American College of Physician Advisors, a member of the American Case Management Association, and a Fellow of the American College of Physicians. Dr. Hirsch is a member of the RACmonitor editorial board and is regular panelist on Monitor Mondays. The opinions expressed are those of the author and do not necessarily reflect the views, policies, or opinions of R1 RCM, Inc. or R1 Physician Advisory Services (R1 PAS).

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