Revenue Cycle Management: Surprise Billing and More

New changes to federal reimbursement regulations could affect independent community hospitals. A lack of attention to these regulations could result in money left on the table—or even hinder their ability to serve their communities.

You could be missing out on the opportunity to receive additional reimbursement as either a Sole Community Hospital (SCH) or a Medicare Dependent Hospital (MDH). Both designations were created by legislation to address access-to-care issues and maintain the financial viability of rural hospitals.

Meanwhile, pending rules designed to protect consumers from what is known as ‘surprise billing’ could have unintended consequences.

Here’s a quick overview of the most relevant highlights from these developments:

SCH and MDH Designation

A hospital can become an SCH or an MDH but not both. Qualification as an SCH can be based on its isolated location (urban or rural, at least 35 miles from other like hospitals); distance from nearest like hospital which by definition excludes critical access hospitals. Hospitals located in rural areas within 25 to 35 miles may qualify if certain market share thresholds or travel time thresholds are satisfied.

The Medicare Dependent Hospital designation will expire on October 1, 2022, unless Congress passes extension legislation. Hospitals that are currently MDHs should review for SCH designation and, if qualified, file SCH applications with the Medicare Administrative Contractor. Note in the application that SCH should only be granted if Congress does NOT extend MDH status. As always, hospitals should ascertain that with a SCH designation reimbursements will be higher.

Basic criteria for MDH designation are a rural location, 100 or fewer acute care beds and Medicare utilization of at least 60 percent as reported on two of the three most recent final settled Medicare Cost Reports.

Another reimbursement opportunity for SCHs and MDHs is the decrease in patient discharges reimbursement adjustment. SCHs/MDHs that experience a five percent decrease in hospital discharges can qualify for an additional reimbursement amount if federal inpatient reimbursements are less than Medicare inpatient costs as determined through the Medicare Cost Report. With many U.S. hospitals experiencing a decrease in discharges due to the COVID-19 pandemic in their 2020 and 2021 fiscal years, multiple SCHs/MDHs may qualify for the decrease in patient discharges reimbursement payment.

Applications must be filed within 180 days of the final settlement of the Medicare Cost Report. Applications can be filed after the cost report is filed and Medicare Administrative Contractors will make a tentative payment for qualifying SCHs/MDHs.

Surprise Billing

The Biden administration has published interim final regulations implementing the Surprise Billing Act of 2021, which was included in the Consolidated Appropriation Act of 2021, enacted on December 27, 2020. The Surprise Billing Act and interim final regulations are specifically consumer protections established to limit patients’ out-of-pocket costs when receiving services at hospitals.

According to regulations published concurrently by multiple federal agencies including Centers for Medicare and Medicaid Services (CMS), the consumer protections that took effect January 1, 2022:

  • Ban balance billing in all cases.
  • Ban surprise billing for emergency services, including air ambulance services, requiring such services to be billed at in-network prices.
  • Ban high out-of-network cost-sharing for emergency medical services. Cost sharing will always be at in-network rates.
  • Post emergency and non-emergency services cost sharing will be at in-network rates as well unless providers provide specific surprise billing notices to patients and such patient provides a signed consent for out-of-network cost sharing.
  • Requires out-of-pocket estimates to uninsured patients.
  • Requires out-of-pocket estimates for insured patients. This is currently on hold until insurance carriers and providers develop appropriate infrastructure.
  • Remove patients from billing disputes between providers and insurers with creation of Independent Resolution Dispute entities and related process to determine appropriate out of network reimbursement rates.

Surprise billing regulation could have unintended consequences for patients, the National Rural Health Association (NRHA) has warned. NRHA is seeking modifications to avoid potential negative impacts on patients. Those include rules relating to emergency air medical services, which it says could leave patients without access to care in the most rural, underserved communities; and provisions subjecting rural providers to “overly burdensome” price transparency regulations, which it says could force struggling rural providers to devote more staff time to fulfilling unnecessary regulations.

In early 2022, Eastern District Court of Texas ruled that CMS and other federal agencies violated the Administrative Procedures Act when issuing the Surprise Billing Part II regulations. Specifically, the Court determined that the out-of-network rate was not consistent with the actual written statute defining the out of network rate. The decision has national effect and stays in place during the appeals process.

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Scott Cooper


Scott brings more than 15 years of experience in revenue cycle management to Ovation Healthcare. His career began at companies athenahealth and Nexus Healthcare Solutions where he focused on building tech-enabled revenue cycle services coupled with offshore capabilities to help business find opportunities at scale. At McKinsey & Company, he advised national health systems and RCM service providers on large-scale, operational transformations and performance programs focused on yield improvement and cost reduction. Most recently at Tegria, he led all revenue cycle services, transformation, and integration across the enterprise.