Protect Your Reimbursement by Preparing for CMS Inpatient Review Changes

The Centers for Medicare & Medicaid Services (CMS) recently announced that, beginning September 1, 2025, it will be changing the contractor and model used for inpatient hospital short stays reviews. These reviews will now be conducted by Medicare Administrative Contractors (MACs) instead of Quality Improvement Organizations (QIOs). 

If your team is responsible for responding to audit requests or protecting short stay inpatient reimbursement, now is the time to proactively respond. 

What Are Inpatient Hospital Reviews?

Inpatient stays occur when a patient stays in the hospital or other medical facility overnight rather than returning home the same day as intake. Inpatient reviews are post-payment or pre-payment reviews of these inpatient stay hospital claims.

These audits assess the medical necessity of an inpatient hospital stay and confirm that everything was properly documented. Claims are reviewed by CMS or its contractors.

Some reviews are systematic, but most require a red flag or trigger, meaning CMS looks for billing inconsistencies to justify the audit process. Common triggers for review include high denial rates, coding inconsistencies, abnormal billing patterns and large volumes of specific Diagnosis-Related Groups (DRGs).

What Are Short Stays?

Short stays are a subset of inpatient claims that occur when a patient has been admitted to the hospital for more than one night, but less than “two midnights.” The two-midnight rule is the defining criterion for determining whether an inpatient stay is considered a short stay. These short stay claims are the primary target of recent changes announced by CMS.

Why Inpatient Reviews Matter to Hospitals

Like any audit, it’s important for hospitals to be prepared for inpatient reviews to protect reimbursement. Lack of preparation can lead to:

• Financial Impacts: Inpatient stays tend to have a high-dollar value. Denied inpatient claims can result in loss of reimbursement, downcoding or disrupted cash flow. 
• Compliance and Risk: Repeated denials may trigger broader audits or financial penalties. Patterns of incorrect billing increase the risk of being flagged by CMS for further review.
• Operational Burden: Reviews demand extensive and timely documentation, which eats up resources and slows the revenue cycle, all while taking valuable time away from staff.

The News from CMS

To date, the QIO contractor Livanta has been handling short term inpatient hospital reviews. Starting September 1, 2025, this responsibility will move to MACs. According to the official announcement from CMS, this change will impact “acute care inpatient hospitals, long-term care hospitals and inpatient psychiatric facilities.” Registered Nurses will conduct the reviews, with MAC Medical Directors available for consultation.

Inpatient reviews are now part of the MAC Targeted Probe and Educate (TPE) program. While QIOs typically audit based on complaints and patient reports, TPE uses data analysis to focus on providers with outlier billing patterns. Identified providers will be required to submit 20-40 claims (sometimes fewer) for review.

Any issues with these claims will require follow-up education from CMS and a requirement to show proof of improvement. Three rounds of review may occur if errors persist, with individualized education for providers between each round.

What Exactly Will Change?

As per CMS, changes to inpatient reviews are fairly minimal. Review criteria and policies will stay the same. As an audit and education model, TPEs allow for the correction of errors. However, under the MAC’s jurisdiction, Short Stay Denials may still go through the standard five-level appeals process, similar to other MAC appeals, and providers are not reimbursed for producing documentation.

The two changes to note:

1. Review letters for inpatient audits will now be sent by MACs, not QIOs.
2. Short Stay Inpatient Hospital reviews are now part of the TPE program rather than the QIO model. This could affect volume.

Although CMS has stated the changes will be minor, this is still a shakeup to the existing process. To avoid being flagged for review and protect reimbursement, now is the time to tighten up your audit processes.

How Revenue Cycle Leaders Can Proactively Respond

As always, hospitals must remain diligent regarding robust documentation and audit preparation. Key activities to remain proactive include:

• Strengthen Clinical Documentation Integrity (CDI): Work with clinical teams to ensure documentation clearly supports the level of care and admission decision. Understanding the Two-Midnight Rule remains critical.
• Conduct Internal Audits: Review high-risk DRGs and short stay cases regularly to identify issues and detect errors before CMS.
• Educate Teams: Train your teams on inpatient criteria, medical necessity documentation and how to handle audit requests from MACs rather than QIOs.
• Monitor Denials and Appeals Trends: Use denial trend data to spot root causes and prevent repeated mistakes.

Protect Your Revenue with the Right Tools

Handling MAC audits manually can be a major drag on your team’s time and resources. Especially when MACs do not provide reimbursement for producing physical documentation. That’s why Office Ally’s Audit & Denial Tracker is a must-have for hospitals preparing for the next wave of CMS reviews.

Staying ahead of audits requires more than manual tracking. Audit & Denial Tracker creates a scenario where providers can save money on audit responses and apply it elsewhere, expand the responsibilities of team members or simply respond to audit requests with a lot less anxiety.

Audit & Denial Tracker helps revenue cycle teams:

• Centralize audit and denial data
• Automate appeals tracking and due dates
• Reduce the risk of missed deadlines and lost revenue
• Gain insights into trends across inpatient claims with powerful, real-time reporting
• Standardize and streamline workflows with task queues and notifications
• Customize workflows depending on payer requirements
• Enable secure electronic submission (esMD)—ideal for MACs and federal audits

A Unique Federal Advantage: Full Cycle esMD

Audit & Denial Tracker also offers Full Cycle esMD, a two-way, direct submission channel to CMS via the esMD Gateway. MACs do not offer reimbursement for printing and shipping documentation. Electronic submission is an easy way to save costs as esMD eliminates the need for manual printing and mailing. 

The virtual inbox feature allows Audit & Denial Tracker to provide alerts and reminders to reduce the risk of missed deadlines and documentation gaps. Transaction IDs provide confidence that CMS Contractors receive submissions in a timely and efficient manner.

Additionally, unlike QIOs, all MACs accept electronic documentation for the first level of appeal, and some accept the second level. With Audit & Denial Tracker, you can handle these submissions digitally and avoid printing, mailing, and tracking paper. 

Be Proactive, Not Reactive

CMS is refocusing its audit efforts. Take this as a sign that things are ramping up, not easing up. The best response is to tighten CDI, train teams and equip your organization with the proper tools to remain compliant.

Take control of inpatient reviews and payer audit requests with Audit & Denial Tracker from Office Ally. It’s the simple, powerful way to reduce audit risk and protect your bottom line. Learn more about using Audit & Denial Tracker.