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Admissions conundrum
CMS looks to reduce long observation stays, but hospitals see it as another cut

By Jessica Zigmond
Posted: June 15, 2013 - 12:01 am ET

Federal officials are looking to scale back the use of long observation stays believed to be a response to Medicare auditors cracking down on inappropriate admissions.

Hospitals, though, say the proposed fix amounts to another pay cut, and advocates for beneficiaries say it won't help the higher costs seniors shoulder when they're not admitted.

The CMS' proposed rule for hospital inpatient services in 2014 includes significant changes on how to determine whether inpatient admissions are reasonable and necessary. According to the CMS, the number of Medicare beneficiaries who receive observation services for more than 48 hours increased to 8% in 2011 from 3% in 2006. Those stays are considered outpatient services that fall under Medicare Part B, even though patients might be unaware of the difference while they're in the hospital.

The agency noted in the proposed rule that hospitals have responded to the financial risk of admitting Medicare beneficiaries for inpatient stays that are later denied by recovery auditor contractors, or RACs, by treating them as outpatients under observation—often for a long period of time.

Officials also said in the rule that they're concerned by the trend of increasing observation stays because it means higher copayments for beneficiaries. And the issue can quickly become thornier and costlier for those patients, who often end up paying for skilled-nursing care after they leave the hospital because Medicare covers those services only after inpatient hospital stays of at least three days.

To address the problem, the CMS proposed that Medicare's external contractors would assume hospital admissions are reasonable and necessary for those beneficiaries who stay in a hospital through two midnights. That policy change, the CMS estimates, would increase Medicare inpatient expenditures by $220 million.

“They're proposing to offset this by prospectively a 0.2% cut to inpatient payments for 2014 and then stay in the base, so it's a permanent cut,” Joanna Kim, vice president of payment policy at the American Hospital Association, told Modern Healthcare. “We strongly oppose that proposal.”

Anna Howard, who has served as Drinker, Biddle and Reath's Medicare reimbursement and health policy director since 2012, said this move comes when hospitals are also facing readmission penalties, disproportionate-share hospital payments to Medicare and Medicaid, and payment reductions through sequestration.

“It's death by 1,000 cuts at the same time there is this move in healthcare out of the inpatient setting into the outpatient setting,” said Howard, who spent 11 years at AARP.

The AHA expects to submit its comments this week to the CMS and will suggest the agency make changes to the RAC program rather than use a time-based assumption to determine inpatient admissions, Kim said. Specifically, the association will recommend that the CMS instruct RACs to limit their reviews to information in a patient's medical record that the physician knew when the patient was admitted—and exclude any information after that.

“When you look back, hindsight is 20/20,” Kim said. “But if they only had what was in the medical records when the physician admitted the patient, it would be much more fair.” The AHA will also urge the CMS to ask the RACs to focus their audits on the severity of signs and symptoms in a patient, rather than concentrate solely on lengths of stay and outcomes.

And because RACs have a strong financial incentive to find overpayments, the AHA wants the CMS to impose a counter incentive for incorrectly denying payment for a patient stay.

“Now if a hospital appeals and wins, the RACs have to return the contingency fee for that denial,” Kim said. “We ask that rather than just that, an additional penalty be made,” she said. AHA data indicate that RACs have centered much of their attention on hospital claims for short hospital inpatient stays.

Meanwhile, the Center for Medicare Advocacy isn't happy with the proposal either. The beneficiary-rights organization will also submit comments this week, according to Toby Edelman, the organization's senior policy attorney. The CMS will accept comments on those and other changes in the inpatient prospective payment proposed regulation until June 25.

Edelman said inpatient determinations should be based on what's medically appropriate for the patient, not based on time, as the two-midnight policy would establish. And the proposed rule does not change current law that requires beneficiaries to stay three days in a hospital as an inpatient before Medicare will cover services in a skilled-nursing facility. The organization supports pending legislation that would amend the Social Security Act to address the matter.

“We want the outpatient time to be counted toward nursing home care,” said Edelman, who said she has lists of people who were in observational status for five or six days. And in many cases, she said, patients don't know that they're in observational status until they leave the hospital.

Follow Jessica Zigmond on Twitter: @MHjzigmond

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