Members of the U.S. Senate Special Committee on Aging called on the CMS during a hearing Wednesday to make changes to Medicare's recovery audit contractor program, which some providers have identified as a driving force behind the rise in observation stays in recent years.
Committee members encouraged the agency to implement recommendations recently backed by the Medicare Payment Advisory Commission, in addition to making other changes to address the "hospital observation stay crisis."
Committee Chair Susan Collins (R-Maine) noted that observation stays can have a "devastating" monetary effect on Medicare beneficiaries.
"The financial consequences of these stays matter," Collins said. "They can be severe. For example, seniors can be held responsible for outpatient copayments and prescription drug costs that they otherwise would not have been responsible for as an inpatient."
Under Medicare Part A, beneficiaries admitted as inpatients will generally pay a one-time deductible for all hospital services for the first 60 days of a stay, according to the CMS (PDF). However, beneficiaries who are treated on an outpatient observation basis face a 20% copay for physicians' services. Additionally, patients who are not admitted to the hospital as inpatients for at least three days will not receive Medicare coverage for subsequent care in skilled-nursing facilities.
Observation stays have increased due to a number of factors, including audit contractor activities, according to Dr. Jyotirmaya Nanda, system medical director for informatics and physician compliance at the Center for Clinical Excellence and Corporate Responsibility at St. Louis-based SSM Health Care. Nanda testified at the hearing on behalf of the American Hospital Association.
"The auditors and prosecutors have made it clear that they believe observation status can serve as a substitute for inpatient admission in many cases," Nanda said. "As a result of these inappropriate denials and actions, hospitals are left in an untenable position."
Mark Miller, executive director of the Medicare Payment Advisory Commission, testified that MedPAC has recently backed recommendations for reforming the RAC program, which would include withdrawing the controversial "two-midnight" payment rule for inpatient hospital stays, reducing the contingency fee for contractors with high overturn rates, and limiting the "look-back" review period.
In response to questioning about the CMS' action on these recommendations, Miller said, "I think they've taken some steps in these directions."
CMS Deputy Administrator and Director Sean Cavanaugh, another hearing witness, confirmed that his agency has already taken action to change the RAC process.
"For example, we have started in the existing contracts to get RACs to focus on high denial rates," he said.
Cavanaugh also said the CMS is considering feedback and criticism from hospitals and physicians concerning the two-midnight policy and will respond in a proposed rule on outpatient prospective payments that the agency will release this summer.
Spencer Young, senior vice president of clinical operations for CMS recovery auditor Health Data Insights, testified about the importance of RACs, which he said have recovered billions for Medicare since 2006.
"Recovery auditors review no more than 2% of any provider's claims," he said. "Recovery auditors are among the most highly regulated contractors serving Medicare."
Still, some providers and hospital advocates say the RAC program needs to change.
"I think some of the observation stay issues have come about in large part because of the RAC audits," said Ellen Kugler, executive director of the National Association of Urban Hospitals. "Hospitals are being cautionary because of retroactive take-backs."
Sen. Claire McCaskill (D-Mo.), ranking member of the committee, seemed to agree that the RAC program needs work.
"I think there are a lot of things that need to get fixed here," she said at the hearing.
Helen Adamopoulos is a freelance reporter based in Chicago.