Over the several years that the CMS and hospitals have been tussling over the reasons behind the steady rise in short-term observation stays, no one until now has suggested the increase represents a deliberate effort by hospitals to avoid Medicare's 30-day readmission penalties.
But in a blog post on the Health Affairs website last week, single-payer advocates Drs. David Himmelstein and Steffie Woolhandler made precisely that charge. They said the now-maximum penalty of 3% of Medicare revenue for excessive readmission rates “pressures hospitals to cheat, saps doctors' and nurses' intrinsic motivation to do good work even when no one is looking, and corrupts the data vital for quality improvement.”
They concluded with a rhetorical flourish. “As the graffiti artist Banksy once said: 'Become good at cheating and you never need to become good at anything else.'”
I'll be the first to admit that sorting out the perverse incentives in the hospital reimbursement system is like a visit to Dismaland, the dystopian “bemusement park” that Banksy and his associates created on 2½ acres of de-industrialized land in southwest England to express their displeasure with the indignities of modern life. But tying 30-day readmission reductions to the rise in observations stays is an unwarranted dismissal of the extraordinary changes Medicare's pay-for-performance program has had on provider behavior.
Readmissions for heart attack, heart failure and pneumonia, the first three outcomes measured by the program, began falling almost immediately after the penalties program went into effect. To some that might look suspicious. But even by the blog post's numbers, only 36% of readmission reductions were due to reclassifying inpatient stays as observation stays.
Something else clearly was going on. As Modern Healthcare reported repeatedly after the penalties went into effect, hospitals across the U.S. have adopted a number of strategies to reduce unnecessary readmissions. They've used data analytics to identify those most at risk of readmission.
They've created better discharge instructions. They've followed up with phone calls and home visits to make sure patients are scheduling follow-up visits with their primary-care physicians and taking their medications.
Despite all those efforts, less than a quarter of the nation's 3,400 hospitals will escape being penalized next year. If hospitals were trying to game the system, surely they would have done better than that.
The reality is that the rise in hospital observation stays began long before the readmissions penalty program went into effect. From 2006 to 2010, the total number of hours Medicare beneficiaries spent in observation status each year rose nearly 70%, according to a new study in the Journal of Hospital Medicine.
Among several factors driving the increase, the most important was hospitals' reaction to having their clinical decisions questioned by Medicare's recovery audit contractors, who were denying payment for short inpatient stays that the auditors claimed should have been paid at the lower observation-stay rate. Hospitals officials—notwithstanding their complaints that the private-sector auditors had a conflict of interest (they earned a portion of each recovery)—preferred the certainty of a smaller reimbursement for an observation stay to spending years protesting a RAC audit denial with no certainty of getting paid.
The CMS response—developed because the hospitals' reaction meant seniors put on observation status were denied Part A coverage for post-acute- care services tied to inpatient admissions—was the now infamous two-midnight rule, which went into effect in 2013.
That rule drew a line on the calendar for making the payment determination. After much protest, the agency this year proposed softening the criteria by giving greater discretion to admitting physicians and limiting the scope of the RAC auditors.
Hospitals still aren't happy. Comments are flooding into the agency. The final rule will be announced sometime this fall.
A lot is at stake in the CMS getting it right this time. Ending unwarranted observation stays will ensure seniors receive the post-acute services they need. It also, hopefully, will put an end to speculation that hospitals are trying to game the system to reduce 30-day readmission penalties.
