Senate wants some answers about ‘Medicare Twilight Zone’

As a result of the recent increased use of observation status hospital stays, the Senate Select Committee on Aging held a hearing to gain more information about the financial implications that such stays are having on Medicare beneficiaries and their families. The hearing was a follow-up to a previous hearing that found that the being placed on observation status can have “devastating” consequences, according to Committee Chairman Susan Collins (R-Me).

Observation status

A hospital decision to designate a patient as an admitted in-patient versus an outpatient placed on “observation status” can have significant financial consequences. Medicare Part A provides that in-patients are required to pay only a single deductible for services performed within hospitals, while outpatients are required to be an outpatient deductible and a percentage of a Medicare-allowed charge for each outpatient service, with no limit on charges for multiple outpatient services. Additionally, patients who spend fewer than three days in the hospital are not eligible for Medicare coverage of post-hospital care in a skilled nursing facility (SNF) (see AARP study: observation status is costly Medicare purgatory, April 21, 2015).

Two-Midnight Rule

In response to concerns over observation status, CMS proposed the Two-Midnight Rule, which provides that patients who are in the hospital for two midnights are considered to be inpatients. However, according to Mark Miller, Executive Director of the Medicare Payment Commission, hospitals have not responded favorably to the Rule, and the Commission recommended withdrawing the Rule and implementing its audit-related and other recommendations instead.

Jyotirmaya Nanda, M.D. of the American Hospital Association stated that, “CMS payment rules and overzealous auditors, such as RACs [Recovery Audit Contractors], and prosecutors are second-guessing physicians’ clinical judgment, placing hospitals and physicians in the difficult position of placing patients in observation status.” He added that the AHA will work with the Committee to, “develop clear federal policy on observation status, reform the RAC program and address payment regulations that inhibit reform efforts.”

However, Sean Cavanaugh, Deputy Administrator and Director of CMS expressed confidence that the Two-Midnight Rule would assist in clarifying federal policy with regard to the criteria to be used when determining whether inpatient admission to a hospital is “reasonable and necessary.” He also added that improvements were being made to the Recovery Auditor program, “that will help ease the implementation of new payment policies.”

Senate takes ‘spring break’; CMS delays ‘doc cuts’ and ‘two-midnight rule’

CMS has indicated that it will give Congress until April 15 to prevent Medicare payments cuts to physicians, and will extend the delay on enforcement of the “two midnight” payment rule until the end of April.

Doc cut

The Medicare payment cuts to physicians are triggered by Medicare’s “sustainable growth rate” formula (SGR), which established yearly targets for physicians’ service under Medicare, and are intended to control the growth in aggregate Medicare expenditures for physicians’ services. Congress has been trying to repeal the SGR formula since 1997.

On March 26, the House approved a $214 billion bill, H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, which would repeal the SGR formula. The vote was 392-37, with 180 Democrats and 212 Republicans voting yes. The Senate left on its spring break before taking action on the bill. When the Senate reconvenes on April 13, it will have only two days to act before the physician payment cuts kick in.

The 21-percent SGR cut was actually scheduled to take effect on March 31, but CMS indicated it would hold off processing claims at the lower rate until April 15, and will reprocess claims paid at a lower rate to reflect the new payment rates, if the Senate passes the bill.

The American Medical Association and the American Hospital Association both expressed extreme disappointment after the Senate failed to pass the SGR repeal bill before it recessed (see Extremely disappointed’ in SGR repeal voting delay, AMA implores Senate to act; AHA concurs, March 30, 2015.

Two-midnight payment rule

CMS also announced that it will delay enforcement of the “two midnight” payment rule for short hospital stays until April 30. This delay will allow the Senate time to pass H.R. 2, which not only repeals the SGR formula, but includes a six-month delay in enforcement of the two-midnight payment rule.

The two-midnight payment rule, which is opposed by inpatient hospitals, assumes that an inpatient admission is appropriate and Medicare Part A payment is warranted if a patient’s stay spans two midnights.

The two-midnight rule was designed to address an increase in observation stays inspired by hospital fears that Medicare’s recovery audit contractors would challenge their admissions. The policy has been repeatedly delayed by legislative and regulatory action. Hospitals claim that the policy undermines their professional judgment to admit a patient for less than two midnights (see Whether two midnights or more, observation is costly for patients, Health Law Daily, September 9, 2014).

CMS plans to continue its Inpatient Probe and Educate process until April 30, 2015, and will thereby continue to prohibit recovery auditor inpatient hospital patient status reviews through that date.

Kusserow’s Corner: Continuing Controversy with the Two-Midnight Rule

For a year, the Two-Midnight Rule (Rule) has turned into a saga, putting CMS at odds with health care providers. Last month, I reported on the growing controversy regarding it. The Rule was to offer new guidelines on when hospitals should pay for inpatient stays and when they should bill for outpatient services, including observation stays. It was to address a spike in outpatient care over the past decade by providing more clarity, but this does not appear to have happened. These inpatient-versus-outpatient decisions significantly affect (a) how much hospitals are paid, (b) how much beneficiaries have to pay, and (c) beneficiaries’ eligibility for skilled nursing facility (SNF) services once they leave a hospital. Under the Rule, most hospital stays lasting less than two midnights would be rejected for payment through Medicare Part A (although eligible for reimbursement at outpatient rates through Medicare Part B). If denied Part A payment, the burden will be on the provider to resubmit to Part B. Longer stays requiring hospital admission would be reimbursed at the more lucrative Part A inpatient rate.

The Problem with the Rule

Meeting the challenges of this Rule is far from easy. A patient is an inpatient only if admitted by a doctor formally, and this can be difficult. It depends on complex medical decision-making to make that determination. For many doctors, the Rule is understandably low on their list of priorities because, from a medical standpoint, it doesn’t make much sense to them. It may be important for the hospital, but whether a patient is designated as an inpatient or outpatient doesn’t really affect the doctor financially. Meeting the Rule will require doctors’ active help and the documentation required goes beyond a physician merely stating that he checked on an inpatient during rounds and that the patient was “stable.” The patient may be stable, but this does not convince medical reviewers that the patient was properly admitted as an inpatient. If the physician does not properly document expectation that a stay of at least two midnights is anticipated, along with proper documentation showing medical necessity, there will be a problem evidencing proper reimbursement. There is also a question of medical judgment as to the patient’s true condition, and the basis for supporting decisions based upon that determination. All this has the potential to turn into a big revenue problem. There have been several law suits filed challenging the rule and its reduction in payments to hospitals.

The Delay in Implementation

Congress placed the Rule on hold until early 2015 to buy time for CMS to provide new guidance. In response to the proposed regulations, CMS received a huge number of comments. The deadline to submit comments to CMS expired on June 30th. The provider position can be summed up in saying they believe that in cases where a physician or other qualified and licensed practitioner has determined that a patient met national guideline criteria to be admitted as a hospital inpatient, the care provided should be covered and paid by Medicare Part A, regardless of the length of stay.

What Hospitals Need to Do

Despite the fact that the Rule’s enforcement has been delayed, it’s still in effect. Until the Rule is settled by the courts and CMS, hospitals are going to have to prepare for the CMS contractors. As it currently stands, come March 15, 2015 (which may be pushed back further), the MACs and RACs may dispute payment after the fact, which can have a harrowing impact on a hospital’s revenue picture. The penalty for failing to properly document admission decisions is so serious to the revenue bottom line, that hospitals won’t be able afford not to taking immediate steps. The following are some suggestions:

  1. Move aggressively now to improve clinical documentation to support their admissions. The best way to do it is through real-time documentation on the patient electronic medical record.
  1. Accept the fact that the hospital will have to take on the burden of educating physicians as to the importance of this issue and get them on board to assist in providing the necessary supporting documentation for their medical determinations.
  1. Take note of the fact that the contractors, MACs and RACs, when unleashed, will be looking for key terms to help identify records that show medical necessity and those that don’t. The physician’s expectation that a stay will last at least two midnights must be adequately conveyed in the medical record; as noted above simply stating “stable” won’t suffice.
  1. Ensure that physicians understand that the record must not only contain certification that a stay of at least two midnights is expected, but that the documentation must support the physician’s expectation of the stay.
  1. The challenge of convincing physicians to develop the proper documentation may necessitate making it a condition of maintaining staff privileges, or for employed physicians, a critical performance evaluation factor.
  1. Compliance Officers can help their hospitals meet the challenge by ensuring ongoing program monitoring to ensure that the admission documentation is adequate. This includes (a) development of policies, procedures, and internal controls relating to this issue; (b) ensuring admitting physicians and staff have been properly trained on them; and (c) taking steps to have on line testing of the admissions documentation to ensure the rules are being properly followed. In addition, there needs to be ongoing auditing to verify the monitoring is working properly and validate that it is achieving the desired outcome.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Kusserow’s Corner: The Controversy Over the “Two Midnight Rule” Heats Up

Jodi D. Nudelman, Regional Inspector General (IG), testified before the House Committee on Ways and Means, Subcommittee on Health during a hearing on “Current Hospital Issues in the Medicare Program.” Much of the testimony focused on the Two Midnight Policy implemented by CMS last October. The objective of the policy was to offer new guidelines on when hospitals should pay for inpatient stays and when they should bill for outpatient services, including observation stays. CMS made a great effort to educate everyone on the new policy, including posting frequently asked questions and answers. These inpatient-versus-outpatient decisions significantly affect how much in payments go to a hospital, how much beneficiaries have to pay, and beneficiary eligibility for skilled nursing facility (SNF) services once they leave the hospital. The HHS Office of Inspector General (OIG) evaluated the use of observation stays and short patient stays before implementation of the new policy. It found that short inpatient stays were often for the same reason as observations stays, with Medicare paying about three times more for a short inpatient stay and observation stay. Six of the most common reasons for inpatient stays were among the 10 most common reasons for observations stays, and the most common for both was chest pain.

The OIG noted that not only did Medicare pay far more for short inpatient stays, but the same held true for beneficiaries. All in all, the OIG found hospitals varied considerably in their use of short inpatient and observation stays. The OIG stated that the findings in its 2013 report are still valid in the face of the new CMS policy. It noted that the new policy should definitely affect hospital use of observation and short inpatient stays, and that, in turn, will affect beneficiary payments. Another factor that the OIG cautioned is what effect the new policy will have on beneficiary access to SNF services.

At the same hearing, a senior Johns Hopkins Medical System executive testified that the number of hospital observation stays actually is having the opposite effect. He stated that the drastic increase has created an outcry among seniors and long-term care providers, because a beneficiary needs to be classified as an inpatient for three days to qualify for Medicare coverage of post-acute services. Since October 1, 2013, Hopkins has seen a threefold increase in the number of patients its physicians cautiously predicted would only stay only one midnight, and thus began as outpatients, but later had to admit for longer stays, demonstrating the complexity of anticipating length of stay based on a patient’s initial presenting symptoms. It was also reported that hospitals have protested the rule since it was announced and successfully lobbied to have enforcement delayed, saying it creates an arbitrary guideline that disregards clinical realities.

Last month the American Hospital Association, along with a coalition of members, filed two law suits challenging the rule and its reduction in payments to hospitals. At least three other lawsuits are also pending, one of which is on behalf of beneficiaries affected both by payments and their access to SNF services.

A lot more can be expected on this subject including increased reviews and assessments by the OIG.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

Copyright © 2014 Strategic Management Services, LLC. Published with permission.