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Observation vs. Inpatient Status Is Focus of Lawsuit, Proposed Medicare Changes

May 16, 2013 by Leave a Comment

One of the most complex and significant decisions a physician can make when treating a Medicare beneficiary at a hospital is whether to admit the patient as an inpatient or merely observe the patient for a day or so on an outpatient basis. If a beneficiary is admitted, then the inpatient services are covered under Medicare Part A. If the patient is under observation, he or she is considered an outpatient, and all services are covered and billed under Part B. The decision directly impacts the amount Medicare pays the hospital, the amount of the beneficiary’s liability, and whether the beneficiary is eligible for Medicare-covered care at a skilled nursing facility (SNF) after discharge from the hospital.

To further complicate the issue, a physician’s decision to admit a beneficiary as an inpatient can challenged and changed retroactively by a Medicare administrative contractor (MAC) or recovery audit contractor (RAC). The Part A payment may be denied even after the beneficiary has received post-hospital SNF care, greatly increasing the beneficiary’s liability with little or no way to appeal the contractor’s decision.

The confusion surrounding the choice between admission and observation has led to at least one lawsuit now underway in a federal district court in Connecticut. The HHS Office of Inspector General (OIG) is studying how much Medicare and beneficiaries paid for observation and related services in 2011 and the extent to which hospitals inform beneficiaries about observation services. And now CMS is proposing a formal definition of inpatient admission that would replace the current vague standard for deciding who is and who isn’t an inpatient.

Observation vs. Inpatient Admission

  Under current CMS policy, “an inpatient is a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will remain at least overnight and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed overnight.” (Medicare Benefit Policy Manual, Pub. 100-02,  ch. 1, §10.) Observation services are short-term treatments and assessments that hospitals use to determine whether a beneficiary should be admitted as an inpatient or discharged. (Medicare Claims Processing Manual, Pub. 100-04, ch. 4, § 290.1.)

CMS noted in its fiscal year 2014 proposed rule for the inpatient prospective payment system (IPPS) that the number of cases of Medicare beneficiaries receiving observation services for more than 48 hours had increased from about 3 percent in 2006 to about 8 percent in 2011. CMS said that this increase is partially attributable to the fact that MACs and RACs are increasingly denying inpatient determinations when they review hospital claims, and hospitals, in trying to avoid the cost of a later denial, are holding patients for longer periods of time for observation rather than admitting them.

CMS noted that beneficiaries who are treated for extended periods of time as hospital outpatients receiving observation services may incur greater financial liability than they would if they were admitted as hospital inpatients. In addition to the Part B copayment and any drugs not covered under Part B, the beneficiary is liable for the cost of post-hospital SNF care because Soc. Sec. Act sec. 1861(i) requires a prior three-day inpatient hospital stay to cover SNF care. In contrast, if the beneficiary was considered an inpatient, he or she would pay a one-time deductible for all hospital inpatient services provided during the first 60 days in the hospital, and a subsequent transfer to a SNF would be covered by Medicare Part A.

Bagnall v. Sebelius

In November 2011, a group of Medicare beneficiaries who had been hospitalized and then later discharged to SNFs only to discover that their nursing home stays were not covered by Medicare because they were considered to be under observation, as opposed to admitted, by the hospital, filed suit in the district court of Connecticut. The seven plaintiffs in Bagnall v Sebelius all incurred unexpected Part B coinsurance charges as well as thousands of dollars each in nursing home costs. A hearing in the case was scheduled for May 10, 2013.

The complaint notes that the beneficiaries were deprived of Part A coverage to which they were entitled, and thus forced to bear the financial responsibility for hospitalization and prescription drugs that are covered under Part A. They were then denied the right to coverage of their skilled nursing care, which in turn forced them either to pay the cost of that care or to be unable to obtain that care at all. Finally, the complaint notes that the beneficiaries did not receive notification of their observation status, and did not have any right under current Medicare law to appeal that status, depriving them of administrative review of their placement in observation status.

The beneficiaries want the court to decide if CMS’ policy of allowing hospitals to impose observation status on Medicare beneficiaries — even reversing a physician’s order to formally admit a beneficiary — violates the Administrative Procedure Act, the Medicare statute, the Freedom of Information Act, and the Due Process Clause. The class action includes all Medicare beneficiaries who, on or after January 1, 2009, have had or will have had any portion of a stay in a hospital treated as observation status and therefore not covered under Medicare Part A.

A recent report from the American Hospital Association  noted that patients who are admitted to a hospital from the emergency department (ED) are counted as inpatients rather than ED outpatients. However, as Medicare contractors, particularly RACs, have rejected more claims for inpatient services on the ground that they should have been furnished as outpatient services, hospitals have kept ED visitors in observation status more often and for longer periods of time. Patients in observation status receive many more services than other ED patients, and are those exposed to more out-of-pocket costs than beneficiaries admitted as inpatients.

The 2013 OIG Work Plan

As part of its work plan for 2013 the HHS OIG will examine the use of observation services from 2008 to 2011 and the characteristics of beneficiaries receiving observation services in 2011. OIG will determine how much Medicare and beneficiaries paid for observation and related services in 2011 and the extent to which hospitals inform beneficiaries about observation services.

CMS’ Proposal

CMS is proposing a specific definition for inpatient admissions as part of the IPPS update for fiscal year 2014 (see pgs. 657 to 681 and pgs. 1106 to 1108). The proposal states that hospital inpatient admissions spanning at least two midnights (i.e., more than one Medicare utilization day), would presumptively qualify as appropriate for payment under Medicare Part A. Conversely, those admissions that are less than two midnights would be inappropriate for Part A payment. This change is meant to provide more guidance on when a patient is paid as an inpatient under Medicare, which has left many beneficiaries having a longer outpatient hospital stay due to the hospital’s uncertainly about Medicare payments.

CMS also is proposing this standard as a benchmark for medical review of inpatient admissions: Medicare contractors would presume that hospital inpatient admissions are reasonable and necessary for beneficiaries who receive care over two midnights. Hospital services provided over a period of less than two midnights will be presumed to be provided on an outpatient basis. These proposals, if finalized, would go into effect October 1, 2013.

Filed Under: Appeals, Centers for Medicare and Medicaid, Claims, Conditions of Participation, coverage, HHS, Medicare, Part A, Part B, Prospective Payment Systems, Skilled Nursing

Sequester Impact Trickles Down to Cancer Patients, Nursing Homes, and Hospitals

April 15, 2013 by

A two percent cut to Medicare payments due to the budgetary sequester went into effect on April 1. The impact of the cuts is now becoming more apparent to cancer patients, nursing homes, and some hospitals.

Cancer Drugs

On April 3, the Washington Post ran a story about how some cancer clinics were turning away patients who needed specific cancer-fighting drugs.  While many prescription medicines are covered under a beneficiary’s Part D prescription drug plan, drugs that are provided incident to a physician’s services, i.e., the drug is commonly furnished in a physician’s office and is commonly either rendered without charge or included in the physician’s bill, are covered under Medicare Part B. 

Payments through Part D plans were specifically exempt from the two percent cut in Medicare payments that went into effect April 1, while Part B payments were not exempt. 

The payment limit for Part B drugs is based on the average sales price (ASP) of the drug for the date of service plus six percent, which covers administration and storage costs for the drugs. The two percent sequester cut, according to the Post article, is leading some clinics to turn away patients. Cancer patients can still get their medicine – they just have to go to a hospital to get it, which turns out being more expensive for both the patient (who faces higher co-payments for receiving services at the hospital) and the Medicare program itself (cancer treatment in a physician’s office is cheaper than that provided in a hospital). 

On April 9, Rep. Renee Ellmers (R-N.C.) introduced the “Cancer Patient Protection Act of 2013’’ (H.R. 1416) which would restore the payment levels for Part B drugs and biological to the levels that existed before the April 1 sequester cuts. 

Nursing Home Inspections

In a letter to state survey agencies, CMS noted that because of the sequester, the fiscal year (FY) 2013 budget for S&C activities was reduced by 5 percent from its FY 2012 level, about $19 million. The letter noted that CMS is protecting the ability of state survey agencies “to continue onsite complaint investigations and surveys of existing providers, while reducing expenses, suspending additions to the workload, reducing time spent on lower risk areas, and reducing the Centers for Medicare & Medicaid Services (CMS) Central Office (CO) services.” 

Related to this, CMS announced changes in Life Safety Code requirements regarding fire sprinklers and nursing homes, set to go into effect August 13, 2013. CMS is allowing states to offer a short form fire safety survey to nursing homes that have demonstrated compliance with fire sprinkler regulations in the past, allowing states to concentrate on-site inspections on facilities that do not have a high level of fire safety and those with a history of fire safety deficiencies.   

Not-For-Profit Hospitals

A report from Moody’s Investors Services highlights the potential impact if the sequester on not-for-profit hospitals continues throughout 2013. While Medicare reimbursements account for about 44 percent of gross patient revenues in not-for-profit hospitals, many hospitals receive well over 50 percent of their revenues from Medicare. According to Moody’s “the two percent reduction in Medicare reimbursement rates will squeeze finances of hospitals with outsized reliance on Medicare reimbursements, especially those that have not budgeted accordingly or made commensurate adjustments to expenditures or other revenues.” 

Hospitals dependent on Medicare money will feel increasing pressure to economize or look to merge with other hospitals, as the share of Medicare that makes up total U.S. health care spending increases as the population ages. 

In addition to the Medicare cuts levied on hospitals through the sequester, hospitals face an additional $309 billion in cuts through 2019. The Patient Protection and Affordable Care Act (P.L. 111-148) (PPACA) included $244 billion in cuts related to changes in the annual market basket updates for hospitals reimbursed under the prospective payment system. Other reductions include $54 billion less in disproportionate share hospital payments; $3 billion less to hospitals that have a higher level of hospital-acquired infections; and $8 billion less to hospitals with high readmission rates. 

Hospitals also may be impacted by job losses associated with the sequester, according to Moody’s. Job losses would contribute to a likely higher number of people without health insurance, which would lead to a drop in hospital visits. Moody’s noted, however, that a possible increase in the uninsured may be mitigated by increased opportunities to purchase insurance under PPACA insurance market reforms.

Filed Under: Centers for Medicare and Medicaid, Conditions of Participation, Health care spending, HHS, IPPS, Legislation, Medicare, Part B, Patient Protection & Affordable Care Act, Prospective Payment Systems, Skilled Nursing, State Level

Arizona’s Managed Care Succeeds in Aiding Vulnerable, Low-Income Patients

March 25, 2013 by

The Arizona Health Care Cost Containment System (AHCCCS),  Arizona’s Medicaid program, is “a public-private model in which health plans are paid a set monthly fee and are expected to care for all of a patient’s needs,” according to an article by Sarah Varney in Kaiser Health News (KHN). Arizona “is occupying an unusual place in the national landscape: as a model for how a generously funded tightly regulated government program can aid vulnerable, low-income patients,” Varney reported. Since its inception the state’s conservative lawmakers and governors have strongly supported Arizona’s public-private model, Varney noted.

For over two decades, state health officials have aggressively applied managed care strictures, Varney said. Although Arizona was the last state to join Medicaid in 1982, early on, it adopted private health plans to manage care for beneficiaries because Arizona’s system of providing basic medical service to its most impoverished residents was in disarray. Under AHCCCS, health plans compete for Arizona’s combined Medicare-Medicaid patients and must use the monthly capitated fee to cover all the patient’s needs. AHCCS has 75 staff members who oversee the health plans and make sure they are meeting requirements, which include quarterly reports on access to medical care, quality measures, and proof that patients are getting needed services such as attendant care. AHCCCS meets with health plans on a quarterly basis and looks at their performance. Health plan executives, hospital and provider groups, and case managers report that state regulators are strict, vigilant, and quick to rebuke health plans that don’t meet their standards.

According to Varney, today only 27 percent of Arizonans covered by Medicare and Medicaid and deemed sick, frail, or disabled live in a skilled nursing facility; a decade ago, 60 percent of them did. The difference is that today nearly three out of four of them live in assisted living facilities or at home with the help of nurses, attendants and case managers provided by government-paid health plans. Actuaries report that an Arizonan nursing home costs the state $5,400 a month just for custodial care, while care for a patient living at home costs only $1400. Keeping people out of nursing homes has resulted in a reasonable profit for insurance companies, who report that they make two to four percent profit in Arizona. In addition, Arizonans eligible for Medicare and Medicaid who enrolled under one managed care group had a 31 percent lower rate of hospitalization than those in traditional fee-for-service, they used emergency departments less often, and when they were hospitalized, they spent fewer days and were readmitted less often, according to the testimony of Tom Betlach, director of AHCCS before a Senate subcommittee.

Although critics of managed care say incentives for companies to keep the fee and withhold care are too great, in Arizona, patients report that they are satisfied with the care they receive from their primary care doctor and the nurse and office staff who call to check on them regularly. Case managers visit clients every three months as part of a coordinated and concerted effort to keep patients out of nursing homes and emergency rooms, Varney said. Those who receive visits from health plan case managers in their home say that the case managers are like “guardian angels.” Patients around the state report that they have just one number to call to get a doctor’s appointment, a prescription filled, durable medical equipment, or help with doing basic necessities such as laundry and meals, according to the article.

Filed Under: Centers for Medicare and Medicaid, Health care spending, HHS, Medicaid, Medicare, Skilled Nursing, State Level
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