AHA criticizes CMS for ‘information void’ on short hospital stay claims

In a qui tam action that the American Hospital Association (AHA) characterized as an attempt to retrospectively review the medical judgments that doctors make every day, the association urged the court and the Department of Justice to approach short-stay hospital stays with “sensitivity” to the challenges that providers face in the “information void” left by CMS. While the AHA said in its amicus curiae brief that it took no position on the proper outcome of the case and sought only to provide background, it made clear its position that CMS’s standards for observation admissions are ambiguous.

In 2011 Karin Berntsen, an employee of Prime Healthcare Services, Inc., filed a qui tam action against the hospital system, its founder, and 14 of its hospitals alleging that emergency departments improperly admitted patients who could have been placed in observation, treated as outpatients, or discharged. She alleged that as a result of these unnecessary admissions, the hospitals submitted false claims to the federal health care programs. The federal government intervened in May 2016.

In its brief, the AHA explained that observation is a distinct type of hospital care, not to be confused with inpatient, emergency, clinic, or recovery services, that involves ongoing monitoring, testing, and assessment solely for the purpose of determining the need to admit a patient. There are, however, no clear standards for these admission decisions, said the AHA.

For example, argued the AHA, in the hospital inpatient prospective payment system (IPPS) proposed rule for calendar year 2014, CMS asked doctors to use a 24-hour period and the expectation of a patient’s need for an overnight stay as inpatient admission benchmarks (Proposed rule, 78 FR 27486, 27646, May 10, 2013), then in August 2013 promulgated the two-midnights rule (Final rule, 78 FR 50495, 50944, August 19, 2013). Indeed, the Medicare Payment Advisory Commission (MedPAC) noted that the difference between the inpatient criteria and the criteria for outpatient observation status are often unclear to providers.

In light of these ambiguous standards, which the AHA said CMS has struggled unsuccessfully to refine and clarify, the association asked courts to require the government in False Claims Act litigation to allege with specificity why inpatient claims are improper.

Study finds no correlation between reduced readmissions, increased observation stay rates

Although hospital readmissions rates began falling faster after the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), there was no observed association between increased use of observation services and reduction in readmissions. In a New England Journal of Medicine (NEJM) article, researchers found that hospitals did not attempt to achieve reductions under the Hospital Readmissions Reduction Program (HRRP) by increasing the use of observation stays as feared by program critics.


Section 3025 of the ACA established the HRRP, which reduces payments made to acute care hospitals that have excess readmissions for patients with certain conditions. Readmissions are costly for the Medicare program, adding an estimated $17 billion in expenditures that the program considers avoidable. The HRRP penalized hospitals for having higher readmission rates than expected within 30 days of discharge. The conditions first included were acute myocardial infarction, heart failure, and pneumonia. Later, total hip or knee replacement and chronic obstructive pulmonary disease (COPD) were added.

Observation usage

Some believed that hospitals would simply place patients who returned in observation status instead of readmitting them to avoid the penalty. The researchers reviewed stays for the initial three conditions included in the program and identified readmissions after 30 days of discharge, as well as whether observation services were used within 30 days. The results showed that while monthly readmission rates were decreasing before the ACA, they began decreasing faster after enactment for both target and nontargeted conditions, particularly in the first six months. Prior to the ACA, observation service use was rising “significantly” and in a similar pattern for both targeted and nontargeted conditions, and continued to rise through the analysis period.

The study revealed that despite a rise in observation services, there was no correlation between the change in the readmission rate and the use of observation status. In addition, although readmission rates fell quickly at first following the HRRP, the article’s authors theorized that hospitals made significant changes during this period but were unable to keep the reduction rate high long-term. They also postulated that while observation status use continued to rise, this may have occurred due to factors unrelated to the HRRP, such as confusion over what recovery audit contractors would deem an appropriate inpatient stay.