AMA seeks changes to Medicare hospital observation policy

Washington Medicare coverage requirements for post-hospital extended care services have created serious access issues for patients, the American Medical Association said in a March 30 letter to the Centers for Medicare & Medicaid Services.

CMS requires Medicare beneficiaries to spend at least 72 hours as hospital inpatients to qualify for skilled nursing facility care, which can provide patients with therapy and other services needed to recover from injury. But patients who remain in observation for that time, an outpatient status that does not require admission to a hospital, do not qualify for subsequent facility care.

“This policy is of great concern to the physician community, because it has created significant confusion and tremendous, unanticipated financial burden for Medicare patients,” AMA Executive Vice President and CEO James L. Madara, MD, wrote in the letter. “The AMA supports rescinding the three-day stay policy, as well as counting observation care toward the three-day inpatient stay requirement for as long as this requirement remains in place.”

Patient advocacy groups also have fought to overturn the policy. In November 2011, the Center for Medicare Advocacy and the National Senior Citizen Law Center sued the Dept. of Health and Human Services over the policy, claiming that patients have been harmed by the agency rules. Patients and their families often are unaware of the policy and their admission status, and are left with large bills for subsequent nursing facility care. HHS since has filed motions to dismiss the case.

Medicare should change the coverage requirement, said beneficiary Joan Crozier, 84, of Bloomington, Ind. In May 2011, Crozier was brought to an emergency department after a stroke. She arrived on a Tuesday and was dismissed on a Friday with instructions that she receive around-the-clock care and therapy twice a day, she said. “I couldn’t drive, I needed people to take care of me.”

Crozier did not know that the hospital had classified her as an outpatient under observation. She later had her physician write a letter stating that she was an inpatient, but the hospital told her it would not change her status retroactively.

Her therapy services at a nearby nursing facility were covered by the Medicare Part B benefit. But she paid out of pocket for 22 days of nursing facility care upfront. She is appealing the coverage decision and hopes to recover the $7,000 she paid.

“I feel like I got a runaround,” Crozier said in an interview. “It has been a long process and I’m tired of it, but I will stick with it because it’s wrong.”

If the policy remains in effect, those who need nursing facility care may be forced to forgo services, placing them at high risk for costly rehospitalization, the AMA said. Some hospitals also make retroactive status changes from inpatient to observation to avoid audits, forcing patients to pay for drugs and other hospital services as if they had been outpatients rather than inpatients.

“Retroactive status changes by hospitals have also generated tremendous confusion for physicians billing for services to hospital inpatients, such as initial, subsequent, and discharge day hospital visits, as there is no inpatient admission on record once the change has been made,” Dr. Madara wrote. “This means that physician claims can be denied and/or subject to future audits because their Part B place of service does not match that claimed by the hospital (and where the hospital opts not to bill Medicare at all, there is simply no link with any Part A service).”

The Association said these problems for patients and physicians will only get worse once the program begins penalizing hospitals for inappropriate readmissions, and as government contractors increase efforts to audit hospital admissions.

The AMA requested that CMS revise its coverage rules before that happens. The Association suggested that:

• Hospitals be required to obtain the approval of the admitting physician before making any changes to a patient’s inpatient admission status.
• Medicare-participating hospitals and Medicare contractors be required to use open and transparent claims edits in evaluating the appropriateness of admissions. These edits also must be made public for physician comment before their use.
• Before making automatic claims denials or recovery audit demands, Medicare require the concurrence of a practicing physician in the same specialty as the admitting physician.
• CMS review the Medicare three-day stay policy and make recommendations for a new policy.
• Medicare recovery audit contractors be prohibited from reviewing whether inpatient hospital services are medically necessary until CMS reviews and revises the three-day stay requirement.

Lawmakers also have introduced legislation that would eliminate the distinction between inpatient and observation care when applying the three-day rule.