AMA proposes revisions to Medicare hospital observation policy

Physicians say a loophole hits patients with unexpected bills for nursing facility care, but hospitals maintain they are using observation status appropriately.

By Charles Fiegl amednews staff — Posted Sept. 28, 2012

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Medicare should create a task force to fix its coverage policy on hospital observation stays and subsequent nursing facility care, the American Medical Association stated in recent comments to the Centers for Medicare & Medicaid Services.

The current policy requires a Medicare patient to spend at least 72 hours as a hospital inpatient to be covered for subsequent nursing facility care. But a patient held by a hospital for days in observation, an outpatient service, won’t have that stay count toward the threshold for nursing facility coverage and might end up paying those costs out of pocket.

Lawmakers have introduced legislation to eliminate the distinction between observation and inpatient stays, and some patient advocacy groups have sued Medicare to force such a change. CMS is continuing to follow the policy, but in July the agency requested feedback on its current rules.

The regulations are of great concern to the physician community, wrote AMA Executive Vice President and CEO James L. Madara, MD, in an Aug. 31 comment letter to CMS. The policy has created confusion and significant costs for Medicare patients.

“Those who need [skilled nursing facility] care face a coverage denial that triggers a substantial and unanticipated financial burden that may force them to forgo the SNF stay and places them at high risk for re-hospitalization,” Dr. Madara said. “In further complication, a retroactive change to observation status forces beneficiaries to pay for their prescription drugs and other hospital services as if they were outpatients rather than inpatients.”

The AMA recommended that an agency task force review the three-day stay rule and recommend a new policy. Furthermore, Dr. Madara said, Medicare recovery audit contractors should be barred from reviewing inpatient hospital claims until a new policy is adopted and implemented across the country. Some observers have surmised that hospitals are treating some patients as under observation status to avoid the audits that can follow claims for inpatient care.

Hospitals should be required to obtain the approval of the admitting physician before making changes to a patient’s admission status, Dr. Madara stated in the letter. He said Medicare-participating hospitals and Medicare contractors also should use open and transparent claims edits, instead of edits from proprietary databases that more easily can go unnoticed. The AMA also recommended that Medicare require the concurrence of a physician, in the same specialty as the admitting physician, when denying claims for patient services based on a processing edit created by Medicare or one of its contractors.

Premier, a health care alliance serving 2,600 hospitals and health systems, shared with CMS an analysis it conducted with the National Assn. of Public Hospitals. The report concluded that the overall trend in the use of observation services is appropriate, but that more education and guidance is needed to encourage the use of inpatient admissions for longer stays rather than the relatively rare practice of relying on extended observation. More than half of observation claims submitted by hospitals were for stays less than 48 hours. Roughly 34% of observation stays lasted between two and four days, and only 4% exceeded four days.

Premier also advised CMS to draft a policy saying patients receiving more than 72 hours of observation services were inpatients for the purposes of covering follow-up nursing care.

“When you drill down and look at the procedures most frequently billed with observation services, they are frequently surgeries, and particularly cardiac procedures such as angioplasty and the placement of stents,” Premier stated in a Sept. 4 letter. “These are common procedures reviewed by recovery audit contractors (RACs) and Medicare administrative contractors (MACs) around the country over the past few years for medical necessity as inpatients. Thus, we are not surprised that these are present more frequently and likely have increased over the past few years.”

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