Medicare sticks to clock-watching on hospital observation policy

Washington New requirements will take effect, over opposition from physicians and hospitals, that are intended to curtail the practice of long stays in observation. The rules will presume that Medicare patients who spend at least two midnights at the hospital are inpatients.

Groups representing physicians and hospitals said the approach added a new arbitrary element to the process and might give Medicare auditors more power to review short inpatient stays. Patient advocates also have voiced displeasure with the Centers for Medicare & Medicaid Services for not addressing directly the growing trend of beneficiaries spending days — and sometimes weeks — in observation and then having to pay large hospital and follow-up care bills.

CMS finalized language to clarify policy for admissions in an annual Medicare payment rule for inpatient services. A stay in a hospital spanning at least two midnights is presumed to be appropriate for Medicare coverage under the Part A benefit of the program. A formal admission order still is needed to begin inpatient status, but physicians can use all the time a patient spent in the hospital as an outpatient when considering if he or she will cross the two-midnight threshold.

That doesn't sit well with hospitals. “We thought there should be a clinical solution,” said Jeffrey Micklos, an executive vice president at the Federation of American Hospitals. Instead, CMS will use the time-based scenario, the agency stated in the Aug. 2 final rule.

The policy change is expected to cost $220 million to account for an increase in inpatient encounters. However, CMS will offset that increase with a 0.2% pay reduction for hospital services.

Recovery audit contractors and other program auditors also might be empowered under the new rules, Micklos said. Auditors may use the policy to scrutinize submitted claims for inpatient hospital visits when stays are less than two midnights.

Long stays in observation at a hospital can lead to large Medicare fees for patients and unexpected denial of coverage for postacute care services at skilled nursing facilities.

Medicare rejects pay for skilled nursing facility services when beneficiaries do not meet another time-based requirement that stays unchanged in the latest rule. CMS covers posthospital care in a nursing facility only when the patient has been an inpatient for 72 hours. Hospital stays in observation do not count toward that three-day requirement.

There were more than 1.5 million observation stays in 2012, according to the Health and Human Services Office of Inspector General. The majority of those stays spanned one night, but 11% had lasted at least three nights.

More than 600,000 hospital stays that lasted three or more nights did not qualify the patients for nursing facility coverage because they were held in observation, had long outpatient stays, or were held in observation for one or two nights and later admitted for fewer than three nights, the OIG said.

AMA had suggested fixes

The American Medical Association had opposed the new two-midnight stay and the new inpatient admission policies. Patients receiving services at the hospital during a period spanning less than two consecutive midnights would be considered outpatients by Medicare contractors processing claims unless a physician's documentation supported an inpatient stay order.

“While we understand CMS' desire to provide greater clarity regarding what constitutes an inpatient stay, we think that the proposed two-midnight stay threshold would prove overly complicated, and would unduly extend beyond the current benchmark of 24 hours,” AMA Executive Vice President and CEO James L. Madara, MD, wrote in a June 25 letter.

For example, a patient arrives at the hospital at 1 a.m. Monday and stays until 11 p.m. Tuesday, for a total of 46 hours. Another patient arrives at the hospital at 11 p.m. Monday and stays through 1 a.m. Wednesday, for a total of 26 hours. The first patient would be presumed to be an outpatient and the second patient an inpatient despite the significant difference in total hours spent at the hospital.

“We do not support CMS' proposed starting point for the two-midnight stay benchmark, namely, the time at which a patient is moved from any outpatient area in the hospital to the bed where inpatient services are provided,” the AMA letter stated. “This policy is likely to create confusion, because a hospital may not distinguish between an inpatient bed/area and an outpatient bed/area, and because a patient may be admitted as an inpatient and remain in the same bed/area that they were in prior to that admission.”

The AMA had urged CMS to designate the starting point as the time when a physician gives the order for admission or for the patient to be held for observation, when the patient first is treated in the emergency department, or when the patient is placed in a bed for observation. Under scenarios in which the patient is in observation and later admitted as an inpatient, the beginning start time would be an important factor in whether the two-midnight requirement is met.

“Further, we strongly urge CMS to use this same alternative starting point to satisfy the three-day inpatient stay requirement” for skilled nursing facility coverage, the AMA stated.

CMS responded to those comments in the final rule by stating that the two-midnight requirement was proposed to add clarity and consistency. The new policy also would be an easy concept for beneficiaries to understand, CMS stated.

“We have expected, and continue to expect, that physicians will make the decision to keep a beneficiary in the hospital when clinically warranted and will order all appropriate treatments and care in the appropriate location based on the beneficiary's individual medical needs,” the agency stated.

CMS rejected the suggestion that time spent under observation be considered eligible to satisfy the three-day requirement for postacute facility services.

“While outpatient time may be accounted for in application of the two-midnight benchmark, it may not be retroactively included as inpatient care for skilled nursing care eligibility or other benefit purposes,” CMS stated. “Inpatient status begins with the admission based on a physician order.”

Legislation proposed in the House and Senate would address the postacute care requirement more directly and reduce financial exposure to patients deemed to be in need for such care. The bills have the support of the AMA and patient-rights groups such as the New York-based Center for Medicare Advocacy.