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Due to the complex and ever-changing regulatory landscape of contemporary healthcare, it is essential that hospitals and health systems have an efficient and finely tuned utilization review (UR) process in place.

Ongoing checks of this review process are necessary to ensure compliance with the Medicare Conditions of Participation and contractual obligations with commercial payers.

By effectively examining a hospital’s data, the UR committee can predict compliance risk areas in the event of an audit. 

Observation service metrics and inpatient status rates can be calculated in different ways to find the most appropriate measurement value. For starters, the most important areas to evaluate are:

  • Consistency and quality of the facility’s review process;
  • Cases at risk for audit (especially short-stay cases); and
  • Observation or inpatient metrics that fall outside of normal range.

When evaluating an observation rate, it is critical to perform the “correct” calculation. Data for this measurement can be drawn from case management/quality data, hospital census information and/or claims data. 

The best metric by which to evaluate Medicare audit preparation is a facility’s Medicare FFS medical observation rate. There is no one set national standard, as the rate can vary from facility to facility based on patient profiles, physician practice patterns and hospital location. However, if a facility’s rate is too low, it could imply an overuse of inpatient status, which creates a greater risk for a government audit (by RACs, MACs, the OIG, the DOJ, etc).

If a facility’s observation rate is too high, it could be representative of an inconsistent or incomplete review process. A high observation rate also could affect quality and reporting data as well as impact patient financial responsibility.

When evaluating observation rates, it can be helpful to do so by diagnosis (medical back, cardiac, endocrine/metabolic, gastrointestinal, gastric ulcer renal, hematology/oncology, infectious disease, neurological, orthopedic, pulmonary, vascular, etc.). As an example, a higher observation rate for medical back cases would be expected when compared to the rate for chest pain. Separating the diagnoses into categories helps identify specific problem areas. If an overall observation rate is normal, high or low, evaluating specific areas can determine where internal audits and additional resources should be directed.

Commercial payers’ metrics should be evaluated separately since benchmarks and norms can vary from payer to payer, depending on contracts. Commercial payers may include private companies, Medicare managed care and Medicaid managed care. This is where it becomes important to understand the specifics of each payer contract. All patients should be treated the same, clinically speaking. However, facilities must follow the specific billing and claims requirements of each contract. For example, one contract may mandate that hospital stays are billed as observation, based on the number of hours spent in the hospital, regardless of medical necessity. Surgical procedures also commonly are directed to be billed one way or another regardless of medical necessity, urgency or specific procedure. Again, this is why understanding the specifics of every contract is of paramount importance.

After reviewing observation rates, it is also useful to check for the consistent application of screening criteria. This evaluation can be measured by case management inter-rater reliability (IRR), with calculations made through a statistical analysis or by clinical review. Clinically, this evaluation entails providing a clinical scenario to a group of case managers (CMs), then having them apply screening criteria and determine whether they achieved the desired result. A statistical method to measure whether IRR occurs involves comparing the number of cases that do not meet the criteria for each reviewer to the overall number of cases reviewed. Ideally, the failure or pass rates will be similar across all of the case management staff when looking at different medical departments (i.e., OB, pediatrics, medicine floor, observation unit, time of day or week, etc.). For example, the percentage of inpatients on the OB ward would be different from the percentage in the ICU.

If IRR rates are inconsistent, then ensure that you are measuring all staff by the same ruler. First, determine if the patient population is different for each case manager. For example, the ICU generally will have a higher number of high-acuity cases than the hospital floor. Another example is if one case manager only specializes in cardiac cases while another reviews cases across all disease states. If, after controlling for variables, the results are still inconsistent across your staff, education and training should be considered. All parties involved in the UR process (the UM committee, CM staff, physician advisors) should regularly attend thorough training sessions focusing on the updates and trends of rules and regulations. Staff members cannot be expected to perform to the best of their abilities if they are not updated routinely on contracts and the regulatory landscape. 

Data analysis can prove to be a highly effective tool when evaluating a hospital’s utilization review process. The data and statistics collected can serve as a strong indicator as to where a facility is excelling and where improvements are needed. Most importantly, data analysis is an ongoing process used to enhance compliance and to help determine how to make adjustments as needed.

About the Author

Ralph Wuebker, MD, MBA, currently serves as Vice President of Executive Health Resources’ (EHR) ACE (Audit, Compliance and Education) Team. This group of physicians conducts audits and regular visits to EHR’s client hospitals to provide ongoing education on a variety of topics including Medicare and Medicaid compliance and regulations, medical necessity, Recovery Audit Contractors, utilization review, denials management and length of stay.

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EDITOR’S NOTE: This is the second of two articles on this subject appearing in the July 12, 2012 edition of RACMonitorEnews. See Janis Oppelt’s article, “ Congress Directs GAO to Study CMS’s Processes for Multiple Medicare Audits.”

A bipartisan group of senators and representatives who serve as members of the committees of jurisdiction over Medicare in Congress recently convened to develop a request letter to the GAO Comptroller, Gene Dodaro.

Members of the Senate Committee on Finance, the House of Representatives Committee on Ways and Means,  and the House Energy and Commerce Committee were the main contributors. Senators Orrin Hatch (R-Utah), Max Baucus (D-Montana), Tom Coburn (R-Oklahoma) and eight other Congressmen asked the GAO to conduct a study investigating the “coordination of the various audits that are being conducted in the Medicare program.” 

The legislators illustrated their awareness of the several different contractors, citing MACs, RACs, ZPICs, PSCs and CERTs, and questioned the coordination of the programs and the burdens they place on providers. Seeming to empathize with providers from the tone of the letter, the authors indicated they are unsure whether there is one cohesive strategic plan and a set of standards governing all of these individual contractor programs and organizations.

The group mainly wants to ensure the effectiveness and efficiency of these programs, and thus posed a set of four specific questions for the GAO to answer:

  1. What process does CMS use to determine whether contractors' audit criteria and methodologies are valid, clear and consistent?
  2. How does CMS coordinate among these contractors to ensure that their interactions with providers are not duplicative?
  3. What are the reasons for requesting that similar information be submitted to multiple contractors, and is CMS taking steps to limit duplicative audits?
  4. Does CMS have a strategic plan to coordinate and oversee all of its audit activities, and if so, how is that plan being implemented and overseen?

What Should Be Expected?

The GAO will collaborate with the Medicare Payment Advisory Commission (MedPAC) and its new members to address these questions and develop a report for Congress, yet with several healthcare matters being investigated simultaneously, it is best to assume that this issue may be pushed off until after the Sept. 6-7 MedPAC meeting. For those unfamiliar, MedPAC is an independent Congressional agency that advises Congress on issues affecting Medicare – particularly payments to payers and providers – and analyzes both access to, and quality of, care. Although I personally reached out to staff at all three Congressional committees involved and asked the GAO for a relevant timeline for this investigation, it seems like it is yet to even have crossed peoples’ desks, so much remains unknown.

From the tone, it seems as though lawmakers finally are expressing concerns about the various audit processes and contractors with which providers must deal. They are also finally asking the question that the American Hospital Association (AHA), physicians and administrators have been asking for the past several years: is there really no more efficient and condensed way to ensure proper payments?

Although each contractor has a very specific task, nearly everyone involved in payment compliance has experienced duplicate audits across multiple contractors. We all are aware of white papers, goals and statements of work that exist for each program, but not one overarching set of goals governing all of these programs. This investigation hopefully will help create one unifying strategy, aligning these five different contractors toward a common goal. Revisiting program initiatives might help develop a standardized audit and appeals process and promote coordination to identify synergies among contractors in order to minimize duplication and increase efficiency.

Through a prepayment review demonstration project, we recently began to see a glimmer of hope that CMS would act like other payers and review claims on the front end. However, that initiative does not seem to have the nascent telltale signs of success. Despite originally being scheduled to begin in January 2012, the program was pushed back to “on or after June 2012”and still is yet to begin.

With this new letter and possible pressure from Congress, the project may be nudged along in hopes of establishing more efficient methods of payment review and audit.

After inspecting 2012 Q1 RACTrac data, we saw that nearly 75 percent of RA appeals were overturned in favor of hospitals and that two-thirds of reviewed records did not contain improper payments. From that data alone, we can’t rationalize RACs as an efficiently operating program. As providers begin to appeal more often than just one-third of the time, RA bottom lines in collections will plateau and begin to decline. If a properly conducted survey is performed, the GAO certainly will recognize the inefficiencies within the programs, and although it’s still a telescopic view away, the programs very well may begin to merge, shrink and become more efficient (rather than expand to create more confusion and unnecessary burdens on providers). Until then, we’ll continue cautiously as we watch the audit contract conglomerates grow like monopolies.

About the Author

Gregory P. Calosso, MHA, is a senior consultant for PACE Healthcare Consulting. Greg joined PACE in 2011 after receiving his Masters degree in health administration from the Sloan Program in Health Administration at Cornell University. His past experiences include working in hospital planning and business development, organizational leadership consulting, and clinical research. He holds an undergraduate degree from Cornell University’s Division of Nutritional Sciences.

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Congressional Committees Say Report Due Next Summer

By Chuck Buck

After Gregory Calosso contacted the House Ways and Means Committee and Senate Finance Committee and heard that they knew little to nothing about the letter to the Government Accountability Office (GAO), committee members told him that they didn’t think there would be a timeline for such a project to take place.

Later, on July 6, 2012, Calosso received a phone call from staff of both committees. After having spoken directly to the congressmen themselves, they updated him with more accurate information. Both committees told Calosso that they hope and expect the GAO will conduct its investigation by going through past records of duplicate audits and denials as well as formulating a strategy for changing the current denials and audit processes over the next year. 

Staff members also told Calosso that they expect a conclusion to the study by about next July or August. Subsequently, they anticipate the GAO will work closely with MedPAC to develop a report which will most likely be discussed during a late summer or early fall MedPAC meeting in 2013. Ideally, they told Calosso, Congress would like to take some form of action to help change policies in these processes, if they see it as necessary, by the end of the 2013 calendar year.


EDITOR’S NOTE: This is the second of two articles on this subject appearing in the July 12, 2012 edition of RACMonitorEnews. See Gregory P. Calosso’s article, “ Hope in One-Page Letter: Congress to GAO.”

At the request of members of Congress, the General Accountability Office (GAO) will conduct a study of the various audits being conducted on Medicare program claims.

As readers know, these multiple audits have been just one of the thorns in the sides of healthcare providers during the last few years, and some may respond to this news with a sigh of relief, saying, “It’s about time.”

At least one of these auditors is well known, and that is, of course, the Recovery Audit Contractor (RAC) or, as the Centers for Medicare & Medicaid Services (CMS), now calls it the fee-for-service (FFS) recovery auditor. Others like the ones below may be less well known—and these are just for the Medicare program.

Each of the following has its own specific responsibility to ensure Medicare pays claims accurately and by the letter of the law.

  • ZPICs—zone program integrity contractors, which are replacing CMS's program safeguard contractors (PSCs)
  • Comprehensive error rate testing (CERT) review contractors
  • Payment error rate measurement (PERM) contractors
  • Medicare administrative contractors (MACs).

Focus on Coordinated Effort

A bi-partisan group of 11 members of Congress directed GAO to conduct a study regarding coordination of the various audits that are being conducted in the Medicare program. “In order for this contractor oversight to at once be effective at detecting improper payments and not unnecessarily burdensome to providers, it must be undertaken subject to a coherent strategic plan, consistent standards and active coordination. “

They asked GAO to evaluate the following questions “at a minimum”:

  • What process does CMS use to determine whether the contractors’ audit criteria and methodologies are valid, clear and consistent?
  • How does CMS coordinate among these contractors to ensure that their interactions with providers are not duplicative? Is there any evidence of providers being subjected to multiple overlapping audits on the same topic? If so, how frequently does this occur? Is there any justification for a single provider being audited by multiple contractors at the same time?
  • What are the reasons for requesting that similar information be submitted to multiple contractors? Are there steps CMS is taking to limit duplicative audits, while still ensuring contractors have the tools necessary to pursue program integrity efforts?
  • Does CMS have a strategic plan to coordinate and oversee all of its audit activities and, if so, how is the plan implemented and overseen?

OIG Identifies Existing Problems

It appears that the GAO’s study will come just in time. In its Semiannual Report to Congress (October 1, 2011 – March 31, 2012), the Department of Health & Human Services Office of Inspector General (OIG) stated that its work “reveals persistent problems.”

It reported that CMS’s systems and procedures and those used by its contractors were not sufficient to ensure effective oversight of contractor performance and resolution of known vulnerabilities.

Two examples of problems are provided below.

  • Data deficiencies obstructed CMS’s oversight of ZPICs. The workload data that CMS uses to oversee ZPICs were not accurate or uniform, and these inaccuracies and lack of uniformity prevented the OIG from making a conclusive assessment of the contractor’s activities. The OIG cited the source of the problem as CMS's Analysis, Reporting, and Tracking System (CMS ARTS); ZPIC reporting errors; ZPICs' interpretations of workload definitions; and inconsistencies in requests for information reports. ZPICs' performance evaluations contained few workload statistics, and data access issues affected ZPICs' program integrity activities.

The conditions are serious obstacles to CMS’s oversight of ZPIC operations and effectiveness, the OIG stated, and it recommends that CMS do the following:

  • Clarify definitions in CMS ARTS
  • Perform a timely review of data in CMS ARTS
  • Use and report ZPIC workload statistics in ZPIC evaluations.
  • No resolution for contractor-identified vulnerabilities. CMS did not take significant action to resolve, 77 percent of vulnerabilities that its Medicare benefit integrity contractors reported in 2009. The estimated impact of vulnerabilities, such as those in claims coding and provider identifiers, which contractors reported inconsistently or not at all, was at least $1.2 billion. Only two of the vulnerabilities reported in 2009 had been resolved as of January 2011. Although CMS has procedures to consistently track and review vulnerabilities, it lacks procedures to ensure that vulnerabilities are resolved.

The OIG advised CMS to determine the status of all unresolved vulnerabilities and take action to address them, require contractors to report monetary impact, and ensure that vulnerabilities are resolved by establishing formal written procedures.

In its letter, members of Congress asked the GAO for “prompt attention” to matters such as the above. Since there’s no way to define “prompt” when it comes to the government, the GAO study and report fall into a definite wait-and-see category.

About the Author

Janis Oppelt is editorial director for MedLearn publishing, Panacea Healthcare Solutions, Inc., St. Paul, MN.

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WASHINGTON, D.C. – The Centers for Medicare & Medicaid Services (CMS) has made big strides in implementing several key anti-fraud strategies recommended by the federal Government Accountability Office (GAO), but there is plenty of work left to do in that respect, according to recent testimony delivered by GAO Director of Healthcare Kathleen King before the U.S. House of Representatives’ Committee on Energy and Commerce.

The GAO’s previous work found “persistent weaknesses” in Medicare’s enrollment standards and procedures, detriments that increased the risk of enrolling entities defrauding the program, a summary of King’s testimony indicated. The good news, the summary noted, is that CMS during recent years has strengthened safeguards against such actions – for example, in February 2011 it set up a system designating three levels of risk (limited, moderate and high) and began applying different screening procedures for providers that fall under those categories.

However, there are recommended actions CMS has yet to take, including implementation of some provisions of the Patient Protection and Affordable Care Act, the legality of which was confirmed in the recent decision handed down by the U.S. Supreme Court. Specifically, King noted in her testimony, CMS has not a) determined  which providers will be required to post surety bonds to help ensure that payments made for fraudulent billing can be recovered; b) contracted for fingerprint-based criminal background checks; c) issued a final regulation to require additional provider disclosures of information; and d) established core elements for provider compliance programs.

The GAO also previously found that enhanced efforts to review claims on a prepayment basis can prevent payments from being made for potentially fraudulent claims, the summary of King’s testimony indicated – such efforts also can benefit systems used by CMS and its contractors to review claims on a post-payment basis, and could help such entities better identify patterns of potentially fraudulent billing for further investigation.

CMS has controls in Medicare’s claims-processing systems to determine if claims should be paid, denied or reviewed further, King noted, adding that these controls require timely and accurate information about providers that GAO has recommended that CMS strengthen. GAO currently is examining CMS’s new Fraud Prevention System, which uses analytic methods to examine claims before payment to develop investigative leads for Zone Program Integrity Contractors (ZPIC), the contractors responsible for detecting and investigating certain types of potential fraud.

Having mechanisms in place to resolve vulnerabilities that lead to erroneous payments is critical to effective program management and could help address fraud, King concluded. Such vulnerabilities include service- or system-specific weaknesses that can lead to payment errors, she said – for example, providers receiving multiple payments as a result of incorrect coding.

The GAO previously has identified weaknesses in CMS’s process for addressing identified vulnerabilities, and the U.S. Department of Health and Human Services Office of Inspector General recently reported on CMS’s inaction in addressing vulnerabilities identified by its contractors, King noted. The GAO is “evaluating the current status of the process for assessing and developing corrective actions to address vulnerabilities,” King noted in the summary of her testimony.

“GAO has designated Medicare as a high-risk program,” King’s office noted in an explanatory note about why such scrutiny is being applied to the world of federal involvement in healthcare. “Since 1990, every two years GAO has provided Congress with an update on this program, which highlights government operations that are at high risk for waste, fraud, abuse mismanagement or in need of broad reform. Medicare has been included in this program in part because its complexity makes it particularly vulnerable to fraud.”

“The deceptive nature of fraud makes its extent in the Medicare program difficult to measure in a reliable way,” the note added, “but it is clear that fraud contributes to Medicare’s fiscal problems. Reducing fraud could help rein in the escalating costs of the program.

About the Author

Mark Spivey is a correspondent for RACmonitor.

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j-davisAs of June 15, 2012, the Centers for Medicare & Medicaid Services (CMS) has received 33,231 electronic additional documentation submissions via the Electronic Submission of Medical Documentation (esMD) Gateway.

That figure translates to 678 unique providers submitting responses since September 15, 2011. As of June 1, 2012, there are thirteen CMS certified esMD Health Information Handlers (HIHs). HIHs are organizations that handle medical documentation on behalf of providers.

At this time, only ten certified HIHs have sent live transactions via esMD. The CMS esMD Gateway and CMS certified HIH Gateways were constructed according to the Nationwide Health Information Network (NwHIN) standards to keep the medical information safe and secure as it travels along the internet to CMS.

Currently, electronic submissions sent to CMS via esMD are responses to Additional Documentation Request (ADR) letters sent by CMS review contractors to providers during the claims review process.

The inbound transactions accepted by the CMS esMD Gateway are scheduled to expand. Presently, the esMD Gateway only accepts responses to medical documentation requests. By the end of 2012, the CMS esMD Gateway will begin to accept unsolicited documentation (in PDF), Advance Determinations of Medicare Coverage (ADMC) requests, and Prior Authorization requests. Providers have asked if they could use esMD to submit appeal requests. We are talking with the CMS appeals staff to find out if, or when, this might be possible.

In future years, CMS hopes to expand the esMD system to allow providers to sign up to receive medical documentation requests and Prior Authorization Review results via esMD transactions as well. CMS's long-term goal is for review contractors to send all Review Results Letters and Demand Letters to providers via esMD.

About the Author

Joyce Davis, LTJG, is a Health Insurance Specialist in the Provider Compliance Group, Office of Financial Management, Centers for Medicare and Medicaid Services. Joyce graduated from the University of Management and Technology in Arlington, VA, where she obtained her Masters Degree in Information Technology.  Before joining CMS as a commissioned officer in the Public Health Service Corps, Joyce served in the United States Navy for 10 years. Joyce has been working at CMS a little over a year. In her current position, Joyce oversees the contractor QSSI, which developed CMS' CONNECT compatible gateway for the esMD initiative.

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s-meyersonThe proper use of observation continues to challenge hospitals. Providers have difficulty determining precisely when to start it, and it can be just as challenging to know when to end it.

Nearly all hospitals use either InterQual or Milliman screening criteria (or both, in some cases) to identify those acutely ill patients who require inpatient admission. Although RACs and other auditors have been known to challenge the necessity for inpatient care even when those patients meet criteria, there is generally little controversy about admitting patients who satisfy admission screening requirements. For those patients who don't, some will have relatively minor or self-limited problems and/or enough diagnostic uncertainty that outpatient observation services are clearly appropriate.

When Observation Ends

While a great deal of attention has been given to the admission decision and the distinction between inpatient and observation status, little has been written about when to end observation for those patients who require a longer hospital stay than is allowable under Medicare's observation rules.

To address the question of when observation should end, it makes sense to begin with Medicare's definition of "observation." According to Chapter 6 of the Medicare Benefit Policy Manual, "observation is a well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment and reassessment, before a decision can be made regarding whether a patient will require further treatment as hospital inpatients or if they are able to be discharged from the hospital."

This definition is troubling because it is unclear where and when this "well-defined set of specific, clinically appropriate services" ever was defined. In fact, there is no such set of services specified in the Medicare manuals or regulations, so this statement shall remain an enigma. The second part of the definition, however, makes it clear that the purpose of observation is to allow physicians additional time beyond when emergency services are rendered to continue a diagnostic workup or to attempt to resolve a minor or self-limiting clinical problem with short-term treatment. The implication is that, if this short-term treatment is ineffective or the clinical evaluation demonstrates that admission is required, the patient can and should be admitted as an inpatient. The decision the treating physician must make after a period of observation is this: Do I have to admit this patient, or is the patient able to be discharged from the hospital (stable)? Medicare offers no third choice.

The Medicare Benefit Policy Manual, Section 70.4.A, goes on to explain that "observation services are those services furnished by a hospital on the hospital's premises, including use of a bed and periodic monitoring by a hospital's nursing or other staff,which are reasonable and necessary to evaluate an outpatient's condition or determine the need for a possible admission to the hospital as an inpatient."

Once again, we are told that observation is to be used to evaluate patients who don't require admission but need "periodic monitoring" that will allow for the evaluation of the patient's condition or determination of the need for admission. (It isn't clear why the authors chose to use the word "or," since the purpose of the evaluation is to determine the need for admission. It would seem that "and" would better explain this goal.)

In the Federal Register (Nov. 30, 2001,, p. 5988), CMS once stated that "observation is an active treatment to determine if a patient's condition is going to require that he or she be admitted as an inpatient, or if it resolves itself so that the patient may be discharged." So again, there is a choice to be made: admit as an inpatient or discharge because the condition has "resolved itself."

Conceptually, the period of observation may be thought of as an extension of the ED visit since, as in ED, the patient remains in outpatient status and is undergoing a workup to determine the need for admission. In fact, in many hospitals the ED physician maintains responsibility for the management of patients placed in observation. Dedicated observation units often are in or adjacent to the ED itself.

How Long in Observation?

So now that we have determined that observation is the proper status for certain patients (keeping in mind that observation is not a "status" at all, but a set of "nursing and other services" provided to appropriately chosen outpatients), the question arises: How long can a patient be kept in observation, and under what circumstances can the patient be admitted? Clearly, if the patient's condition deteriorates or the workup reveals a serious clinical problem that requires an inpatient level of care, the patient should be admitted. In that case a decision has been made that the patient will not "be able to be discharged from the hospital" without an inpatient stay. However, what of the patient placed in observation who does not deteriorate or have a conclusive diagnostic workup?


Medicare gives uncharacteristically clear guidance on how long a patient can remain in an outpatient bed receiving observation services while undergoing an evaluation of the need for admission. In 1996, in response to hospitals' overutilization of prolonged observation stays as a means of avoiding the limitations of the newly introduced DRG payment system, the Medicare Health Care Financing Administration (which subsequently became known as the Centers for Medicare & Medicaid Services, or CMS) stated in the Medicare Hospital Manual, Publication 10, that "due to evidence of abuse, such as beneficiaries being held in observation for days or weeks, observation services will be limited to a maximum of forty-eight (48) hours ... (and) observing a patient for up to 24 hours should be adequate in most cases." This policy was repeated and updated in the Medicare Hospital Manual (Chapter 6, Section 20.6.B, revised Dec. 29, 2011): "If a patient is retained on observation status for 48 hours without being admitted as an inpatient, further observation services will be denied as not reasonable and necessary for the diagnosis or treatment of illness or injury."

So to recap, observation services may be ordered to allow a period of time to evaluate a patient who meets the standard for inpatient admission if there is a question about whether inpatient care is required. This period should last no more than 48 hours.

Is this 48-hour limit set in stone? Well, no; even though Medicare has said that observation beyond 48 hours is not "reasonable and necessary," it does allow hospitals to bill for more than 48 hours of observation (although "a hospital that believes exceptional circumstances in a particular case justify approval of additional time in outpatient observation status may request an exception to the denial of services from their fiscal intermediary.")

The statute goes on to state that "HCFA expects such cases to be rare, and is currently unable to envision any scenario in which a hospital's retaining a patient in outpatient observation status for more than 48 hours without admitting him or her as an inpatient would be appropriate. However, because unforeseeable circumstances could arise, HCFA is providing for the possibility of exceptions.  A hospital that believes exceptional circumstances in a particular case justify approval of additional time in outpatient observation status may request an exception to the denial of further observation services at the time of billing."

Considering all the qualifications in this paragraph and the statement that the HCFA (CMS) can't even envision when this might be necessary indicates how unlikely it is that a period of observation beyond 48 hours would be deemed medically necessary.

It is not uncommon for patients to remain in observation for 48 hours and neither deteriorate, receive a definitive diagnosis requiring admission, nor become stable for discharge. It makes no sense to apply admission screening criteria at this point; if the patient didn't meet InterQual or Milliman criteria at the onset, barring deterioration or development of a new problem, he or she is not likely to meet screening criteria after one to two days of outpatient hospital care. Yet the regulations state that the purpose of observation is to determine whether the patient can be discharged or requires admission, and the hospital (actually, the physician) has a maximum of 48 hours to make this determination. At this point, the treating physician, ideally with the support of a case manager and a physician advisor trained in Medicare regulations, must determine whether the patient has "failed observation" - meaning that the outpatient evaluation has not been definitive, but the patient has not improved sufficiently to be released. If the inability to discharge safely is due to the patient's clinical condition (not due to hospital or physician delays), and a physician's risk assessment determines that the severity of illness and need for continued hospital care makes it impossible or unsafe to complete the outpatient treatment and testing in a home environment, the physician should document the medical necessity clearly and admit.

Possible Approach

Following this approach will reduce the number of "extended observation" stays and help ensure compliance with the Medicare guidelines cited above. It may cause some discomfort to case managers and physicians accustomed to applying admission screening criteria appropriate for new admissions, but once a patient has been in an observation bed for 48 hours and is still "too sick to go home," extending the observation stay is both non-productive and inappropriate. Under such a scenario, the physician has used the observation period to determine that the patient requires inpatient hospital care. As always, this is a case-by-case decision based on the patient's clinical condition and the documented risk assessment.

Will the RACs and other auditors accept this argument? It remains to be seen. But after review of the various definitions and restrictions cited in this article, admission from observation often would seem to be more appropriate than extending the observation period beyond 48 hours - something Medicare has told us is very rarely reasonable and necessary.

About the Author

Steven J. Meyerson, MD, is Vice President of Regulations and Education for Accretive PAS®. He is Board Certified in Internal Medicine and Geriatrics. He has recently been the medical director of care management and a compliance leader of a large multi hospital system in Florida. He has distinguished himself by creating innovative service lines and managing education for Accretive PAS®.

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While we continuously read articles about the next big fraud scandal in healthcare, we can't help but wonder, "What were they thinking?"

Just last month we saw 107 individuals charged in more than a half-dozen cities for claims totaling $452 million1. Fraud allegations ranged from submitting false billing for home healthcare, mental health services, HIV infusions and physical therapy to more serious criminal offenses such as money laundering, receiving kickbacks and selling off beneficiary information2.

Transfer MS-DRGs were an outgrowth of the federal Balanced Budget Act of 1997. For some MS-DRGs, special rules were created for patients who are discharged immediately, following hospitalization, to post-acute care facilities (i.e.. rehab hospitals, skilled nursing facilities, long-term care hospitals or home health care).

Medical necessity denials are the top reason Medicare Recovery Audit Contractors have denied claims since first-quarter 2010, according to 2,220 hospitals responding to the AHA's RACTrac survey.

The majority of these medical necessity denials were for one-day stays found to be in the wrong setting, not because the care was medically unnecessary.

The latest RACTrac report also reveals that when hospitals choose to appeal RAC denials, they win 75 percent of the time. Hospital respondents also report that over two-thirds of medical records reviewed by RACs did not contain an improper payment.

About the Author

Janis Oppelt is an editor with Medical Learning, Inc. (MedLearn), a Panacea Healthcare Solutions Company, St. Paul, MN.

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Joplin: One Year Later: Tracy Clark Remembers

Tracy Clark was home in Neosho, Mo., about 20 miles south of nearby Joplin, when the tornado hit.

The director of health information for Mercy Hospital Joplin watched on the local news and The Weather Channel as the reports rolled in, detailing that more than 150 local residents were dead, more than 900 injured. Thankfully, Clark's daughter wasn't among them; she had been at a wedding in Joplin that day and called to tell the family she was going to drive across town to see her boyfriend when they were able to warn her to leave.

"I spent the evening and night trying to contact all my staff. It took until Tuesday to account for everyone, as phone service was out in many areas," Clark recalled last week, which marked the one-year anniversary of when one of the deadliest storms in U.S. history struck. "Two of my staff lost their homes, several had damage and one was eating dinner at ... Pizza Hut with her grandchildren (when the tornado hit). They were all picked up and thrown several hundred yards."

The woman and her grandson were in the hospital for several weeks, but they all survived. Once the hospital staff was accounted for, Clark recalled, it was time to start picking up the pieces.

"I was involved in the record recovery somewhat. Mercy had a contract in place with a recovery company, and they were on site within the first few days and started retrieving all documents out of the facility," Clark said. "Since we had gone live on our EMR on May 1, we had very few paper records left in our department. The recovery for us was mainly our microfilm and microfiche. All these records had to be cleaned."

The first truckload of cleaned documents and film arrived back in January; the hospital now has a warehouse set up where workers are going through them all.

"It's a tedious process, and will be ongoing for at least another 6-8 months," Clark said. "We got all of our microfilm and microfiche back in the first few loads and have it all organized and have all our outstanding requests fulfilled."

The hospital's EMR and its previous system, which housed records dating back to July 2005, were both back up and running locally just four days after the tornado struck thanks to what Clark labeled a stellar performance by the IT department. The four days on which the hospital didn't have local access, its sister facility in nearby Springfield did.

"They actually printed out all 183 records of the patients in the facility at the time of the tornado so they were ready to be sent to whichever facility they ended up at," Clark recalled. "So we really didn't lose any records except for a few old X-ray films that were stored on the top floor. They were able to retrieve these as well, and we are in the process of going through all those now too."

Mercy's temporary hospital now has most of its previously offered services available there, and Clark's department is housed in a strip mall a few miles away, where they've been since late July. They'll remain there until the new permanent facility opens in 2015.

"The day after the tornado, we set up a command center and our department table at the convention center, where we worked until we got this building refurbished and furnished with over 100 cubicles for staff from 19 different departments," Clark explained. "I also have staff working at other facilities, as our volumes don't provide enough work for everyone."

"It's been a wild ride," Clark concluded, "but we all see light at the end of the tunnel now."

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Mark Spivey is a correspondent for the

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