February 11, 2013

Medicare Hospital Admission Regulations: A Proposal for Revisions

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The Outpatient Prospective Payment System (OPPS) Proposed Rule for the 2013 calendar year (Federal Register /Vol. 77, No. 146) solicited “suggestions regarding whether and how we might improve our current instructions and clarify the application of Medicare payment policies for both hospitals and physicians.”

This call for input underscored that the Centers for Medicare & Medicaid Services (CMS) recognized the need for reform of the complex regulations governing hospital admission and billing. While the OPPS Final Rule reported submission of a variety of ideas focusing largely on the definition of “inpatient,” CMS did not commit to any changes of current regulations. This review is written in response to the OPPS Final Rule, and in accordance with the comment period (U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, 42 CFR Parts 416, 419, 476, 478, 480, and 495, [CMS-1589-FC], RIN 0938-AR10).

CERT (Comprehensive Error Rate Testing) and other Medicare audits of short inpatient stays revealing extremely high error rates – often in the 80 to 100 percent range – indicate that there is a systemic problem with the current regulatory paradigm; these high error rates can’t just be blamed on poor compliance on the part of hospitals when facilities are highly motivated to comply and have been devoting significant resources in order to do so.

Persistently high error rates rather appear to indicate a clear disconnect between Medicare hospital regulations and the reality of the practice of medicine in hospitals. The issue lies in the attempt to fit a treating physician’s clinical judgment of a patient’s needs into a framework of regulations that define clinical decision-making in terms that can be converted into a billing status.

This very process is inherently problematic, since it relies on subjective interpretation of regulatory standards and a retrospective opinion on the urgency of the patient’s clinical condition (an opinion sometimes based on an imperfect medical record). Attempting to codify a physician’s clinical judgment – which typically is based on many years of training and experience – into a few sentences of regulations can be a near-impossible task. There often is simply no way to describe this complex process in terms that can be interpreted by anyone other than another physician. Yet current Medicare guidance for contractors advises that they should use their “clinical judgment,” pitting the opinion of a RAC-employed nurse or therapist retrospectively reviewing a clinical record against that of a physician who was face-to-face with the patient. Given this hurdle and the need for appropriate use of inpatient hospital beds, CMS needs to find a better way to differentiate between those who need inpatient hospital care and those that do not.

Despite loss of revenue resulting from both retrospective and concurrent audits as well as serious threats from compliance reviews and fraud investigators, hospitals are finding it extremely difficult to understand these complex regulations and to implement systems to ensure compliance. There is clearly a need for broad-based reform.

In formulating the following comments, we have examined and attempted to identify and address a myriad of concerns affecting the beneficiaries, the providers and the integrity of the Medicare Trust Funds. We felt it was necessary to be expansive in our analysis of the many facets of admission regulations on this topic that are addressed in Medicare guidance. Examining regulations in a piecemeal fashion or with a narrow focus on, for example, short inpatient stays, will not correct the myriad regulatory challenges sufficiently or establish procedures that can be applied consistently across the many sets of circumstances physicians face when determining the appropriate level of care for their patients. In each case, we have attempted to demonstrate the reason change is needed and have suggested ideas that can be implemented in order to make the regulatory environment simpler (and thus, more easily understood and followed). It also is our belief that the recommended reforms could be implemented in a revenue-neutral manner. Simplification and clarity – coupled with elimination or modification of regulations that lead to frequent billing errors, yet appear to serve no useful purpose in and of themselves – would allow hospitals to reduce the cost of their compliance-oriented programs and CMS would have less need for audit contractors. Hospitals and physicians could spend less time worrying about compliance and turn more of their attention and resources to their real purpose: the provision of quality medical care to their patients.

It is important to respect the role of the physician when it comes to developing or enforcing any regulations affecting patient care. The current regulations state that an admission decision is “a complex medical judgment made by a physician,” and while it is true that physicians are trained to make complex medical judgments about patient care, they are not trained about interpretation of complex Medicare admission regulations. Hence, the treating physician’s role should rightly be to determine the need for care delivered in a hospital bed, and to order and/or provide that care in an efficient and cost-effective manner – not to determine how the hospital should bill for it. Hospitals universally assist clinicians in determining correct level of care for billing purposes by providing case managers and physician advisors trained in Medicare regulations but often, despite their best efforts, the ambiguity of some of these regulations and the inherent challenges in implementing complex compliance programs contribute to persistently high error rates.

It is clear, then, that based on the high error rates and the huge financial loses hospitals have endured from RAC recoveries (amounting $3.4 billion recovered since 2010 according to the latest CMS report) we must return to the contention that there are fundamental problems with the regulatory environment itself. That being said, there is no reason that many of the unproductive regulations referred to in this series of articles could not be modified or even eliminated in a relatively short period of time.

This series, published by RACmonitor, addresses the broad range of such regulations. It is beyond the scope of this analysis to address whether these various recommendations would require legislative action, formal rulemaking, national coverage determinations or simple clarifications of existing regulations, but the status quo is not an acceptable alternative.

CMS could implement a demonstration project that examines the impact of at least some of the ideas presented in this paper, for the benefit of the Medicare Trust Funds, beneficiaries and providers nationwide.

The Outpatient Prospective Payment System (OPPS) Proposed Rule for the 2013 calendar year (Federal Register /Vol. 77, No. 146) solicited “suggestions regarding whether and how we might improve our current instructions and clarify the application of Medicare payment policies for both hospitals and physicians.”

This call for input underscored that the Centers for Medicare & Medicaid Services (CMS) recognized the need for reform of the complex regulations governing hospital admission and billing. While the OPPS Final Rule reported submission of a variety of ideas focusing largely on the definition of “inpatient,” CMS did not commit to any changes of current regulations. This review is written in response to the OPPS Final Rule, and in accordance with the comment period (U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, 42 CFR Parts 416, 419, 476, 478, 480, and 495, [CMS-1589-FC], RIN 0938-AR10).


 

Proposals for Revision of Inpatient and Observation Registration and Billing Rules

  1. CMS should accept passing nationally recognized admission screening criteria (InterQual Criteria or Milliman Care Guidelines) as a basis for approving non-surgical inpatient admission and observation services. Those patients who do not meet screening criteria would be referred to a physician advisor, specifically an agent or medical staff member of the UM committee, who will evaluate for admission based on Medicare inpatient and observation criteria (per current practice).
  2. “Observation” should be redefined to clarify that it is to be used a) for simple treatments that the physician expects to be completed in less than 24 hours, such as intravenous hydration for mild to moderate dehydration, or acute pain management following an injury; or b) as a continuation during a brief yet clearly defined period of time continuing a diagnostic evaluation begun in the emergency department or physician’s office.
  3. A physician ordering observation should be required to document medical necessity for observation. Payment for physician services should be contingent upon the presence of this medical necessity documentation which applies to and justifies the medical services physicians provide as well.
  4. Observation should last no longer than 24 hours. If an observation patient is not sufficiently stable for discharge after 24 hours, the physician should admit the patient as an inpatient and clearly document the medical necessity for admission, which is defined as “the medical necessity for medical services lasting longer than 24 hours that can only be provided in a hospital setting.” (Note there is no reference to a distinction between requiring an inpatient or outpatient setting because there is no way to define these terms sufficiently so as to be able to make a determination of the proper setting based on a consistent definition and set of rules.)
  5. If the treating physician reasonably believes that rendering care to a patient in the hospital will require more than 24 hours, he/she should record this expectation explicitly in the record at the time of admission, document the medical necessity for a stay of greater than 24 hours, and order inpatient admission.
  6. If an inpatient’s stay lasts less than 24 hours, unless the patient meets one of the exceptions listed below, the stay should be billed as outpatient observation, as if the admission order had been for observation services. No inpatient bill would be submitted or paid. This proposed process is inconsistent with current CMS policy that prevents retroactive orders and retrospective change in status unless the Condition Code 44 process has been fully implemented.
  7. The “observation clock” timing the observation stay should begin at the date and time an order for observation is entered into the medical record (clarifying what is meant by “initiating observation”) and end when the last medically necessary service related to the reason for observation is provided. This proposal would eliminate the currently required deduction for time under “active monitoring,” clarifying that observation services are “initiated” when the order is given.
  8. Hospitals should be allowed to bill beneficiaries for medications provided or administered to all outpatients, including those in observation, based on retail pharmacy rates.
  9. To protect Medicare beneficiaries from excessive costs, their out-of-pocket expenses for an observation stay should be capped at the level of the current inpatient deductible.
  10. The admitting physician should be responsible for documenting medical necessity for inpatient admission at the time an order for such is given, using specific reasonable documentation requirements (to be defined), the lack of which would make the physician ineligible for payment due to lack of documentation of medical necessity for the medical care provided.
  11. CMS should reevaluate DRG relative weights, in light of the increased number of short inpatient stays that likely would result from initiating admission after 24 hours of observation. This would require a reduction in payment for higher-level DRGs to ensure this course of action would be revenue-neutral. The result would be fairer payment for short stays.
  12. For the purpose of skilled nursing facility (SNF) eligibility, for those patients admitted to a SNF following a medically necessary inpatient admission that includes an initial period of observation, the three-day stay requirement should be applied retroactive to the date the patient was placed in observation.
  13. Retroactive orders should be allowed when used to correct billing errors, whether due to clerical or physician error. Medicare beneficiaries should be held harmless from any additional charges due to changes in billing status made after discharge or without proper written notice.

Proposals for Revision of Inpatient and Outpatient Surgery and Procedure Rules

  1. Minor surgical procedures (status indicator “T”, Addendum B) performed in the ED (such as suturing of lacerations, packing of nosebleeds or incision and drainage (I&D) of abscesses) or performed during the observation stay (such as laparoscopic cholecystectomy or hernia repair) should not invalidate the hospital’s right to be paid for observation if observation services were ordered appropriately prior to a surgical procedure while the patient is under evaluation for an acute symptomatic condition or post-procedure due to a complication or unexpected clinical event.
  2. For a patient on whom a status indicator “T” procedure is performed in an operating or treatment room after a period of outpatient observation, observation billing should end when the patient arrives at the procedure or pre-procedure area if discharge is planned after a normal recovery time following the procedure.
  3. Status indicator “C” (inpatient-only) procedures may only be performed in an acute hospital inpatient setting. Any patient having a status indicator “C” inpatient only procedure performed should be considered an inpatient as long as his or her procedure is performed in an acute-care hospital, and the hospital should be paid as such regardless of the presence of a preoperative admission order. An admission order should be recommended, but not required.
  4. Patients having inpatient only procedures performed following a period of observation should be considered inpatients and automatically admitted as inpatients upon arrival at the pre-procedure area, with admission date and time as recorded in the original order for observation. Inpatient status should be eligible to be applied retrospectively at any time prior to billing Medicare, even if a physician has failed to enter an inpatient admission order prior to inpatient-only surgery.

 

  1. A physician should admit a patient as an inpatient when he or she expects that a status indicator “T” procedure will be required on an urgent basis for an acute medical condition (defined for this purpose as a situation in which surgery is expected less than 24 hours following emergency admission, with appropriate progress notes and orders supporting this expectation).
  2. Patients should be eligible for inpatient admission for status indicator “T” procedures based on co-morbidities and risk assessment only if performed on an urgent basis following an emergency or office visit the same day. The physician, however, may take co-morbidities into account and order extended recovery based on a pre-op risk assessment.
  3. If a patient requires inpatient admission for a serious complication following outpatient surgery, the entire stay should be considered an inpatient stay, beginning with the day of surgery as if the patient had been admitted pre-operatively. These day(s) also would count toward the three-day stay required to qualify for SNF coverage.
  4. Contrary to current policy, in which there is no payment, hospitals should be paid for observation when ordered for minor complications following outpatient surgery. A new APC would probably be required to bill for this currently “bundled” service.
  5. Any patient not clinically stable enough for discharge after 24 hours of post-operative observation following planned outpatient surgery should be admitted as an inpatient. The entire stay would be considered an inpatient stay under this set of circumstances, beginning with the day of surgery as if the patient had been admitted pre-operatively.

Differentiating inpatient admission from outpatient observation services has presented a major challenge for hospitals and has been the cause of a great deal of lost revenue when Medicare auditors retrospectively determine that some patients admitted as inpatients should have been treated more appropriately as outpatients. As vigorously as they have tried to comply with Medicare regulations governing such matters, the ambiguity of the regulations and difficulty in applying them has led to a great deal of variability among interpretations of the criteria for inpatient admission by hospitals, the various Medicare auditors and the administrative law judges.

CMS has stated that the purpose of observation is to provide physicians an opportunity to continue the evaluation of a patient in an outpatient hospital setting in order to determine the medical necessity (or lack thereof) for inpatient admission. According to CMS, observation is a time for “short-term treatment, assessment and reassessment that are furnished while a decision is being made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital.” (Medicare Benefit Policy Manual, Pub 100-04, Chapter 4, Section 290)

RAC auditors have rejected many inpatient admissions, using the argument that care could have been provided “in a less intensive setting,” namely outpatient observation. But CMS has been unable to define the distinction between the two settings in terms of the care that can be provided in each. Hospitals collectively have lost billions of dollars to these retrospective recoveries for failing to assign patients under billing classifications that have ambiguous definitions.

According to MLN Matters Number SE1027, “Inpatient care, rather than outpatient care, is required only if the beneficiary's medical condition, safety or health would be significantly and directly threatened if care was provided in a less intensive setting.” With that being said, Medicare provides no clear distinction between the inpatient and the “less intensive setting.” The Medicare Benefit Policy Manual, Pub 100-04, Chapter 4, Section 290 indicates that “Observation is a well-defined set of specific, clinically appropriate services,” but the manual never defines those services. In reality it would be impossible to define a set of services that constitutes “observation,” because the list could include nearly any hospital service that does not require inpatient admission (such as inpatient-only surgery or treatment in an intensive care unit).

Lacking a definition of “less intensive setting,” the proper use of observation for “short-term treatment” rendered to any given patient remains open to widely variable interpretation as well. WPS Medicare (LCD L32222) went so far as to note that “In many institutions there is no difference between the actual medical services provided in inpatient and outpatient observation settings; in those cases the designation still serves to assign patients to an appropriate billing category.” So hospitals are required to make a distinction despite WPS implying that there is actually “no difference” – while hospital revenues hang in the balance.

The Medicare Benefit Policy Manual, Chapter 1, states that “The decision to admit a patient is a complex medical judgment which can be made only after the physician has considered a number of factors, including the patient's medical history and current medical needs, the types of facilities available to inpatients and to outpatients, the hospital's bylaws and admissions policies, and the relative appropriateness of treatment in each setting.”

According to the Medicare Benefit Policy Manual, Chapter 1, Section 10, “QIOs consider only the medical evidence which was available to the physician at the time an admission decision had to be made. They do not take into account other information (e.g., test results) which became available only after admission, except in cases where considering the post-admission information would support a finding that an admission was medically necessary.”

Since, as discussed above, in many cases there is little or no difference between inpatient and observation in terms of the services provided, the tendency of RACs to focus recently on intensity-of-setting denials is troubling. Without fully acknowledging the value of the “complex medical judgments” made by physicians – decisions based on the patient’s history, severity of symptoms and assessment of the risk of an adverse outcome– this audit focus makes it difficult for hospitals to be sure that Medicare will pay for a short inpatient admission (of two days or less) unless the patient required an inpatient procedure or any type of intensive, high-risk or invasive treatment. This uncertainty has made hospitals and physicians more hesitant to admit patients as inpatients, and that could not have been the intent when CMS developed an APC and agreed to compensate hospitals for observation services. Increased application of observation status, driven at least in part by these considerations, has caught the attention of the U.S. Department of Health and Human Services (HHS) Office of Inspector General, which has included investigation of possible inappropriate overuse of observation in lieu of inpatient admissions in its current Work Plan.


 

RAC auditors tend to rule that patients whose conditions required only short inpatient stays did not require inpatient treatment, yet the Medicare Benefit Policy Manual, Chapter 1, Section 10 emphasizes that length of stay cannot be the sole reason for denying care. “Physicians should use a 24-hour period as a benchmark, i.e., they should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis,” the manual reads.  “Admissions … are not covered or non-covered solely on the basis of the length of time the patient actually spends in the hospital” (Italics added for emphasis). Thus, it is inappropriate for an auditor to use short length of stay (i.e., a one- or two-day stay) and/or a benign hospital course as the only criteria to deny payment for an inpatient stay. Yet there are many reports of just this happening.

There have also been many payment denials based on a benign hospital course or negative test results reported after the time of admission but according to the Medicare Benefit Policy Manual, Chapter 1, Section 10, “QIOs consider only the medical evidence which was available to the physician at the time an admission decision had to be made. They do not take into account other information (e.g., test results) which became available only after admission, except in cases where considering the post-admission information would support a finding that an admission was medically necessary.”

Clearly  then denials based on length of stay or outcome alone disregard these CMS guidelines.

Proposals for Inpatient and Observation Registration and Billing

1.    CMS should accept nationally recognized screening criteria (InterQual Criteria and/or Milliman Care Guidelines) as a basis for determining whether inpatient admission or observation services are appropriate. Those patients who do not meet screening criteria should be referred to a physician advisor, who, as a member or agent of the utilization management committee, will evaluate for admission based on Medicare inpatient admission and observation criteria.

    • The Medicare Hospital Payment Monitoring Program Compliance Workbook states that “Screening criteria must be … used by the UM staff to screen admissions … The criteria used should screen both severity of illness (condition) and intensity of service (treatment). Cases that fail the criteria (for admission) should be referred to physicians for review. … Because it is not reasonable to expect that physicians can screen all admissions, continued stays, etc., for appropriateness, screening criteria must be adopted by physicians that can be used by the UM staff to screen admissions, length of stay, etc. … For the UM program to screen medical necessity appropriately, the decision to admit, retain or discharge a patient should be made by a physician, either through the use of physician approved or developed criteria or through a physician advisor.”
    • In addition, the Medicare Program Integrity Manual, Chapter 6, Section 6.5.1 requires that “The reviewer shall use a screening toolas part of their medical review of acute IPPS (Inpatient Prospective Payment System, i.e., acute-care hospital) and LTCH (long-term care hospital) claims. CMS does not require that you use a specific criteria set. In all cases, in addition to screening instruments, the reviewer applies his/her own clinical judgment to make a medical review determination based on the documentation in the medical record. As a result of this directive, the reviewer, who may be a nurse or a therapist in accordance with the Recovery Auditor Statement of Work substitutes his or her clinical judgment for that of the admitting physician.”
    • The Medicare Conditions of Participation (Code of Federal Regulations, Title 42, Volume 3, Sec. 482.30, Conditions of participation: Utilization review c) Standard: Scope and frequency of review) requires that “The UR plan must provide for review for Medicare and Medicaid patients with respect to the medical necessity of admissions to the institution.”
    • InterQual Criteria and Milliman Care Guidelines are used throughout the hospital industry to screen patients for level of care. These criteria are reliable (though imperfect) indicators of admission status. The number of truly “inappropriate” admissions among those that meet these objective criteria is very small. Secondary review by a physician advisor is recommended by the publishers of these criteria sets for those patients who don’t meet the first level of screening criteria. Medicare likewise recommends physician review for these patients.
    • If CMS accepted meeting these objective criteria as sufficient evidence for a given level of care, it would provide consistent parameters for care that would be uniform across the country and among the various Medicare contractors and auditors. 
    • An exception to accepting objective criteria should be allowed if treating physicians are found to have failed to address or treat clinical issues that drove the level of care (for example, failing to correct electrolyte abnormalities when abnormal lab values seemed to justify admission).
    • Secondary review applied to those patients who fail to meet admission screening criteria could be judged using current Medicare inpatient criteria (i.e., “a complex medical judgment made by a physician”), which provides a fair description of the application of physician-level clinical decision-making.  However, the physician’s decision to admit should be judged by another physician whose training and experience provides expertise in the clinical area under review and who is trained in the admission regulations.

 

2.    Observation should be redefined as “a period of time immediately following an evaluation in the emergency department or physician’s office during which a patient is placed in an outpatient hospital bed so that the physician either may a) continue the diagnostic testing and clinical evaluation of a patient’s acute medical condition in order to determine whether the patient will be stable for release within 24 hours or require admission to the hospital as an inpatient; or b) order simple, short-term treatment that reasonably can be expected (at the time it is ordered) to be completed within 24 hours. This would apply to any patient deemed not to require inpatient admission (a decision, again, based on recognized screening criteria supplemented by physician judgment and, when needed, secondary review).

    • The role of observation should be defined more clearly than it is at present. Observation should be limited to a brief period in which to complete a diagnostic workup as an extension of an ED visit or office visit, and used to determine the need for continued in-hospital care. If this process takes longer than 24 hours, inpatient admission would be appropriate.
    • Inpatient admission should be appropriate for any patient who requires more than 24 hours in a hospital bed for medically necessary care that can only be provided in a hospital.
    • This proposal is in alignment with current CMS admission policies, which state that when the physician expects a patient’s care to require more than 24 hours, the patient should be admitted as an inpatient. Actual length of stay of greater than 24 hours also should require admission when the physician’s expectation of release in less than 24 hours turns out to be too optimistic. The notion that actual length of stay does not determine coverage should be replaced by this standard.
    • Observation is not a substitute for a one- or two-day hospital admission and should not be used as such by a hospital (or imposed upon it, based on retrospective record review by a recovery auditor or Medicare contractor) if admission criteria were met at the time of admission (as determined by either InterQual or Milliman criteria or the physician advisor, per the process described above).

3.    A physician ordering observation should document the medical necessity for the service, recording a) the signs and symptoms being evaluated or treated, b) the diagnostic and/or treatment plan, and c) certification that observation is medically necessary based on an explicit risk assessment. That assessment should include a) a presumptive diagnosis or differential diagnosis and b) a statement of potential adverse outcome(s) specific to the patient’s condition.

    • Medical necessity may be documented using an optional form to be developed and provided by CMS for this purpose.

4.    Observation should not be ordered when a patient can be released from the ED safely. The physician must justify medical necessity for observation to avoid overuse of those services. The current documentation requirements for observation are vague and open to widely varying interpretation. (The Medicare Benefit Policy Manual, Section 70.4.A, simply states that observation must be “to evaluate an outpatient's condition or determine need for an inpatient admission.”) Observation may last no longer than 24 hours. If a patient is not stable for release after 24 hours, the physician should document the medical necessity for admission, taking into account the medically necessary services the patient must receive (services that cannot be performed in a home setting, if the patient came from home, or in the institution where the patient has been residing, admitted as an inpatient).

    • The physician must document via either progress notes or medical orders the patient’s medical needs that require continued in-hospital care and the risk of specific adverse outcomes if the patient were to be released.
    • This approach clarifies that observation is a continuation of the diagnostic evaluation begun in the ED, and that there is a limited amount of time available for this. It defines medical necessity for admission after 24 hours of observation as a need for continued in-hospital care. This is quite different from the standard for admission initially made in the ED, when the patient’s clinical future during the next 24 hours is unknown and unknowable.
    • To prevent “gaming the system” by intentionally prolonging an observation stay – and to avoid rewarding hospital inefficiency or unnecessary delays caused by physicians, patients or families – inpatient admission should not be allowed if a stay of longer than 24 hours occurred due to a hospital’s inability to provide services in a timely manner or if due to one of the other non-clinical causes mentioned. For instance, admission may not be ordered for patients who are stable but “waiting for a procedure;” there would be no weekend inpatient stays due to unavailability of services such as cardiac catheterization or endoscopy on weekends. When a stay is prolonged by hospital-caused delays or physician or patient/family delays, the observation stay may extend beyond 24 hours without inpatient admission. However, there would be no additional reimbursement for the hospital.  Billing for observation hours should cease once the patient is stable and just “waiting for a procedure.”
    • Admission should not be used for convenience or prolonged for testing unrelated to the reason for the observation stay.

 

5.    If the treating physician reasonably believes that a patient’s treatment in the hospital will require greater than 24 hours, he or she should document this expectation and order inpatient admission. 

    • This is similar to current guidelines, but it makes it clear that inpatient admission is acceptable if the expected length of stay is greater than one day. This expectation would have to be stated explicitly by the admitting physician and supported by documentation in the physician’s notes, plan of care and/or admission orders.

6.    Since length of stay greater than 24 hours would be a criterion for inpatient admission, a stay less than 24 hours would be deemed appropriate for observation. With the following exceptions, if an inpatient stay lasts one day or less, the admission should be canceled and the stay billed as outpatient observation – with the observation beginning at the date and time of the inpatient admission order, as if observation had been ordered at that time.

    • Exceptions to retrospective conversion to observation would be when a) patients are transferred to another acute-care hospital; b) patients sign out against medical advice; c) patients die less than 24 hours after admission; and d) patients are admitted for inpatient-only surgery.

7.    The “observation clock” timing an observation stay should begin at the date and time when an order for observation was entered into the medical record. The clock should stop when the last medically necessary service related to the reason for observation is provided, without deductions for “active monitoring” as is currently required.

    • This is to clarify what is meant by beginning observation billing “at the clock time that observation care is initiated:” The term initiated means ordered.
    • Since hospitals are paid a flat rate for observation (APC 8002 or 8003), the hospital incurs the same expense whether a patient is in a bed in the observation unit or is in another part of the hospital receiving another outpatient service. As such, “carving-out” from billed observation hours of time under “active monitoring” should not be required.  CMS has not been able to define active monitoring so hospitals do not even know what services to include. APCs (ambulatory payment classifications) for outpatient services include a nursing component, but the situation is very different when comparing a patient who comes from home to one who is in a hospital bed receiving observation services. Hospital costs for the observation patient are not reduced when the patient receives care in another part of the hospital. Nursing services rendered during a procedure should not be considered “double dipping” when in reality the hospital has double costs – for the observation bed and for the actively monitored procedure, simultaneously. Both services should be reimbursed; this way there is no need to carve out time in which the patient is being monitored off the observation unit or medical/surgical floor.

8.    Hospitals should not bill for medications provided or administered to outpatients at inpatient rates.

    • Patients in observation should be allowed to bring their medications from home (in marked pharmacy bottles) and have them inspected and prepared for administration by the hospital pharmacy for a minimal fee – or they may receive their medications from the hospital’s outpatient pharmacy, at retail rates.
    • Hospitals are allowed to have only one charge master, so they must bill outpatients for medications at the same rate at which they bill inpatients. Since inpatient medication charges are rolling into the DRG payments (per diem for commercial patients), hospitals rarely are paid the full inpatient rate. Hospitals should be allowed to charge retail pharmacy rates to outpatients in hospital beds (e.g., observation patients).

9.    To protect Medicare beneficiaries from excessive costs, their out-of-pocket expenses for an observation stay should be capped at the level of the current inpatient deductible.

    • Patients should not be penalized for being placed in an outpatient status by being required to pay more than if they were admitted as inpatients.

10.    The admitting physician should be responsible for documenting medical necessity of inpatient admission at the time an order for such is given, with specific documentation requirements including the reason for admission, the diagnosis or suspected diagnosis (a “rule-out” diagnosis would be acceptable as a suspected diagnosis, when clinically justified) and an explicit risk assessment. The risk assessment should include the possible adverse outcome(s) associated with the reason(s) for admission. Also, either in his or her admission note or admission orders, the physician should describe the required treatment and/or monitoring that only can be given in a hospital setting. 

    • This provision clarifies the role of the admitting physician and the necessity to document details of the decision to admit. The elements mentioned already either are required by Medicare regulations or represent good medical practice. Medical necessity may be documented using an optional form to be developed by CMS for this purpose.
    • To align the incentives of physicians and hospitals, physician payment for initial hospital care for observation and for inpatient admission will require medical necessity documentation by the physician. This documentation justifies both the hospital stay and the physician’s services.
    • Making physician payment dependent on documentation of medical necessity will ensure compliance with documentation requirements and reduce unnecessary admissions, thus reducing the cost to Medicare.

 

11.   Documentation by a physician adviser, recorded at or near the time of admission and used by the admitting physician to help determine level of care, should be considered by any auditor in assessing medical necessity for admission.

12.   In light of the increased number of short inpatient stays that likely will result from this policy, CMS should reevaluate DRG relative weights. This will require a reduction in base DRG payments for higher-level DRGs so the result will be revenue-neutral.

    • Admission from observation after 24 hours will increase the number of short inpatient stays. Adjustment of all DRG payments to account for this additional cost can keep the conversion to inpatient stays revenue-neutral and protect hospital finances as well as patient out-of-pocket costs.
    • Consideration should be given to developing “short stay” DRGs to reimburse hospitals for non-surgical short stay admissions.

13.   For those patients admitted as inpatients following a period of observation, the three-day stay required to qualify for SNF coverage should be applied retroactive to the date on which the patient was placed in observation.

    • Patients will still require a medically necessary inpatient stay to qualify for SNF care, but the three-day inpatient requirement will be dropped, so that any valid three-day stay that included at least one medically necessary inpatient day would be sufficient. An order for observation would represent the initiation of the episode of care. Inpatient admission following observation indicates that the patient actually required inpatient care from the outset. Physicians cannot always predict when this will be the case.

14.   Retroactive orders should be allowed when used to correct billing errors. Medicare recipients would be held harmless from any additional charges due to changes in billing status made after discharge or without proper notice. 

    • The goal in billing for hospital care should be correct billing based on the patient's clinical condition and the services required, not compliance with timing rules.
    • When a UR committee determines that an inpatient admission should have been billed as observation, but Condition Code 44 cannot be implemented because the patient already has been discharged, the hospital should be allowed to bill the entire stay as an outpatient encounter, including billing for observation. Administrative law judges have recognized the reasonable nature of this proposed policy and have been ordering payment for Part B and observation when denying Part A payment. CMS has acknowledged this practice and directed contractors to follow these ALJ orders (CMS Memorandum TDL-12309, dated July 13, 2012: “Administrative Law Judge Decisions”). There appears to be no logical reason why this shouldn’t be allowed without an ALJ order when a Medicare auditor disallows payment under Part A if there had been medical necessity for observation at the outset.
    • Just as they are now, patients would be held harmless from any increased charges they might be exposed to under Part B billing. Physicians must be notified of changes in hospital billing so their billing can be consistent with that of the hospital.

The current division of surgeries and procedures, as listed in Medicare’s Addendum B, serves the purpose of identifying the more complex, higher-risk procedures that must be performed under inpatient status. These “inpatient-only” procedures are designated by status indicator “C.” Procedures assigned status indicator “T” are of lower risk and are generally appropriate for outpatient surgery. Addendum E (the Inpatient Only List) lists procedures that must be performed in an inpatient hospital setting. Since a patient becomes an inpatient only with a physician’s order, an admission order is required prior to an inpatient only procedure. Lack of a pre-procedure inpatient admission order has led to many payment denials even when the surgery was clearly medically necessary, performed properly, and produced good outcomes in an acute-care hospital setting

While it is clearly appropriate that more complex, inpatient-only procedures must be performed in a hospital setting, the distinction between inpatient and outpatient surgery in terms of the facilities is artificial. Patients having outpatient surgery in an outpatient setting within an acute-care hospital receive treatment in the same pre-op suite, delivered by the same nurses as inpatients. Those outpatients also undergo surgery in the same ORs with the same nurses, surgeons and instruments; furthermore, they undergo short-term recovery in the same recovery rooms and overnight recovery in the same hospital beds as inpatients. Since this is the case, making the distinction between inpatient and outpatient surgery based on the presence or absence of an admission order is a technical billing issue that contributes nothing to patient safety. It is the setting that should count, not the order written before the procedure. A patient receiving outpatient surgery as an inpatient and a patient receiving inpatient surgery as an outpatient in virtually any hospital surgical department will receive equally safe and high-quality care. Logically, then, relying on physician admission orders to determine the appropriate care setting creates opportunity  for error and nonpayment, which does not reflect substandard or dangerous care.

This is not to say that an ambulatory surgical center or hospital outpatient surgery department located off a hospital’s main campus can provide the same level of care and services provided under the roof of the acute-care hospital. Services provided in these locations must be limited to the safest, most routine outpatient procedures, because patients treated at ASCs or outpatient hospital surgery departments, away from the main hospital, would not enjoy the immediate availability of the entire hospital’s services in the event of a mishap or unexpected complication.


 

B. Proposals for Inpatient vs. Outpatient Surgery and Procedures

1.    Minor surgical procedures (status indicator “T”) performed in the ED (such as suturing of lacerations or treatment of abscesses) or during an observation stay should not invalidate payments to hospitals for observation.

    • There is currently no payment to hospitals for observation when a patient has a status indicator “T” procedure performed on the day of or the day before observation. Observation requires a level of service beyond routine recovery, however, and should be reimbursed. The rendering of an outpatient procedure or surgery before or during an observation stay should not prevent the hospital from receiving payment for the other medically necessary services it provides, especially when the status indicator “T” procedure performed may not be related to the need for observation.

2.    For patients having status indicator “T” procedures performed in an operating room after a period of outpatient observation, observation should end when the patient arrives at the pre-op area (this will not apply to bedside procedures).

    • If observation results in a determination that outpatient surgery is required, at that point a decision on treatment has been made and the patient no longer should qualify for observation. Observation should end when the patient goes to the OR.
    • Following such a procedure, the current rules for recovery and observation following outpatient surgery would apply. Observation may be ordered if there is a complication or an unexpected clinical matter that prolongs or interferes with routine recovery.

3.    Status indicator “C” procedures may be performed only in an acute hospital setting. An admission order prior to surgery should be recommended, but not required. A patient having a SI=C procedure performed should be considered an inpatient, with the hospital paid under Part A regardless of the presence of a preoperative inpatient admission order.

    • It is the nature of the surgery and the setting that should count, not the admission order or the hospital registration. Lack of an admission order should not be a basis for denial of payment for medically necessary surgery.
    • The rendering of medically necessary inpatient surgery in an acute-care hospital would be an exception to the rule that a patient is admitted only on the order of a physician. An order for an inpatient-only procedure should suffice when an inpatient procedure is done in such a setting.

4.    The physician should be permitted to admit a patient as an inpatient when the physician expects that the patient will require a status indicator “T” procedure on an emergent or urgent basis for an acute medical condition (defined as surgery planned less than 24 hours following emergency admission).

    • The physician’s plan to perform surgery (based on the patient’s condition at the time of admission) must be documented in the medical record.
    • If the procedure is not performed due to new clinical information, a change in the patient’s condition, the recommendation of a consulting physician, or another such reason, the admission will nonetheless be approved and paid as inpatient care unless the patient is discharged in less than 24 hours in which case outpatient billing would be appropriate.
    • Whether the status indicator “T” procedure is performed in this setting or not, if the patient can be discharged safely in less than 24 hours, the stay would be billed as an outpatient service with observation. In this case, an order for observation would not be required and observation would start when the admission order was placed.
    • Urgent surgery carries higher risk than elective procedures, so such surgery should be done in the safest setting, namely inpatient. However, if the patient’s clinical condition improves or the patient’s surgery is uneventful, as long as a stay of longer than 24 hours is not required, outpatient Part B billing would be appropriate for the status indicator ”T” procedure and other billable Part B services.

5.    Patients would not be eligible for inpatient admission for status indicator “T” procedures based on co-morbidities and risk assessment unless those procedures are performed on an emergent or urgent basis following an ED or same-day office visit. The physician, however, may document the need for extended recovery after a pre-op risk assessment based on co-morbidities.

    • Current regulations allow admission for “outpatient” (status indicator “T”) procedures based on the patient’s co-morbidities and other risk factors. If there are no complications, these patients often go home without being subjected to a longer stay than a more stable patient. These short stays often are denied by RAC auditors as not medically necessary despite the admitting physician’s assessment of risk of adverse outcome. The same benefits of in-hospital monitoring available through inpatient admission for high-risk patients can be accomplished via extended outpatient recovery. Instead of admitting and paying the hospital a DRG payment for this monitoring period, the payment for an outpatient overnight stay would be considerably less costly, without compromising patient safety.
    • A new APC code will be required to pay the hospital for extended recovery when medical necessity has been documented and such recovery has been ordered preoperatively. This practice will replace admission for outpatient surgery based on risk assessment.

 

6.    If a patient requires inpatient admission for a serious complication or a new, acute medical problem following outpatient surgery, the entire stay should be considered an inpatient stay, beginning with the day of surgery as if the patient had been admitted pre-operatively as an inpatient.

    • This will complete the rules for reimbursement of outpatient monitoring of high-risk patients having outpatient surgery. If an adverse event requiring admission occurs, the hospital would be paid for the entire stay under Part A – but it is important that the patient not be penalized by failing to count the first day toward the three-day qualifying stay for SNF care. Hence, admission should occur at the time the patient is registered for an outpatient procedure when post-op admission becomes medically necessary.

7.    Hospitals should be paid for observation when it is ordered for minor complications following outpatient surgery and based on medical necessity.

    • There is currently no hospital reimbursement for post-operative observation. Post-op observation generally requires additional hospital resources beyond standard recovery, and thus should yield reimbursement.
    • A new APC code and reimbursement will be required to pay hospitals for medically necessary post op observation.

8.    Any patient not clinically stable for discharge after 24 hours of post-op observation following planned outpatient surgery may be admitted as an inpatient, with the entire stay considered an inpatient stay beginning with the day of surgery (as if the patient had been admitted pre-operatively). 

    • Outpatient surgery is intended for stable patients having minor procedures, with an expectation that they will be released in less than 24 hours. If a patient is not stable for discharge after 24 hours of observation due to a complication, inpatient admission should be allowed. This policy would mitigate the loss of revenue resulting from hospitals being barred from admitting for outpatient surgery based on patient comorbidities and risk assessments.

About the Author

Steven J. Meyerson, MD, is vice president of the Regulations and Education Group (“the REGs group”) for AccretivePAS®. He is Board Certified in Internal Medicine and Geriatrics. Before joining Accretive Physician Advisory Services in 2010 he served as the medical director of care management at Baptist Hospital in Miami, Florida. He has distinguished himself by contributing to the development of innovative service lines and managing education on Medicare regulatory compliance for AccretivePAS®.

Contact the Author

smeyerson@accretivehealth.com

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Disclaimer: The content of this article does not constitute legal or clinical advice upon which readers may rely, and the appropriate professionals should be contacted if there are any questions regarding the content as it applies to the reader.

Steven J. Meyerson, MD, CHCQM-PHYADV

Steven Meyerson, MD, CHCQM-PHYADV, is the founder of Steven Meyerson Consulting. Dr. Meyerson is a nationally recognized expert and consultant in the physician advisor role, case management, and hospital Medicare compliance. He is board certified in internal medicine and geriatrics and serves on the board of the American College of Physician Advisors (ACPA). He edits and writes for the ACPA online blog.

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