Two-Midnight Rule, RAC Oversight, and Appeals Cited in OIG Report

By
Original story posted on: May 20, 2014


Steven Meyerson, MD


Andrew Wachler, Esq.


Chuck Buck

The Centers for Medicare & Medicaid Services (CMS) came under fire from the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG) yesterday during a hearing before the U.S. House of Representatives Committee on Ways & Means’ Subcommittee on Health.

Speaking before committee members, Regional Inspector General Jodi D. Nudelman, in the OIG Office of Evaluation and Inspection, indicated that the two-midnight must be “carefully evaluated.” Nudelman also rapped CMS for the need to provide more oversight of its Recovery Auditor (RAC) program and said that “fundamental changes are needed in the Medicare appeals system.”

The Two-Midnight Rule

Nudelman, referring to a July 2013 OIG report on hospitals’ use of observation stays and short inpatient stays, said that OIG analysis revealed four major findings that are still relevant today and require further evaluation.

“We evaluated hospitals’ use of observation stays and short inpatient stays before the implementation of the new hospital policy (two-midnight rule),” reported Nudelman, who added that the OIG findings “highlight important issues that require continued attention.”

The four issues surrounding the two-midnight rule include the following:

  • Short inpatient stays often arose for the same reason as observation stays, but Medicare paid nearly three times more for short inpatient stays than for observation stays, on average;
  • Beneficiaries also paid far more for short inpatient stays than for observation stays, on average;
  • Hospitals varied widely in their use of short inpatient and observation stays; and
  • Some beneficiaries had hospital stays that lasted three nights or more but did not qualify for skilled nursing facility (SNF) services under Medicare.

“CMS’s new policy will affect hospitals’ use of observation stays and short inpatient stays, which in turn will affect Medicare and beneficiary payments to hospitals,” Nudelman said. “The new policy may also affect beneficiaries’ access to SNF services.”

Nudelman also said there is a need for more information about the impact of the new policy to ensure that policymakers take these issues into account as they move forward.

“The two-midnight rule was supposed to simplify and clarify admission policies, but (it) did nothing of the sort,” Steven J. Meyerson, MD, Vice President of Accretive Physician Advisory Services, told RACmonitor in an email. “Instead it has added to the admission process layers of complexity laced with ambiguity.”

Meyerson noted that the OIG report discussed the wide variation in short-stay admissions among hospitals, with anywhere from 10 to 70 percent of short stays occurring under inpatient status.

“This variation in itself is an indication that the two-midnight rule is confusing and in need of change,” Meyerson said.

RAC Oversight

The OIG report cited in yesterday’s hearing indicated that CMS should “strengthen its oversight of the RACs” and continue to follow through on the “vulnerabilities that lead to improper payments.”

“An OIG review found that RACs identified improper payments totaling $1.3 billion in FYs 2010 and 2011,” Nudelman noted in her report to the subcommittee. “While most of these improper payments were overpayments and resulted in dollars returned to the Medicare Trust Funds, some were underpayments and resulted in dollars returned to providers.”

The OIG report indicated that approximately 88 percent of the recovered and returned improper payments came from inpatient hospital claims. Providers did not appeal RAC decisions for about 94 percent of claims identified as overpayments. Of the 6 percent that were appealed, almost half were decided in favor of the appellant.

“The appeal and overturn rates the OIG reported are unreliable, because these do not reveal how these numbers were calculated,” Meyerson wrote.

According to Meyerson, the report appears to include all manner of overpayments when calculating appeal percentages, but he noted that hospitals are most interested in denials of Part A payments, for which there is the most controversy and the most money at risk.

“This discrepancy probably accounts for the wide variation in appeal and overturn rates reported by hospitals versus data from the RACs,” Meyerson said. “How else can we account for hospitals reporting a 40 percent appeal rate and the RACs reporting that it is only 6 percent?”

While the OIG report prepared for the subcommittee calls for more funds to increase oversight, Meyerson argues that oversight can’t fix a poorly designed system that has failed to accomplish its critical goals.

“Medicare policies need to be simplified, clarified, and rationalized so that hospitals can be paid fairly for the medically necessary services they provide without having to navigate a web of confusing regulations, fear a contingency fee-driven audit system, and lack a responsive, timely appeals process,” Meyerson said.

Reform Needed for Medicare Appeals

The last of the three issues discussed by Nudelman before the committee was the aforementioned need for “fundamental changes” to the Medicare appeals system.

The OIG report acknowledged that there has been an “unprecedented surge of appeals over the past two years.”

Citing figures from the Office of Medicare Hearings and Appeals (OMHA), the OIG report noted that the number of appeals reaching administrative law judges (ALJs), the third level of appeals, doubled from the 2012 fiscal year to 2013.

“OMHA estimates that its backlog will reach a million claims by the end of this fiscal year,” the OIG report read. “A small percentage of providers account for a large number of appeals.”

“The OIG testimony regarding reforming the appeals process, in my opinion, misses the boat,” Andrew B. Wachler, Esq., managing partner at Wachler & Associates, told RACmonitor. “The OIG recognizes that ALJ appeals doubled from FY 2012 to 2013 and that OMHA estimates that its backlog will reach a million claims by the end of this fiscal year.”

Wachler said that there was no reference in the OIG’s “key recommendations” about increasing the number of ALJs to handle the increase, instituting alternative dispute resolution models, or considering using the statistical sampling of claims to address the backlog.

“Unlike Medicaid appeals, Part C appeals and commercial appeals, there is no process to settle Medicare claims,” Wachler said. “The inability to settle a Medicare claim forces providers to have a hearing in every case, as no alternative to an ALJ hearing is available.”

Wachler said there is no consideration that providers’ rights to due process are even being considered.

“When CMS established the policy that allowed withholding of provider funds after the QIC level, it was done with the recognition that there exists a statutory requirement that the ALJ must hold a hearing and make a decision within 90 days of the providers’ request for a hearing,” Wachler said. “Now providers can expect a three-year delay of the ALJ hearing while CMS contractors withhold the providers’ money on claims that have not been fully adjudicated and are more likely to than not to be overturned. This is not acceptable.”

Wachler believes that the solution lies in an expedited hearing process.

“Instead of focusing on why providers are winning so many cases, the OIG should be focusing on inappropriate denials (being made) in the first place, the low overturn rate at the early levels of appeal, and the lack of due process for providers,” said Wachler, reminding stakeholders that “justice delayed is justice denied.”

About the Author

Chuck Buck is the publisher of RACmonitor.

Contact the Author

cbuck@racmonitor.com

To comment on this article go to editor@racmonitor.com

Chuck Buck

Chuck Buck is the publisher of RACmonitor and is the program host and executive producer of Monitor Monday.

This email address is being protected from spambots. You need JavaScript enabled to view it.