Healthcare News & Insights

New Medicare payment models may put an end to observation care

467527223Observation care penalties are a major thorn in the side of hospitals and their patients. But there’s good news: Medicare officials are allowing patients at dozens of facilities across the country to participate in pilot projects that exempt them from the observation requirements. 

Eliminate three-day rule

As you know, Medicare’s three-day hospital admission rule requires seniors to be admitted to the hospital for three days to qualify for nursing home coverage. Many don’t, however, because they’re in the hospital under “observation care” rather than being admitted.

In fact, the number of observation patients ineligible for Medicare-covered nursing home care has sky rocketed by 88% in just six years to 1.8 million in 2012.

The idea behind these pilot projects is to find out whether new payment arrangements with the hospitals and healthcare providers that eliminate the three-day rule can reduce costs or keep them the same while improving the quality of care, according to Kaiser Health News. These experiments are being conducted under a provision of the Affordable Care Act (ACA) that created the Center for Medicare & Medicaid Innovations to develop ways of improving Medicare.

“We’re testing whether it leads to better care and lower costs,” Sean Cavanaugh, Medicare’s deputy administrator, told Kaiser Health News. “And if those are successful, the secretary [of Health and Human Services] has the authority to expand those tests.”

Nursing home care’s cheaper

If the experiment saves Medicare money and improves care, “we should be able to make an argument to Medicare that there’s a way to do it for all our patients,” said Dr. Eric Weil, clinical affairs associate chief for the general internal medicine division at Massachusetts General Hospital, Boston. The facility is one of five in the Partners Health System that began offering the waiver in April.

“It gets patients to the care they need much quicker and prevents them from clinically declining at home,” said Dr. Weil.

Allowing patients to rehabilitate in nursing homes frees up valuable resources for sicker patients. Plus, noted Dr. Weil, it saves money for Medicare because nursing home care or home health care is cheaper than a hospital stay.

Alternative payment option

One pilot project — Pioneer Accountable Care Organizations — involves around 600,000 seniors at more than 170 facilities, including the five Partners Health hospitals. In this test model, Medicare makes a set payment for a patient, which is shared by the patient’s healthcare providers, including the nursing home. So even patients who spend little or no time in the hospital can still qualify for Medicare’s nursing home benefit.

This applies even to patients kept for observation, which is considered an outpatient service. No matter how long these patients stay, observation care normally doesn’t count toward meeting Medicare’s requirement for short-term nursing home coverage.

Another experiment, which also offers a “bundled payment care initiative,” pays a set fee for any of 48 specific procedures chosen by the hospital, such as hip or knee replacements. Hospitals, doctors, nursing homes and other providers share Medicare’s discounted reimbursement for a patient receiving one of the eligible procedures.

Patients can check with their hospitals ahead of time to see if they’re participating in the initiative. In this program, patients admitted to about 70 hospitals may be eligible for the waiver to get nursing home coverage even though they haven’t spent three days in the hospital.

Finally, private Medicare Advantage plans, an alternative to traditional Medicare, are allowed to drop the three-day requirement. This year, 95% of the plans waived the rule for their 12 million members, according to an analysis for Kaiser Health News by Avalere Health, a health research firm.

Safe change?

While hospital officials participating in the pilot programs are excited about the them, they warn that the waiver should be used conservatively — it’s not a one-size fits all situation. Healthcare providers involved in the program have to make sure patients don’t leave the hospital prematurely, aren’t kept longer than necessary and that they aren’t enter a nursing home if they don’t have the potential for short-term rehabilitation.

“It’s been a long standing Medicare policy so if you want to change it, it’s important to make sure it’s safe to change it,” said Dr. Mark Froimson, an orthopedic surgeon who’s president of the Cleveland Clinic system’s Euclid Hospital, in a Cleveland suburb.

As part of the bundled payment pilot project, the hospital offers the waiver to seniors who need nursing home care after undergoing a knee or hip replacement. The Cleveland Clinic is now looking to expand the its program by offering the waiver on more procedures and to additional hospitals, and has asked Medicare for permission.

We’ll keep you posted on the outcomes of the pilot projects.

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