Healthcare News & Insights

CMS’ new observation care rules get thumbs down from hospitals

It appears the Centers for Medicare & Medicare Services (CMS) isn’t winning any popularity contest with its new observation care/admission rule. In fact, you probably would be hard pressed to find anyone in a hospital or skilled nursing facility environment who are in favor of this rule.

153265495Reason: The rule makes time the determining factor when it comes to classifying patients as inpatients or patients under observation care.

If you’re wondering where the physician’s judgment is in this equation, it’s nonexistant.

The new observation care rule presumes that Medicare patients who are in the hospital for at least two “midnights” are inpatients and patients who are in the hospital for less than two “midnights” are  observation care patients.

AMA doesn’t support rule

Make sense, right?

In theory maybe, but when put into practice even the American Medical Association (AMA) isn’t supporting it. The AMA gave this example in American Medical News to show the disparity of the new rule:

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

Most medical professionals would say the reverse is how it should work. The first patient in the example above should be the inpatient and the other one the outpatient. But not according to CMS.

“I can’t imagine anyone is going to like this proposed rule because it makes time the determining factor in whether the services are provided on an inpatient or observation basis,” Toby Edelman, senior policy attorney at the Center for Medicare Advocacy was quoted as saying in a story collaborated on by Kaiser Health News and The Washington Post. “It is not about what the hospital is actually doing for you, what kinds of care you need and are receiving.”

Why the change?

So if no one is in favor of this change, why did CMS do it?

Medicare officials changed the admission rules to diminish the rising number of beneficiaries placed in observation care, but who aren’t admitted to the hospital, and therefore aren’t eligible for skilled nursing care coverage, according to the Kaiser Health News and The Washington Post article.

Under Medicare, in order for a beneficiary to be eligible for skilled nursing care coverage, patients must spend three consecutive days in the hospital as an inpatient. Observation care patients don’t qualify for coverage because they are deemed outpatients and have not been “admitted” to the hospital even though they are staying in the hospital.

CMS wanted to lower the number of these patients because of the financial burden this scenario places on beneficiaries. While in the hospital, they have higher out-of-pocket expenses than inpatients and at times pay significantly high charges for non-covered drugs.

In the past five years, according to federal records, the number of observation patients has skyrocketed 69%. And despite Medicare’s past recommendations to either discharge or admit an observation care patient within 24 to 48 hours, these patients are staying in the hospital longer.

Big problems

It all sounds reasonable, right?

Maybe, but according to the experts it’s not going to work.

First off, CMS left in the “three day inpatient status” requirement to be eligible for nursing home care so it really didn’t do anything to help observation patients. Plus, Edelman made the point that the rule doesn’t require hospitals to inform patients when they are under observation status — most patients don’t know the difference between observation and inpatient or what either one covers — and it doesn’t give patients the right to appeal their hospital status.

Secondly, CMS estimates the changes will cost $220 million and it plans to compensate for that by cutting hospital reimbursement by 0.2%.

Add to that the fact many hospital administrators believe this new rule is going to cost them big time, according to an article on The Health Care Blog by Dr. Robert Wachter, professor of medicine at UCSF and a leading figure in the patient safety and quality movements.

Reason: Dr. Wachter explains that while hospitals will get a full DRG (diagnosis-related group) payment for some longer inpatient stays which used to be observation stays, they are going to experience considerable losses on short-stay surgical patients who’ll now be deemed observation status, despite high resource use.

In an economy where hospitals are trying to cut costs as much as possible, cutting reimbursement on top of the short-stay surgical patient losses could be detrimental for some facilities.

RAC auditor

Finally, there is the fear that the new rule will empower recover audit contractors (RACs) even more.

RACs get a portion of whatever overpayments they recover. This gives them incentive to find mistakes, and this new rule will give them one more place to look.

The two-midnight rule might raise auditors’ suspicions that hospitals might keep some patients an extra midnight to reach inpatient status and a higher reimbursement so their patients won’t have to incur the costs associated with observation stays.

 AMA suggestions

The AMA urged CMS to do two things:

  1. Designate the starting point as the time when a physician gives the order for admission or observation care, when the patient first is treated in the emergency department or when the patient is placed in a bed for observation. The AMA believes this would be a key factor in whether the two-midnight requirement is met when patients in observation are later admitted, and
  2. Use this same starting point to satisfy the three-day inpatient stay requirement for skilled nursing facility coverage.

Unfortunately, according to the American Medical News story, CMS rejected the suggestions.

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