CMS: Would relaxing payment rules improve patient care?

Pilot will let hospitals resubmit Medicare claims if status is denied

Amid growing concern over Medicare patient statuses, CMS has launched a pilot project that will let hospitals resubmit a Medicare claim for observation status if it is denied as an inpatient status claim.

Growing concern over the use of 'observation' status

Since 2009, Medicare has tasked four recovery firms with Medicare audits, and those firms have focused on the "gray zone" between inpatient stays and less-expensive observation stays.

Under current Medicare rules, the program pays more for Part A inpatient stays than for Part B "observation" stays. Moreover, beneficiaries must be admitted for inpatient care for at least three days to qualify for follow-up care in a nursing home.

However, when an auditor determines that a hospital inpatient stay should have been classified as an observation stay, the hospital generally loses the full Medicare payment for the stay. As such, many hospitals err on the side of caution to avoid losing full payments and classify patients as "observation."

In a June study in Health Affairs, Brown University researchers reported a 25% increase in observation stays from 2007 to 2009. Half of those stays lasted more than 24 hours, and one in seven lasted more than 48 hours. The trend appears to contradict Medicare guidelines, which recommend that observation stays be no longer than 24 hours and only "in rare and exceptional cases" extend past 48 hours.

CMS pilot will let hospitals re-submit claims

According to CMS, the agency's current policy encourages hospitals to place too many beneficiaries in observation care.

The three-year pilot program will allow 380 participating hospitals to resubmit bills for observation services if claims for inpatient care are declined. Hospitals will receive 90% of the allowable fee for these services, rather than the full inpatient payment.

CMS officials also are requesting feedback on whether to tighten the rules for observation care.

However, advocates for seniors say the pilot program will not help observation patients because the status should be eliminated altogether, KHN/Post reports. Toby Edelman—a lawyer at the Center for Medicare Advocacy—called the classification "arbitrary" because beneficiaries "get the same care whether they are inpatient or observation."

Similarly, American Hospital Association spokesperson Alicia Mitchell says the pilot does not do enough. "It is limited to a small fraction of hospitals affected by the policy, underpays hospitals for care provided, and requires hospitals to waive all appeals rights for these claims," she says (Jaffe, Kaiser Health News/Washington Post, 8/9).

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