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Medicare proposes limits on hospital observation stays

A Medicare patient would be considered an inpatient after spending at least two midnights in the hospital if the CMS rule change is finalized.

By Charles Fiegl — Posted May 13, 2013

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A Medicare patient spending at least two nights in the hospital would have his or her care covered by Part A of the program under a proposed rule change.

The Centers for Medicare & Medicaid Services proposed a hospital admissions definition change in its annual rule for inpatient payments. The proposal says hospital stays spanning more than two midnights would qualify a patient for coverage under the Part A benefit for hospital services.

A stay of fewer than two midnights would be covered by the physician benefit, Part B. The policy presumption of patient status still could be overridden by the admitting physician and through that doctor’s documentation, CMS said.

“This proposed policy would address long-standing concerns from hospitals that they need more guidance on when a patient is appropriately treated and paid by Medicare as an inpatient,” the agency stated in the draft document. “At the same time, the proposed change would help beneficiaries who in recent years have been having longer stays as outpatients because of hospital uncertainties about payment if they admit the patient to the hospital.”

Medicare patients face greater cost-sharing responsibilities when they stay for days — and sometimes for weeks — in a hospital under observation status instead of being admitted. The rate of hospital observation stays exceeding two days increased to 8% in 2011 from 3% in 2006, CMS stated.

Loophole a financial hit against seniors

The American Medical Association has sought to work with CMS on concerns about hospital admission status and how it affects patients and physicians. Policy regarding hospital admission, observation care and subsequent nursing facility coverage is confusing and, at times, creates a significant financial burden for patients. Medicare covers follow-up skilled nursing facility care when a patient spends at least three days as a hospital inpatient. But a patient will be denied this nursing home coverage when he or she spends time in the hospital only under observation, which is defined as an outpatient service.

Hospitals trying to avoid audits have been known to change a patient’s status from inpatient to observation, sometimes even after the patient has been discharged for nursing facility care.

“For patients, reclassification as ‘observation’ rather than admitted can result in unanticipated costs and co-payments,” the AMA stated in an Aug. 31 letter to CMS. “Those who need [skilled nursing facility] care face a coverage denial that triggers a substantial and unanticipated financial burden that may force them to forgo the [skilled nursing facility] stay and places them at high risk for re-hospitalization.”

But hospitals and patient advocates expressed doubts that the new CMS plan would address the situation. The proposal would allow Medicare contractors to continue second-guessing physicians’ judgment, the American Hospital Assn. said in a statement.

The AHA said CMS was predicting a shift to more inpatients and proposing to cut hospital rates by 0.2% to account for the shift. “That’s something we are very concerned about, because it is obviously difficult to predict how this policy will play out,” the AHA stated. “We’re concerned that the shift won’t happen.”

The Center for Medicare Advocacy highlighted other proposed changes to hospital billing policy, including allowing a hospital to resubmit claims for payment under Part B when they initially are denied by Part A. “Unfortunately, CMS does not propose any solution for beneficiaries stuck in so-called outpatient observation status,” the center stated.

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