Knowledge Base Article

CMS, Members of Congress and others have been expressing concerns about observation stays and short inpatient stays for Medicare beneficiaries. Three main concerns being voiced include:

• Beneficiaries paying more for long observation stays than if they had been an inpatient,
• Beneficiaries not meeting the three day qualifying inpatient stay requirement for skilled nursing facility care; and
• Improper payment for short inpatient stays when the beneficiaries could have been treated in a lesser level of care such as outpatient.

The Office of Inspector General (OIG) recently released a report in response to these concerns based on 2012 claims data. To help our clients better understand the potential payment differenced in patient status we have provided the following comparison of outpatient stays and short inpatient stays.

‍Report Drill Down:

Observation Stays:

• Medicare paid $2.6 billion which averages $1,741 per stay.
• Beneficiaries paid $606 million which averages $410 per stay.
• The top 10 most common reasons for observation stays should not be a surprise to anyone and include chest pain, digestive disorders, fainting, signs & symptoms, nutritional disorders, dizziness, irregular heartbeat, circulatory disorders, respiratory signs & symptoms and medical back problems.
• Observation stays typically begin with treatment in the emergency department.
• The most common operating procedure was coronary stent insertion.

Long Outpatient Stays (stays lasting at least 1 night but had no observation services coded):

• Some of these stays did include observation services that were not coded by the hospital as they are not always paid a separate amount for coding claims as observation stays.
• This set of beneficiaries had similar characteristics to the observation stays i.e. most stays began in the emergency department and beneficiaries were most commonly treated for chest pain and digestive disorders.

Short Inpatient Stays (stays lasting less than 2 nights):

• This group of beneficiaries on average was more costly to Medicare and the Beneficiary.

1. Medicare paid $5.9 billion which averages to $5,142 per stay.
2. Beneficiaries paid $831 million which averages to $725 per stay.

• Ninety percent of this group spent 1 night in the hospital while the remaining 10% spent less than 1 night in the hospital.
• Similar to the other two stay types, these stays began in the emergency department, were most commonly treated for chest pain and 6 of the 10 most common reasons for a short inpatient stay were also among the 10 most common reasons for observation stays (chest pain, digestive disorders, fainting, nutritional disorders, irregular heartbeat and circulatory disorders).

Concerns and Report Conclusions:

Concern: Beneficiaries paying more for long observation stays than if they had been an inpatient

• Short Inpatient Stays in 2012 were more costly to the beneficiary when being treated for the same reason.
• Two exceptions where the cost was more for an observation stay were for coronary stent insertions and circulatory disorders.
• Six percent of all observation stays paid more than the inpatient deductible with a smaller subset paying more than two times the inpatient deductible.

Concern: Beneficiaries not meeting the three day qualifying inpatient stay requirement for skilled nursing facility care

• There were 617,702 hospital stays that lasted at least 3 nights that did not include 3 inpatient nights and therefore did not qualify for SNF services.
• While not mentioned in this report, a point of interest is that similar legislation has recently been introduced in the House (H.R. 1179) and the Senate (S.569) which would amend the law to allow for time beneficiaries spent in the hospital under observation services to count toward the required three-day hospital stay for coverage of skilled nursing facility (SNF) care.

Concern: Improper payment for short inpatient stays when the beneficiaries could have been treated in a lesser level of care such as outpatient.

• Short inpatient stays in 2012 were more costly to Medicare than observation stays. This validates the concern that there is improper payment for short inpatient stays when the beneficiaries could have been treated in a lesser level of care such as outpatient.
• Use of short inpatient stays varied widely among hospitals.

Moving Forward:

Proposed Changes to Payment Policies for Inpatient and Outpatient Stays

This report touches on two payment issues that occurred earlier this year. The first issue was announced in April when CMS made a proposal through a Notice of Proposed Rulemaking (NPRM) that would have a tremendous effect on how hospitals bill for observation and short inpatient stays. If implemented, “CMS contractors would presume that inpatient hospital stays lasting 2 nights or longer were reasonable and necessary and would qualify for patient as inpatient stays. Conversely, CMS contractors would presume that stays lasting less than 2 nights would not qualify for payment as inpatient stays and instead would be paid for as outpatient stays.” The OIG believes that their report findings may be useful as “our results further indicated that, under the policies proposed in the NPRM, some hospitals would likely follow the previsions and continue to bill these as outpatient stays; other hospitals – given strong financial incentives and few barriers – would likely not follow the provision and would admit beneficiaries as inpatients as soon as possible to meet the 2-night presumption.”

In March the second issue announced was that “CMS revised its Part B inpatient billing policy to allow for all hospital services that were provided and would have been reasonable and necessary if the beneficiary had been treated as an outpatient.”

Since the release of this OIG report, CMS released the fiscal year 2014 IPPS Final Rule last Friday August 2nd. Both proposals are now implemented in the Final Rule. We will be addressing the IPPS changes in the coming weeks

The findings in this report also “raise concerns about SNF services” and the OIG advises that “CMS should consider how to ensure that beneficiaries with similar post-hospital care needs have the same access to and cost-sharing for SNF services.”

On a final note, you should be aware that the OIG plans to “refer to CMS in a separate memorandum the SNFs that received $255 million in inappropriate payments so that CMS can look into recoupment.” Unfortunately, beneficiaries could be receiving unexpected bills for SNF services at some point in the not too distant future. The entire report can be accessed at http://oig.hhs.gov/oei/reports/oei-02-12-00040.pdf.