An issue that continues to confound the hospital and SNF industry is the growing use and thus, referral and coverage (Medicare) ramifications of observation stays. Fundamentally, and observation stay by current definition is a non-inpatient stay – an extended residence in an outpatient status. Truly, this a bifurcated problem or issue; hospitals wishing to avoid admission and readmission penalties and SNFs trying to determine the nature of the hospital stay for Medicare coverage purposes.
The observation stay issue at hand is truly the proof of the law of unintended consequences and outgrowth of competing health policy agenda. For elderly patients and SNFs, it can be exceptionally difficult to sort out a multiple day hospital stay (greater than three days) when many of the days, or all, occurred in what appears as a private room. In fact, in many hospitals, expanded outpatient areas are easily confused as inpatient environments, with no visible delineation in accommodation, care, etc. The sole differentiating factor is whether the room and location are defined by the hospital’s license as an “inpatient room”. As Medicare coverage in an SNF requires a precluding three-day inpatient hospital stay, a stay that does not incorporate an actual admission to the hospital proper (not an outpatient admission) of at least three days in length fails to satisfy the three-day inpatient requirement.
For the hospital, observation stays (and the increase thereof) are a direct outgrowth of aggressive Medicare Recovery Audits. By deeming, via post review, inpatient stays “inappropriate or not medically necessary”, Medicare has recovered hundreds of millions of dollars from hospitals. Additionally, a growing list of admitting diagnoses (DRGs) are plaguing hospitals in terms of looming reductions in reimbursement if a patient originally admitted and subsequently discharged, is readmitted for any reason within 30 days of the discharge. To avoid this readmission penalty, hospitals will use an observation stay as an alternative. The most significant observation trend ramification is the growth in the length of stay in this status. In 2006, only 3% of observation stays lasted longer than 48 hours. In 2011, the percentage increased to 11%. In certain regions today, the percentage is as high as 14% of observation stays exceed the 48 hour period.
In May, CMS proposed to alter or modify the observation stay vs. inpatient stay criteria; creating additional clarity for recovery auditors. The proposal would allow recovery auditors to presume that any inpatient stay equal to or greater than two midnight periods (one Medicare day) is appropriate. Stays shorter than this duration (inpatient) are thus classified as outpatient. CMS has not yet codified this change.
Earlier by a month or so, two bills were introduced (companions) in the House and the Senate. Both bills proposed modification to Title 18 (Medicare) of the Social Security Act, effectively classifying an observation stay day as equivalent to an inpatient stay day for purposes of satisfying the three-day prior stay requirement for Medicare coverage in an SNF. The bills are titled “Improving Access to Medicare Coverage Act of 2013”. Each has achieved a fair number of co-sponsors and today, reside in committee (House sub-committee on health and the Senate).
The likelihood of passage is by my estimate, 50/50 at best. The rub in terms of passage is cost as a change in definition (proposed) will increase the coverage exposure for SNF stays. No one knows what the exact magnitude is and no CBO score exists for either bill (yet). Additionally, CMS is likely to balk as simplification as proposed will have a spill-over impact on the “appropriateness” definition presently used to recover hospital payments for “unwarranted” inpatient stays. There is no question that weighting a day under federal law equivalent to another day for coverage purposes will push hospital lawyers to pose arguments that reclassification of inpatient to outpatient days via recovery auditors is “capricious”. Such arguments are already in federal courts and administrative courts. Further, a case filed in 2011, Bagnall v. Sebellius argues that the use of observation stays violates federal law. This case is not yet at trial but will in all likelihood, receive a boost if Congress amends the Social Security Act as proposed.
Regardless of the legislative outcomes, it is clear that movement is in-place for additional clarity around the use and misuse of observation stays. Even sans legislative success, CMS is now tasked to modify and clarify the use of observation status and thus, re-focus recovery auditors on a more direct course of Medicare payment excess. This issue needs resolution and frankly, Medicare auditors need to focus more attention where the real abuse and overpayments are occurring. This is small potatoes by comparison.