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Observation Stay Relief via Congress?

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.

September 25, 2013 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , | Leave a comment

Catching Up Part I: Politics, Observation Stays, and Medicaid

Off the golf course (reluctantly) and back to work.  Last week was full of catching up and revisiting issues and reports.  As promised before I went temporarily AWOL, here’s Part I of at least two parts (maybe three) of issues that I am following.

  • Politics and the First Tuesday in November: The conventions are done and now the grind begins through the November election.  This may be the most polarized election in decades and the price tag is certain a record breaker – approximating $1 billion. What is most interesting to me is the banter about the economy and healthcare.  Being that I am an economist by training and a healthcare guy on the ground, what I see is quite different than the rhetoric on the news, reported via polls, analysts, etc.  Here’s my twist on the substantive issues under debate.
    • The economy is stalled and the primary reason is uncertainty.  Fixing uncertainty is all about changing, for the U.S. economy, the consumer’s point of view.  Consumption drives economic activity (demand) and thus, businesses and suppliers will return with investment, jobs, etc. to meet the rising consumer demand.  This also is true for healthcare demand which has stayed level to flat in a number of sectors as the ranks of the under and unemployed have swelled (no job, no health insurance, no healthcare).  I suspect that a fair amount of healthcare demand is pent-up now, awaiting a change in economic fortunes.  Granted, this is primarily elective type demand but nonetheless, business and revenue presently absent.  Sadly, I also believe that a near-term rise in chronic disease is forthcoming as folks have foregone early intervention for lack of resources.
    • Creating “certainty” doesn’t happen via a presidential election directly unless the elected president is capable of galvanizing a vision and creating compromise.  For example, tax policy.  The economy is far more fluid than either party would want voters to believe.  It can handle higher or lower tax rates but not “tax policy” by absenteeism.  For the economy, the fiscal cliff is less about falling into the abyss and more about what is at the bottom of the cliff, if a bottom even exists.  Certainty is about rational for consumers, not ideology.  Only one major impediment exists to creating rational on a broader level and that is bureaucracy.  Endless regulatory policy and reams of court and administrative law interpretations are anathema to certainty.  Clear, straight-forward approaches that share gain and balance pain are necessary.  No business person that I talk with, healthcare or other, is simple-minded enough to believe that gain in any form comes without a certain amount of pain.  It is the fear of unknown pain (how much and how bad) that is keeping both consumers and producers away from the economic fray (discretion is the better part of valor).
    • Healthcare economics is trickier than either party chooses to admit and neither has an answer at this point.  Entitlement spending is out of control and the present policy fixes described, come woefully short of changing the trajectory.  Both parties are presenting band-aid solutions to a hemorrhaging wound.  The only true answer is a complete overhaul of Medicare and Medicaid from benefit levels to funding mechanisms to entitlement conditions. The Ryan Roadmap came closest albeit “close” in this case is akin to getting the ball near the red zone, taking three holding penalties and then fumbling at mid-field.  True, political suicide is sure to occur for anyone bold enough to take this on but failure to touch the core issues creates a certain “death by a thousand cuts” scenario.  Solutions are available but unfortunately for a politician or his/her party, each is too radical to tie to re-election prospects.
    • Regardless of the outcome of November’s election, recovery will remain slow and stagnant without fundamental changes to how we “govern”.  The prospects for recovery today are less economic and more policy weighted.  Without fundamental shifts in policy, recovery stays stuck in neutral.  For fans of civics lessons past, this has more to do with Congress than it does with the President.  Congress controls the purse-strings and makes the laws, not the President.
  • Hospital Observation Stays: In healthcare today, its hard to find a more on-point issue to underpin my comments on uncertainty than hospital observation stays.  Briefly, a hospital observation stay is a period of “limbo” time where a patient is typically triaged through an urgent care or emergent care setting proximal to the hospital.  The triage period has determined the patient unstable to return to a non-medical or community setting, requiring observation but services beyond this point. less clear as to justify an admission and inpatient stay.  Where the rub or issue is today is for Medicare patients and as most cases with Medicare policy issues, it is squarely bifurcated.  From the hospital side comes the concern regarding readmission penalties applicable to certain Medicare inpatient DRGs that re-visit the hospital with another admission anytime 30 days post-discharge.  The penalty for too many readmission instances in 2013 is a payment reduction of up to 1% of Medicare reimbursement. The number of applicable DRGs and the percent reduction for too many readmissions increases again for FY 2013, applied in 2014.  On the post-acute side, primarily the nursing homes, is the argument that a patient not admitted to the hospital but hospitalized in an observation status nonetheless, may not/won’t qualify for a three-day prior inpatient stay and thus, won’t receive Medicare coverage for their nursing home stay.  Arguably, the consumer or Medicare beneficiary and his/her family are placed in a stage of uncertainty as well and insurance and other coverages post hospitalization are jeopardized.  CMS has heard the concern and their answer is to expand an outpatient Part B billing (hospital) demonstration project that would provide a safe-harbor for hospitals on the payment end, somewhat.  Via a demonstration project presently under way, CMS proposed and is soliciting comments, on providing a 90% level of payment for a denied Part A claim via re-billing under the outpatient (Part B) program guidelines.  At the same time, they are stating that payment would not be made for observation status claims.  Payment of course is subject to medically necessary definitions, etc. Oddly, a wholly bizarre proposal.  Legislatively, two bills are working their way through the House and Senate with bi-partisan support. The origin bill is H.R. 1543 known as “Improving Access to Medicare Coverage  Act of 2011”.  This bill would require counting all hospital time against the three-day qualifying stay criteria for Medicare coverage of nursing home care.  This would re-solve the observation stay issue.  Watching this issue over the past years, I’ve seen a fairly consistent increase in observation stays and the length thereof.  While CMS implies that an observation stay should not last more than 24 hours, this guideline is clearly not followed and no enforcement mechanism is in-place.  In fact, this issue is so pervasive in the industry that Medicare beneficiaries have resorted to court action, charging that the use of observation stays violated their rights to use their Medicare benefits for skilled nursing care, creating real financial damages.  According to a recent study by Brown University,  average lengths of observation stays are up by 7% and in 10% of cases reviewed, the stay is longer than 48 hours.  Their findings also suggest an 88% increase (between 2007 and 2009)  in stays longer than 72 hours.
  • Medicaid: Alas, the election will push health policy debates regarding Medicare front-and-center while the bigger immediate looming gorilla is Medicaid.  Two distinct policy choices are going to get little play.  The first is the current-law provisions for Medicaid expansion which will cost an estimated $650 billion over the next ten years (I think this figure from the CBO is light).  The second is the Romney proposal to cut $800 billion for Medicaid funding and transition the program to a “block-grant” system.  In a block grant approach, the Federal government allocates a fixed amount of dollars to a state in return for the state providing certain levels of qualified services.  Typically, block grant style funding pushes more regulatory oversight back to the states and allows room for programmatic flexibility.  Medicaid today is actually a hybrid block grant program as states are required to provide certain levels and programmatic criteria before the government allocates funding.  My take, based on my discussions with various statehouses nationally is that the states are divided on which would work better.  Not surprising, present Red states prefer the Romney approach provided sufficient regulatory relief comes as a result.  Blue states tend to favor increased government funding and expansion as a means of helping the state fiscally.  With more and more states taking a Managed Medicaid approach, it would seem like a ground-swell of “reform” Medicaid  is brewing.  I’ve said for years that Medicaid, not Medicare, is this generation’s next biggest unfunded liability and all of the studies and numbers coming from credible sources bear this out.  The federal government has no means of sustaining the funding promises concurrent with the ACA expansion provisions.  States have no economic means to continue to fund the current liabilities let alone, any expanded programs (with or without additional federal dollars).  Providers are already loathe to see a growth in poor-paying Medicaid patients.  Forget the funding equations for a moment and focus just on the access issues.  How in the world can expanded Medicaid coverage be absorbed by the current level of providers even willing to take on additional Medicaid patients at below cost reimbursement levels?  Many rural and urban areas lack adequate supplies of providers as it is.  Adding to the ranks more Medicaid beneficiaries with existing demand will only create widening access gaps.  And honestly, where will the dollars come from necessary to improve payments enough to entice providers to open their arms, clinics, offices, hospitals, etc?  My take is that the Medicaid issue needs real-watching as this system is approaching melt-down and can very easily, contribute a significant drag (already is) on state economies and their recovery.

Part II soon to come….

September 11, 2012 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , | Leave a comment

Hospital Observation Stays Impacting Medicare SNF Admissions

An issue that I am fielding a fair number of inquiries about lately involves Medicare patients spending more than three days in a hospital, subsequently ‘discharged’ to a SNF and the SNF learning later that the patient was never technically admitted to the hospital.  Mostly, the inquiries I am getting are along the line of “what’s happening”, is this practice legal, what’s going on with hospitals, etc.  Unfortunately, based on the number of inquiries I am getting and from all across the country, this practice or recent phenomenon must be fairly widespread.

In a nutshell here is what is technically happening.  I’ll explain why in the next paragraph.  Hospitals are admitting certain Medicare patients, typically not all or even close to a large number for an “observation” stay.  An observation stay is not classified as an admission to a hospital bed or an inpatient unit as the patient is generally in a separate area of the hospital, typically adjacent or proximal to the Emergency Department or Outpatient area.  Even though the customary and CMS encouraged length of stay for observation purposes is 48 hours or less, hospitals are apparently pushing the envelope on the length of stays. There is no current provision under Medicare that limits observation stay length.  I have recently heard of observation stays extending up to seven or eight days.  Since the patient never was admitted to the hospital via a Medicare definition, the three-day qualifying inpatient stay for Medicare SNF benefit purposes has not been met.  The SNFs that I have talked with recently are justifiably confused, upset, and often, stuck in a quandary about how to explain to the patient and to the family, why Medicare will not cover their SNF stay (or a portion thereof).

When this observation stay practice appears to occur the most is when the patient is already an SNF patient.  It appears to occur less frequently when the patient is originally from an Assisted Living or some other care domicile.  I have started to hear of cases where the patient was recently hospitalized, discharged to home health and now will likely require a return to home health or to an SNF environment.  I have not yet heard of many cases or instances where the patient originally resided in the “community” (his/her home) and subsequently, incurred a prolonged observation stay prior to being discharged to an SNF.

The cause for the recent increase in the prevalence of observation stays in hospitals for Medicare patients is CMS and the HHS OIG, aided in part by last year’s discussions/deliberations on health care reform.  Essentially, the issue under Medicare is two-fold.  The first issue is the focus of CMS and HHS on reducing what are called “preventable or unplanned readmissions”.   According to CMS, unplanned (and thus, primarily preventable) readmissions costs Medicare over $17 billion annually.  CMS in 2004, did away with allowing for a second DRG payment to be made to a hospital for readmissions occurring within a twenty-four hour period.  Today, the focus is predominantly on readmissions occurring within the 30 day window, post-hospital discharge.  To combat this problem, CMS has begun to publish readmission data for certain hospitals for patients admitted for heart-attacks, heart failure and pneumonia.  In 2009, hospitals were required to begin reporting 30 day readmission data for these diagnoses.  Now beginning in 2010, CMS may reduce, modify or deny payment for a readmission occurring within 30 days of discharge for these diagnoses.  For a typical 250 bed hospital, according to industry data, the potential readmission revenue loss is $1.5 million for just these three diagnoses.

The second part of this two-fold issue concerns the HHS OIG and the wide ranging ability of this organization, along with CMS, to impute an issue of Medicare fraud to a hospital that bills for multiple readmissions, regardless of original diagnosis and the readmit diagnosis.  In an allegation of fraud circumstance, the basis would be that the hospital billed Medicare for care that it should have provided adequately and completely enough to avoid the need for a readmission.  Essentially, the issue frames-out that it is illegal and fraudulent to bill Medicare for unnecessary and unwarranted care.  Hospitals, knowing full well that the OIG and CMS are looking very closely at thirty-day readmissions and hospital to hospital patterns, are wary of readmitting Medicare patients regardless of the diagnoses (although the three identified by CMS are most perilous) for fear that they (the hospital) will be targeted by CMS and the OIG for Medicare billing review and potential recovery activity; or worse, fraud allegations and reviews.

Boiling the above down to every day life, what SNFs are seeing and experiencing is hospitals using observation stays as a means of circumventing the readmission penalties and peril that are being imposed by CMS and the OIG of HHS.  For the time being and perhaps for a bit longer until enough heat is placed on CMS and other industry care-coordination measures are fully integrated, hospitals will monitor their readmissions closely, the causes, and where they deem applicable, use observation stays to avoid getting caught in the readmission “penalty box”.  Don’t look for the heat from CMS on this issue to remediate any time soon as the potential savings to Medicare from curbing readmissions that occur within 30 days of discharge is substantial.

My advice to SNFs that are encountering this issue more than very infrequently is as follows.

  • The SNF can assist the patient if it desires, to appeal the classification of the stay to the Medicare intermediary.  The use of this approach however, needs to be well though out by an SNF as appeals are not usually decided timely and during the interim until a decision is rendered, the issue of payment to the SNF is still in question.
  • The SNF should develop very pro-active working arrangements and referral arrangements with its hospital partners.  This means having SNF admission staff go directly to the hospital to work with hospital discharge staff and to know in advance, whether the stay is observation or an admission.  This will assure that the SNF doesn’t get caught unaware of Medicare coverage issues come the time when the patient is admitted to the SNF.
  • The bigger and best strategy is for the SNF to develop a very solid partnership with its primary referral hospitals and work with the hospital and the medical staff at the hospital and the SNF to develop integrated care protocols and discharge plans to help both the SNF and the hospital, combat the readmission problem.  To be frank, hospitals are a major part of this problem and their traditional unwillingness to recognize any ongoing responsibility for care outcomes post-discharge is the major impetus behind CMS’ aggression on readmission frequency.  This said however, SNFs can and need to do a better job of upping their care competency as well and to reduce the reasons that their patients are being sent back to hospitals within the thirty day window.  If both parties committed to truly developing a concerted game plan with each taking responsibility for their own factors/issues that contribute to this problem, observation stays would become far less prevalent and certainly, far shorter in length.

February 26, 2010 Posted by | Skilled Nursing | , , , , , , , | 5 Comments