Inpatient Facility Coding & Compliance Alert

Get familiar with 5 MedPAC policy recommendations and more.

The advancement in health care technology has drastically reduced the length of hospital stays. However, on the flip side, the debate of whether a patient requires inpatient admission or can be treated as an outpatient has heated up. Medicare saw 1 million one-day inpatient stays (13 percent of the total inpatient admissions) in 2012.The high profitability of one-day stays under the inpatient payment system has heightened federal scrutiny about the appropriateness of inpatient one-day stays. 

The Medicare Payment Advisory Commission (MedPAC) released a recommendations report regarding the hospital short-stay policy issues on June 15, 2015. Here’s the scoop on five common issues and MedPAC’s stance on each. 

Issue 1: Debating the Appropriateness of Inpatient 1-Day Stays

Problem: Inpatient admission criteria are ambiguous and open to interpretation by the hospitals and payers. As per CMS, the physician “should order admission for patients who are expected to need hospital care for 24 hours or more, and treat other patients on an outpatient basis.”

The fact is that short inpatient stays are common and profitable for hospitals, relative to longer inpatient stays. On average, medical one-day stays, which account for nearly three-quarters of all one-day stays, received payments that were double their actual costs. 

In order to level the cliff that exists between the payments for short inpatient stays and similar outpatient stays, the commission deliberated on various options.

The introduction of one-day stay DRGs offers mixed results: 

• Reduces but does not eliminate the payment cliff between outpatient and one-day inpatient stays.

• Creates a new payment cliff between one-day and two-day inpatient stays.

MedPAC discussed a site neutral approach as an alternative, but believed that this would create new payment differentials down the road. 

Solution: MedPAC presently suggests establishing a penalty for hospitals with unusually high rates of short inpatient stays. 

“This approach is fraught with controversy, however, since there may be perfectly valid reasons for the high number of short stays,” says Wayne J. Miller, Esq., founding partner of Compliance Law Group in Los Angeles. The commission has chosen not to recommend payment changes presently, until further exploration yields a solution.

Issue 2: Determining Whether RACs Are a Watchdog or Administrative Burden

Given the scenario, Medicare’s recovery audit contractors (RACs) frequently focus their audits on inpatient one-day stays. 

Problem: RAC reviews of short hospital stays are frequent and widespread. This leads to a lot of administrative burden on the hospitals due to extensive audits, tracking claims, and the subsequent appeals process associated with denials. Moreover, RACs are largely not held accountable for their audit accuracy.

Timing of RAC reviews: Hospitals are permitted to rebill limited portions of denied inpatient claims as outpatient claims up to one year after the patient’s discharge date, but RACs can review claims up to three years after the discharge date. That means RACs commonly deny claims after the rebilling window. 

Solution: MedPAC has several recommendations that dovetail with long-standing positions of hospital providers:

• Direct recovery audit contractors (RACs) should focus reviews of short inpatient stays on only hospitals with the highest rates of this type of stay.

• Modify RAC’s contingency fees to be based in part on the RAC overturn rate. At present, RACs receive a contingency fee as much as 9.0 to 12.5 percent of the recovered amount, which some feel could be an incentive for RACs to target high dollar claims. RACs must return the contingency fee if their recovery is overturned on appeal but currently incur no other penalty in such cases.

• Ensure that the RAC look-back period is shorter than the Medicare rebilling period for short inpatient stays, and that the policy allowing hospitals to rebill denied inpatient claims as outpatient claims either go beyond the RAC notice of denial time frames, or the RAC look back period for short hospital stays be shortened. “Adopting a rule to extend the rebilling period beyond one year to address later audit findings has been on providers’ radars for some time,” explains Miller.

• Withdraw the “two-midnight” rule, because it provides hospitals with an incentive to lengthen stays to avoid RAC scrutiny.

Issue 3: Using Observation Services

Owing to the greater scrutiny of short inpatient stays, hospitals are shifting more patients to outpatient observation status.

Background: If physicians are not sure whether patients require inpatient care, they can treat beneficiaries as outpatients under observation status. CMS’s Policy Manual defines coverable outpatient observation care as short-term treatment furnished while a decision is being made about inpatient admission. What’s more, Medicare pays for observation as a part of the IPPS when a beneficiary’s stay includes a subsequent inpatient admission.

Problem: This knee jerk response from the hospitals paves the way for an increase in beneficiary financial liability in many areas as explained below.

Issue 4: Deciding on SNF Coverage Parameters

Problem: SNF’s three-day policy requires a qualifying three-day inpatient hospital stay. Because of this, the patient must have been admitted as an inpatient for three consecutive days in order to receive post-hospital extended care services. The time in observation status is not currently counted toward the three-day threshold. Therefore, a patient who may actually require SNF services may be deprived of the coverage if he was kept in observation as an outpatient.

Solution: MedPAC has two recommendations in this area:

• Congress should revise the skilled nursing facility three-inpatient-day hospital eligibility requirement to allow for up to two outpatient observation days to count toward meeting the SNF criterion.

• Acute care hospitals should notify beneficiaries placed in outpatient observation status that their observation status may affect their financial liability for skilled nursing facility care. The notice should be provided to patients in observation status for more than 24 hours and who are expected to need skilled nursing services. 

Issue 5: Assessing Liability for Self-Administered Drugs (SADs)

Problem: The Medicare hospital payment systems cover self-administered drugs (SADs) for inpatients but not generally for outpatients. In most instances, hospitals bill outpatients for SADs at full charges, and then the beneficiaries have to pay out of pocket although they may be able to submit claim to Part D for limited payment. SADs charges are a source of patient dissatisfaction. 

Solution: MedPAC suggests a policy option to package payment for self-administered drugs provided during outpatient observation on a budget-neutral basis within the hospital outpatient prospective payment system (OPPS).

The road ahead: These suggestions will be evaluated and incorporated into CMS policy in due course. We shall keep you informed of further developments in the future issues.

Resource: For more detailed information, read Chapter 7 of the document online at http://www.medpac.gov/documents/reports/june-2015-report-to-the-congress-medicare-and-the-health-care-delivery-system.pdf?sfvrsn=0.