In an article from Modern Healthcare, the Medicare Payment Advisory Commission is tentatively backing a package of recommendations that will both overhaul how recovery audit contractors operate and discourage hospitals from billing for too many short inpatient stays, when much cheaper outpatient stays will suffice.
Concerns about hospitals possibly overutilizing inpatient stays is not a new issue. RACs have been primarily focusing their investigations on these type of claims for years. In response, hospitals began increasing their use of observation status.

“Beneficiaries are occasionally surprised to learn that they are in observation status and also unaware of how this may affect their skilled-nursing facility coverage or their liability for prescription drugs,” Zachary Gaumer, a senior analysts at MedPAC told commissioners at a meeting March 5.

The two-midnight rule also was discussed, but commissioners didn’t make any formal recommendations related to the controversial policy and expressed uncertainty on how their suggestion related to observation status would be impacted by it.

“I did not include an explicit recommendation on the two-midnight rule here because I felt like our package of recommendations worked either with the two-midnight rule or the 24-hour rule,” outgoing chairman Glenn Hackbarth said.

Others thought their package of suggestions, specifically a formulaic penalty on excess short stays, could be a replacement for two-midnight.

“CMS may want to drop the two-midnight rule because I think the two-midnight rule complicates this unless you count observation days in coming up with the set of hospitals that are going to be targeted for these reductions,” said Kathy Buto, a commissioner and independent health policy consultant in Arlington, Va.

Commission members informally backed a package of recommendations that would address the RAC audit process while at the same time discourage overuse of inpatient stays and protect beneficiaries. A formal vote will occur in April. Approved suggestions will then then be placed in the June report to Congress.

RAC audits are increasing the administrative burden hospitals face because of the time and effort needed for the appeals process in which denials can be overturned. To better target the audits, MedPac suggests HHS’ secretary direct RAC auditors to focus reviews of short inpatient stays on hospitals with the highest rates of this type of stay.

“We are trying to make allowances for hospitals that don’t have a history of this, and also maybe create an incentive for hospitals to be in that group and not be audited,” said Jon Christianson, a commissioner and professor of health policy & management at the University of Minnesota.

A related idea was suggesting that HHS’ secretary evaluate a formulaic penalty on excess short stays to substitute for RAC review of short inpatient stays.

The suggestions were immediately slammed during the public comment part of the meeting.

“We do not support recommendations that would undermine physician judgment and discourage innovation by targeting hospitals with penalties solely because they have shorter inpatient stays than other hospitals because they efficiently treat the sickest and most complex patients,” said Allison Cohen, senior policy and regulatory specialist at the Association of American Medical Colleges.

MedPAC also plans to suggest that HHS’ secretary modify each RAC’s fees to be based, in part, on its claim denial overturn rate to make them more diligent in the claims they want to flag. Another suggestion is to shorten the RAC look-back period for reviewing short inpatient claims.

RACs now can go back three years to audit Medicare claims, but hospitals have one year from the date of service to rebill Medicare for denied inpatient claims. Therefore, when a RAC denies a claim that is three years old, the hospital is not permitted to rebill that denied claim.

To protect beneficiaries from being placed unwillingly in observation-stay status, Congress should pass legislation that requires, as a condition of Medicare payment, that hospitals notify beneficiaries of those in status for longer than 24 hours. Also, beneficiaries should be told that their status may affect their cost-sharing for their hospital stay and coverage for skilled-nursing-facility care.

Those in observation status tend to pay more for drugs, and in the event they need to go to a skilled-nursing facility for care, the stays are not covered by Medicare because a person needs to have three days of inpatient care. Outpatient observation does not count toward that requirement.

Commissioners were unsure when a patient should be told if he is in observation status.

“The real critical moment is when a hospital is about to discharge a patient to a (skilled nursing facility),” Hackbarth said, relaying an idea from an absent commissioner.

“I think at discharge is too late,” said Cori Uccello, a commissioner and senior health fellow at the American Academy of Actuaries. “It can be part of the discharge planning process, but at that point, that’s too late”.

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