How Patient Rights are Being Impacted by Medicare Advantage Plans’ Use of Long Observation Stays

Protecting patient rights is one of the cornerstones of Medicare policy.

As a doctor, I can assure you that I would rather patients concentrate on their health and not worry about whether their medical providers or their insurers are making decisions for them based on considerations that are not in their best interests.

The Centers for Medicare & Medicaid Services (CMS) has longstanding regulations requiring that hospitals offer patients a free choice in their selection of a home care agency or skilled nursing facility (SNF) after a hospital stay, and that each patient be informed of any financial interest the hospital has that could factor into their decision. In fact, CMS has proposed to expand that required choice to long-term acute-care hospitals and inpatient rehabilitation facilities (IRFs).

As most readers know, every inpatient who is entitled to Medicare must be given a copy of the Important Message from Medicare (IMM) within two calendar days of admission and within two calendar days of discharge. The requirement for the second copy was first implemented in 2007, in response to a lawsuit, Weichardt v. Thompson (later retitled to Weichardt v. Leavitt), on behalf of three Medicare beneficiaries who were forced to leave their hospitals before they were medically ready. Each plaintiff (or a family representative) objected to the discharge but received no written notice of the appeal process for challenging the discharge decision. Neither were they told that if they stayed in the hospital, they would be personally liable for the cost of care.

Each year, tens of thousands of Medicare beneficiaries appeal their discharge to the Beneficiary and Family-Centered Care Quality Improvement Organizations (BFCC-QIOs), as directed by the IMM. According to recent reports from Livanta, one of the QIOs, approximately 90 percent of these appeals are ruled in favor of the physician’s decision that the patient was stable for discharge; however, that still leaves thousands of patients who could have been discharged when discharge was not clinically appropriate, according to the medical reviewer at the QIO.

Currently, patients who are eligible for Medicare (including patients with Medicare and Medicare Advantage) who are treated in the hospital as outpatients, with or without observation services, have no immediate appeal rights if they feel they are being discharged prematurely. Patients who receive over 24 hours of observation services are required to be given the Medicare Outpatient Observation Notice (MOON), but that describes their potential financial liability and does not convey any appeal rights.

Why were outpatients not given immediate appeal rights? Traditionally, outpatient status was used for patients who came to the hospital for a specific service and left soon thereafter. CMS then started paying for observation services for a limited number of diagnoses, such as heart failure, expanding its use. As defined by CMS, observation was intended for “short-term” use to assess patients for inpatient admission or discharge. When the IMM change was implemented in 2007, the Recovery Audit Contractor (RAC) process was just starting, and most outpatients only spent a short amount of time in the hospital as outpatients.

With the widespread start of RAC audits in 2010, attention on short inpatient admissions and their reliance on commercial screening criteria led more hospitals to maintain patients as outpatients with observation for longer periods of time, with such patients continuing to need hospital care, but never meeting the “inpatient criteria” standard used by the RACs. The hospitals thereby avoided a possible RAC audit but were also paid on a line-item basis, with each service reimbursed individually (a policy that changed with institution of a comprehensive payment for observation in 2016).

These long outpatient and observation stays created consternation among patients and advocates, especially when Medicare patients spent days on end as outpatients, never getting admitted, never qualifying for access to their Part A benefit at a SNF, and incurring large coinsurance costs. In October 2013, all that changed when CMS adopted the two-midnight rule, limiting medically necessary outpatient stays to under two midnights. This meant that an outpatient stay should be limited, as in “the old days,” to one midnight, and there should be no controversy.

For the most part, this has been successful. Most hospitals adopted the two-midnight rule, and the only outpatients who stayed past a second midnight remained in the hospital for social reasons, often due to patient, physician, or hospital convenience. While this applied to patients with traditional Medicare, though, things were different for Medicare Advantage patients.

CMS has stated that Medicare Advantage plans are not required to follow the two-midnight rule for determining patient status. They must offer their enrollees the same benefits as those available through traditional Medicare, but are free through contracting to pay providers in accordance with whatever terms are agreed to by the parties. In most of the country, Medicare Advantage plans have chosen not to adopt the two-midnight rule, and instead use either a commercially available tool or proprietary guidelines to determine status. These plans often deny inpatient admission to all but the sickest of patients instead of denying a request for admission and asking the provider to either change the status to outpatient or dispute the decision – either concurrently, with a peer-to-peer discussion, or after discharge, using the plan’s own internal appeal process.

The Medicare Advantage plans can insist that hospitals maintain patients as outpatients without jeopardizing patient rights to medical care, since the Medicare Advantage patient who stays as an outpatient for three, four, or even five days continues to receive the care they require in the hospital. Additionally, the plans are not bound by the regulation requiring a three-day inpatient stay to access care at an SNF, so there is no potential lack of access to Part A Medicare benefits. Patient copayments and coinsurances also vary among the many plans available to Medicare Advantage enrollees, so the effect of status on the patient’s financial obligation does not favor either inpatient or outpatient status, producing few complaints.

Which brings me back to appeal rights. When a Medicare Advantage plan refuses authorization for inpatient admission, the patient remains in outpatient status. They will have received the MOON, although much of the information on that form does not apply to patients covered by Medicare Advantage. However, they will not get the IMM and they will not have immediate appeal rights if they feel they are being discharged prematurely.

If the hospital did admit the patient as an inpatient, and it provides a copy of the IMM and then calls the Medicare Advantage plan for authorization, the plan often denies authorization, and the hospital is told to change the patient’s status back to outpatient. That status change, like the condition code 44 processes for traditional Medicare inpatients who were improperly admitted as inpatients and will not be spending the second midnight, cannot be appealed by the patient, and it removes their immediate appeal rights.

As you can see, Medicare works hard to protect beneficiary rights and continues to strengthen those rights, even as they shift the predominant payment structure from volume to value. But the shift of Medicare beneficiaries from traditional Medicare to Medicare Advantage plans, which is part of that strategy, is resulting in MA beneficiaries being hospitalized for days on end, often for serious illnesses, as outpatients, with absolutely no rights to appeal their discharge.

The financial effects on hospitals of these long observation stays is getting a lot of attention; the lack of beneficiary access to a timely discharge appeal should not be overlooked.

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Live to Dr. Ronald Hirsch live every Monday on Monitor Monday, 10-10:30 a.m. EST.