Avoiding the Million-Dollar Mistake

One million dollars: that is how much one hospital could have saved had it checked with a well-informed healthcare lawyer before making a voluntary refund.

The client chose to refund the sum because its internal review department located hospital charts for which the physician had not certified the stay prior to the patient’s discharge. 

There was an order for inpatient admission, but the certification was missing. The hospital has an industrious compliance team. The team did research and found guidance from the Centers for Medicare & Medicaid Services (CMS) published Jan. 30, 2014 indicating that a hospital, as a condition of payment, must have a physician’s certification as well as an order. Based on that memo, the hospital chose to refund $1 million for the cases missing a certification. I wish the hospital had called me first. 

Admittedly, everything they did sounds objectively reasonable, especially because that Jan. 30, 2014 memo is easily located on the web – but that memo is not valid. CMS has since clarified that certifications are necessary only when a stay lasts 20 or more days or the patient becomes an outlier. In other instances, the order suffices. The memo asserts that certifications are always a condition of payment. They are not. Unfortunately, the hospital’s attempt to be a good corporate citizen caused it to refund money for services that were properly billable.   

Let’s change the facts a bit and say that some orders were missing as well. Do missing admission orders require a refund? Some new guidance may surprise you. CMS has finally changed Chapter 1 of the Benefit Policy Manual to reflect the two-midnight rule. The change came out in March, with an effective date of Jan. 1, 2016 (let that sink in a minute. The change is effective 15 months before it was issued). I have some issues with a retroactive policy, but in this case it isn’t all bad, because the last portion of Section 10 creates an exception to the order requirement. Here is the key text:

“The admission order is evidence of the decision by the ordering practitioner to admit the beneficiary to inpatient status. In extremely rare circumstances, the order to admit may be missing or defective (that is, illegible or incomplete, for example (when) ‘inpatient’ is not specified), yet the intent, decision, and recommendation of the ordering practitioner to admit the beneficiary as an inpatient can clearly be derived from the medical record. In these extremely rare situations, contractors have been provided with discretion to determine that this information constructively satisfies the requirement that the hospital inpatient admission order be present in the medical record. However, in order for the documentation to provide acceptable evidence to support the hospital inpatient admission, thus satisfying the requirement for the order, there can be no uncertainty regarding the intent, decision, and recommendation by the ordering practitioner to admit the beneficiary as an inpatient, and no reasonable possibility that the care could have been adequately provided in an outpatient setting.

This narrow and limited alternative method of satisfying the requirement for documentation of the inpatient admission order in the medical record should be extremely rare, and may only be applied at the discretion of the contractor.”

So the contractor has authority to conclude that an admission is still valid when the order is missing. The Manual expects these situations to be “extremely rare,” but doesn’t attempt to quantify the frequency. The text says the test is whether the intent can be clearly derived from the medical record. In a presentation last month, a CMS official explained that the agency wants to be flexible and not unreasonably penalize hospitals for minor mistakes. I really appreciated the statement, as it showed an interest in being fair. 

A private lawyer at this conference put a different spin on the new guidance. The attorney asserted that because the Manual gives Medicare Administrative Contractors (MACs) authority to decide whether the exception applies, hospitals may not opt to bill a claim when they find a missing order. Instead, this lawyer asserts that you must go to the contractor first and ask if you can bill it. Is that really right? I sure don’t think so, but it will be the topic of a future article. 

In the meantime, there’s an important lesson here. Before you refund money to a contractor or make a critical decision that’s going to have long-term implications about your ability to bill claims with particularly high values, it’s worth calling experienced healthcare counsel to check. 

As this hospital said to me, “that’s why we now have a policy of calling you before we do a significant refund.”


David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

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