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Andrew Wachler Esq.

The Centers for Medicare & Medicaid Services (CMS) has proposed a significant revision to the definition of “inpatient” in an attempt to clarify its policy on how Medicare contractors review inpatient admissions for payment purposes.

The proposed revision, included as part of the agency’s proposed inpatient prospective payment system (IPPS) rule for the 2014 fiscal year, uses a time-based presumption that raises a number of questions.

CMS policy regarding hospital admission and observation care has failed to provide meaningful guidance to allow physicians or hospital administrators to determine whether a patient should be admitted as an inpatient. Currently, the Medicare Benefit Policy Manual (MBPM, Chapter 1, Section 10) inpatient hospitalization provisions are to be applied to determine coverage of inpatient hospital admissions.

Pursuant to these provisions, although inpatient admissions “are not covered or non-covered solely on the basis of the length of time the patient actually spends in the hospital,” the admitting physician should use a 24-hour period as an inpatient admission benchmark and order admission for patients who are expected to need hospital care for 24 hours or more. This decision is a complex medical judgment that can be made only after the physician has considered a number of factors, including the patient’s medical history and current medical needs, the severity of the signs and symptoms exhibited, and the medical predictability of something adverse happening. 

Hospitals trying to avoid audits and having their admission decisions overturned by Recovery Audit Contractors (RACs) have been keeping Medicare beneficiaries in observation status longer, even though CMS suggests that hospitals admit or discharge them within 24 to 48 hours. To address these concerns, CMS solicited ideas for how to define an inpatient admission in the 2013 outpatient prospective payment system (OPPS) proposed and final rules.

In its 2014 fiscal-year IPPS proposed rule published in the May 10 Federal Register, CMS proposes to tie the definition of a medically necessary and reasonable inpatient admission to the amount of time the patient stays (or is reasonably expected to stay) in the hospital. More specifically, hospital inpatient admissions lasting at least longer than one Medicare utilization day presumptively will qualify as appropriate for payment under Medicare Part A. More than one Medicare utilization day is defined as an encounter “crossing two midnights” in the hospital. However, if a hospital is found to be abusing this rule (by deliberately delaying care so that the stay will cross two midnights, for example), external review contractors will be instructed to presume the opposite: that the service should have been provided on an outpatient basis. Conversely, hospital inpatient admissions spanning less than one Medicare utilization day (that is, less than two midnights) presumptively will be inappropriate for payment under Medicare Part A. Instead, a stay of fewer than two midnights would be covered by Medicare Part B. 

In the proposed rule, CMS states that Medicare contractors will presume that hospital services spanning fewer than two midnights should be provided on an outpatient basis unless a) there is clear documentation in the record supporting the physician’s order and the expectation that the beneficiary would require care for more than two midnights or b) the beneficiary underwent a procedure on the inpatient-only list. In accordance with this language, Medicare contractors will be instructed to employ the factors similar to those currently included in the MBPM to determine the medical necessity of an inpatient admission that does not reach the two-midnight threshold. These factors include, for example, the severity of the signs and symptoms exhibited by the patient and the medical predictability of something adverse happening to the patient. 

Later in the proposed rule, however, CMS also indicates that it will codify the general two-midnight threshold rule at 42 CFR 412.3(c)(1), and that 42 CFR 412.3(c)(2) would include an exception stating that “…if an unforeseen circumstance, such as beneficiary death or transfer, results in a shorter beneficiary stay than the physician’s expectation of at least two midnights, the patient may be considered to be appropriately treated on an inpatient basis, and the hospital inpatient payment may be made under Medicare Part A.” This language tends to suggest that a Medicare contractor’s review of an inpatient admission lasting fewer than two midnights will focus less on the clinical factors listed above and more on “unforeseen circumstances.” 

For purposes of calculating two midnights, CMS states that “the starting point for this time-based instruction would be when the beneficiary is moved from any outpatient area to a bed in the hospital in which the additional hospital services will be provided.” However, many hospitals do not have designated outpatient observation areas and instead provide observation and inpatient services in the same hospital bed. Although under these circumstances one would assume that the clock starts at the time of the admission order, there will need to be confirmation from CMS about when the clock starts for purposes of calculating the “two midnights.”

CMS projects that the proposed admission changes will result in 40,000 more inpatient hospital stays at an additional cost to the Medicare program of $220 million. In order to offset this projected increased cost, CMS is proposing to reduce hospital inpatient rates by 0.2 percent. However, this increase in inpatient hospital stays may not actually occur.

Together with the proposed changes to hospital billing policy in proposed rule (CMS-1455-P), which allows hospitals to self-audit inpatient cases and re-bill under Part B, the proposed revision to the admission rules most likely will result in more outpatient hospital stays, as most stays of fewer than two midnights will be billed as outpatient either initially or due to after-the-fact self-auditing. 

About the Authors

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payor audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topics.

Jesse Adam Markos is an attorney at Wachler & Associates, P.C.  He graduated Magna Cum Laude, from Wayne State University Law School in 2008 where he served on the Wayne Law Review and was nominated to the Order of the Coif.  He attended law school on a full academic scholarship as a Dean’s Scholar and Lombard Leadership Fellow and graduated fifth in his class.  Mr. Markos graduated with distinction from Western Michigan University in 2004.  Mr. Markos practices in all areas of healthcare law and devotes a substantial portion of his practice to representing providers in the Medicare and other third party payer audit appeals process. 

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Andrew Wachler Esq.

Andrew B. Wachler, Esq. is a partner with Wachler & Associates, P.C. Mr. Wachler has been practicing healthcare law for over 30 years. He counsels healthcare providers, suppliers and organizations nationwide in a variety of healthcare legal matters. In addition, he writes and speaks nationally to professional organizations and other entities on healthcare law topics such as Medicare and 3rd party payor appeals, Stark law and Fraud and Abuse, regulatory compliance, enrollment and revocation, and other topics. He often co-speaks with Medicare and other government officials. Mr. Wachler has met with the Centers for Medicare & Medicaid Services (CMS) policy makers on numerous occasions to effectuate changes to Medicare policy and obtain fair and equitable reimbursement for health systems.

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