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Recovery contractors as well as auditors from the Department of Health & Human Services Office of Inspector General (OIG) continue to uncover health systems that incorrectly bill Medicare Part A for beneficiary stays that should have been billed as outpatient or outpatient with observation services. It is clear that short stays for medical and surgical DRGs are increasing.

According to a recent OIG report, inadequate controls in some areas of the hospital as well as human error are at the source of the short-stay problem. Hospital officials get more specific, saying that they can trace the weaknesses to the patient admission and admission-screening processes. It’s obvious then that hospital managers must take steps to eliminate or reduce those weaknesses.

In addition to using screening criteria such as InterQual and Milliman to assist with the care-status determination (inpatient vs. observation), hospital managers who want to get in control must establish utilization review (UR) and case management plans that incorporate physician advisors into the second-level review for cases that don’t meet the initial screening criteria.

The admitting physician must write an order at the time of the patient’s admission that includes the status of either inpatient or observation (such as “admit as inpatient” or “place in outpatient observation”). Note that Medicare rules state, “The determination of inpatient status or outpatient observation services for any given patient is specifically reserved to the admitting physician.”

Structure of UR Plan

A basic structure for establishing a UR plan can be found in the Medicare program’s conditions of participation (CoP) for hospitals (§482.30 of the Code of Federal Regulations). In fact, the hospital CoP require all facilities to have a UR plan in effect.

First and foremost, the federal law requires a formal evaluation of coverage, medical necessity, appropriateness of healthcare services, and individual treatment plans. The UR plan must ensure the review of services provided by the institution and by the medical staff to Medicare and Medicaid beneficiaries. The only exception to this rule is if:

  • A utilization and quality-control, quality-improvement organization (QIO) has assumed binding review for the hospital, or
    • The Centers for Medicare & Medicaid Services (CMS) have determined that specific state-established UR procedures are superior to the federal procedures and, therefore, over-ride the requirements for hospitals in that particular state.

The hospital CoP list the following standards for UR.

Establish a UR Committee.

The committee must include two or more practitioners (doctors of medicine or osteopathy). It also could consist of either staff of the institution or a CMS-approved group outside the institution (such as by the local medical society and some or all of the hospitals in the locality). According to this standing, it may not be practical for small institutions to have this kind of committee, however, and CMS provides guidelines in another section for these.

It goes without saying that the UR committee’s reviews may not be conducted by any individual with a direct financial interest (such as, for example, an ownership interest) in that hospital, or any professionally involved in the care of the patient whose case is being reviewed.

Scope and frequency of review.

Before, at, or after inpatient hospital admission, review the records of Medicare and Medicaid patients (i.e., those paid under the prospective payment system) with respect to the medical necessity of the following:

  • Admissions to the institution
  • Duration of stays:Hospitals need review only cases that they reasonably assume to be outlier cases based on extended length of stay (LOS).
  • Professional services furnished, including drugs and biological: Review only cases that can reasonably be assumed to be outlier cases based on extraordinarily high costs.

Determination regarding admissions or continued stays.

With only one exception, at least two UR committee members—after consulting the patient’s practitioner(s)—must determine that an admission or continued stay is not medically necessary. The exception is that just one committee member may make the decision if the patient’s practitioner concurs with the committee’s determination or fails to present his or her views when given the opportunity.

If the committee decides that the hospital admission or continued stay is not medically necessary, it must give written notification, no later than within two days, to the hospital, the patient, and the patient’s practitioner.

Extended stay review.

For non-PPS hospitals, the UR committee must make a periodic review of each current inpatient receiving hospital services during a continuous period of extended duration. The scheduling of the periodic reviews may be the same for all cases or differ for different classes of cases.


For PPS hospitals, the committee must review all cases reasonably assumed to be outlier cases because the extended LOS exceeds the threshold criteria for the diagnosis. The hospital is not required to review an extended stay that does not exceed the outlier threshold for the diagnosis. The committee must make the periodic review no later than seven days after the day required in the UR plan.

Review of professional services.

This is required with an eye toward determining  medical necessity and to promote the most efficient use of available health facilities and services.

For More Information

Part 482 of the CFR lists all of the CoP for Hospitals. It is available at http://www.cms.gov/Regulations-and-Guidance/Legislation/CFCsAndCoPs/Hospitals.html.

About the Author

Janis Oppelt is editorial director for MedLearn Publishing, a Panacea Healthcare Solutions, Inc. company, St. Paul, MN.

Contact the Author


To comment on this article please go to editor@racmonitor.com

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Janis Oppelt

Janis Oppelt was the former editorial director for MedLearn Publishing.

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