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EDITOR’S NOTE: This is the second installment in series of articles, detailing a set of proposals submitted to CMS by Steven J. Meyerson, MD, to revise hospital admission regulations.

The Outpatient Prospective Payment System (OPPS) Proposed Rule for the 2013 calendar year (Federal Register /Vol. 77, No. 146) solicited “suggestions regarding whether and how we might improve our current instructions and clarify the application of Medicare payment policies for both hospitals and physicians.”

This call for input underscored that the Centers for Medicare & Medicaid Services (CMS) recognized the need for reform of the complex regulations governing hospital admission and billing. While the OPPS Final Rule reported submission of a variety of ideas focusing largely on the definition of “inpatient,” CMS did not commit to any changes of current regulations. This review is written in response to the OPPS Final Rule, and in accordance with the comment period (U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services, 42 CFR Parts 416, 419, 476, 478, 480, and 495, [CMS-1589-FC], RIN 0938-AR10).

Proposals for Revision of Inpatient and Observation Registration and Billing Rules

  1. CMS should accept passing nationally recognized admission screening criteria (InterQual Criteria or Milliman Care Guidelines) as a basis for approving non-surgical inpatient admission and observation services. Those patients who do not meet screening criteria would be referred to a physician advisor, specifically an agent or medical staff member of the UM committee, who will evaluate for admission based on Medicare inpatient and observation criteria (per current practice).
  2. “Observation” should be redefined to clarify that it is to be used a) for simple treatments that the physician expects to be completed in less than 24 hours, such as intravenous hydration for mild to moderate dehydration, or acute pain management following an injury; or b) as a continuation during a brief yet clearly defined period of time continuing a diagnostic evaluation begun in the emergency department or physician’s office.
  3. A physician ordering observation should be required to document medical necessity for observation. Payment for physician services should be contingent upon the presence of this medical necessity documentation which applies to and justifies the medical services physicians provide as well.
  4. Observation should last no longer than 24 hours. If an observation patient is not sufficiently stable for discharge after 24 hours, the physician should admit the patient as an inpatient and clearly document the medical necessity for admission, which is defined as “the medical necessity for medical services lasting longer than 24 hours that can only be provided in a hospital setting.” (Note there is no reference to a distinction between requiring an inpatient or outpatient setting because there is no way to define these terms sufficiently so as to be able to make a determination of the proper setting based on a consistent definition and set of rules.)
  5. If the treating physician reasonably believes that rendering care to a patient in the hospital will require more than 24 hours, he/she should record this expectation explicitly in the record at the time of admission, document the medical necessity for a stay of greater than 24 hours, and order inpatient admission.
  6. If an inpatient’s stay lasts less than 24 hours, unless the patient meets one of the exceptions listed below, the stay should be billed as outpatient observation, as if the admission order had been for observation services. No inpatient bill would be submitted or paid. This proposed process is inconsistent with current CMS policy that prevents retroactive orders and retrospective change in status unless the Condition Code 44 process has been fully implemented.
  7. The “observation clock” timing the observation stay should begin at the date and time an order for observation is entered into the medical record (clarifying what is meant by “initiating observation”) and end when the last medically necessary service related to the reason for observation is provided. This proposal would eliminate the currently required deduction for time under “active monitoring,” clarifying that observation services are “initiated” when the order is given.
  8. Hospitals should be allowed to bill beneficiaries for medications provided or administered to all outpatients, including those in observation, based on retail pharmacy rates.
  9. To protect Medicare beneficiaries from excessive costs, their out-of-pocket expenses for an observation stay should be capped at the level of the current inpatient deductible.
  10. The admitting physician should be responsible for documenting medical necessity for inpatient admission at the time an order for such is given, using specific reasonable documentation requirements (to be defined), the lack of which would make the physician ineligible for payment due to lack of documentation of medical necessity for the medical care provided.
  11. CMS should reevaluate DRG relative weights, in light of the increased number of short inpatient stays that likely would result from initiating admission after 24 hours of observation. This would require a reduction in payment for higher-level DRGs to ensure this course of action would be revenue-neutral. The result would be fairer payment for short stays.
  12. For the purpose of skilled nursing facility (SNF) eligibility, for those patients admitted to a SNF following a medically necessary inpatient admission that includes an initial period of observation, the three-day stay requirement should be applied retroactive to the date the patient was placed in observation.
  13. Retroactive orders should be allowed when used to correct billing errors, whether due to clerical or physician error. Medicare beneficiaries should be held harmless from any additional charges due to changes in billing status made after discharge or without proper written notice.

Proposals for Revision of Inpatient and Outpatient Surgery and Procedure Rules

  1. Minor surgical procedures (status indicator “T”, Addendum B) performed in the ED (such as suturing of lacerations, packing of nosebleeds or incision and drainage (I&D) of abscesses) or performed during the observation stay (such as laparoscopic cholecystectomy or hernia repair) should not invalidate the hospital’s right to be paid for observation if observation services were ordered appropriately prior to a surgical procedure while the patient is under evaluation for an acute symptomatic condition or post-procedure due to a complication or unexpected clinical event.
  2. For a patient on whom a status indicator “T” procedure is performed in an operating or treatment room after a period of outpatient observation, observation billing should end when the patient arrives at the procedure or pre-procedure area if discharge is planned after a normal recovery time following the procedure.
  3. Status indicator “C” (inpatient-only) procedures may only be performed in an acute hospital inpatient setting. Any patient having a status indicator “C” inpatient only procedure performed should be considered an inpatient as long as his or her procedure is performed in an acute-care hospital, and the hospital should be paid as such regardless of the presence of a preoperative admission order. An admission order should be recommended, but not required.
  4. Patients having inpatient only procedures performed following a period of observation should be considered inpatients and automatically admitted as inpatients upon arrival at the pre-procedure area, with admission date and time as recorded in the original order for observation. Inpatient status should be eligible to be applied retrospectively at any time prior to billing Medicare, even if a physician has failed to enter an inpatient admission order prior to inpatient-only surgery.
  5. A physician should admit a patient as an inpatient when he or she expects that a status indicator “T” procedure will be required on an urgent basis for an acute medical condition (defined for this purpose as a situation in which surgery is expected less than 24 hours following emergency admission, with appropriate progress notes and orders supporting this expectation).
  6. Patients should be eligible for inpatient admission for status indicator “T” procedures based on co-morbidities and risk assessment only if performed on an urgent basis following an emergency or office visit the same day. The physician, however, may take co-morbidities into account and order extended recovery based on a pre-op risk assessment.
  7. If a patient requires inpatient admission for a serious complication following outpatient surgery, the entire stay should be considered an inpatient stay, beginning with the day of surgery as if the patient had been admitted pre-operatively. These day(s) also would count toward the three-day stay required to qualify for SNF coverage.
  8. Contrary to current policy, in which there is no payment, hospitals should be paid for observation when ordered for minor complications following outpatient surgery. A new APC would probably be required to bill for this currently “bundled” service.
  9. Any patient not clinically stable enough for discharge after 24 hours of post-operative observation following planned outpatient surgery should be admitted as an inpatient. The entire stay would be considered an inpatient stay under this set of circumstances, beginning with the day of surgery as if the patient had been admitted pre-operatively.

EDITOR’S NOTE: In the next article, to be published on Thursday, Jan. 31, 2013, Dr. Meyerson concludes with his proposal for revisions to inpatient and outpatient observation registration and billing rules.

About the Author

Steven J. Meyerson, MD, is vice president of the Regulations and Education Group (“the REGs group”) for AccretivePAS®. He is Board Certified in Internal Medicine and Geriatrics. Before joining Accretive Physician Advisory Services in 2010 he served as the medical director of care management at Baptist Hospital in Miami, Florida. He has distinguished himself by contributing to the development of innovative service lines and managing education on Medicare regulatory compliance for AccretivePAS®.

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

Join the conversation on Twitter. Do you have any comments or other suggestions for improving the Medicare Hospital Admission Programs? If so let us know at http://twitter.com/racmonitor by using #Meyerson


Steven J. Meyerson, MD, CHCQM-PHYADV

Steven Meyerson, MD, CHCQM-PHYADV, is the founder of Steven Meyerson Consulting. Dr. Meyerson is a nationally recognized expert and consultant in the physician advisor role, case management, and hospital Medicare compliance. He is board certified in internal medicine and geriatrics and serves on the board of the American College of Physician Advisors (ACPA). He edits and writes for the ACPA online blog.

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