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appears to ignore contractual or regulatory implications regarding the designation and frequently leads to requests for more specific documentation from hospital staff (such as coders or HIM).
This poses an increasingly high-risk area under current regulatory expectations because RACs have let it be known that this is a significant focus for them. And, to make matters worse, they aren’t the only ones focused on it. Others are watching you, too.

Seven Ways to Watch Your Claims

There presently are at least seven (7) government entities focused on payment integrity in the Medicare Program, intent on returning to Medicare any payments they deem inappropriate. Since you’re reading this, you are probably already familiar with the RACs, but here is a short description of the six other entities also focused on your claims:

• MACs, or Medicare Administrative Contractors, replace FIs and Carriers nationwide and are focused on both “pre” and “post” payment reviews, plus provider education.

• NCDs, or National Coverage Decisions, represent continued implementation of policies that link payments to quality, such as the so-called Hospital Acquired Conditions (HACs) and Never-Events, which seek to block Medicare payments for “preventable errors and conditions.”

• ZPICs, or Zone Program Integrity Contractors, actually are intended to oversee the RACs, but to insure their accuracy, they will be looking at hospital claims data as well.

• CERT, or Comprehensive Error Rate Testing, is tasked with measuring the accuracy of Medicare Fee For Service (FFS) claims. They also have begun “observing” all inpatient claims.

• QIO, or Quality Improvement Organization, officially is tasked with oversight of the HACs, and will concentrate on overpayments concerning higher weighted DRGs. And last, but certainly not least…

• OIG/DOJ, or the Office of Inspector General / Department of Justice, is the enforcement end of this spectrum, tasked with enforcing accuracy in payment and preventing fraud and waste in Medicare dollars. These are the agencies with the FBI in their corner.


A Serious Risk

How serious is this risk area for hospitals? Let’s just talk about the RAC: should a RAC deny claims where either the medical record documentation or the patient condition appears to fail to meet standardized admission criteria, it can seek to recoup 100 percent of the claim, which includes all of the ancillary services and subsequent billings. The denial (demand) is rendered to the facility provider in question, the only entity that can appeal the initial denial — not that an appeal likely will achieve a positive outcome. Such denials, concerning an absence of sufficient documentation for medical necessity, are never overturned on appeal. The documentation is either present, or it is not.

Additionally, CMS has made it clear up to this point in time that a provider only can re-bill for some Inpatient Part B services (and only those services that appear on the list in the Benefit policy Manual, Chapter 6, Section 10. Find the document here, try pg 10, ff.). Also, re-billing for any service only will be allowed by CMS if all claim processing and timeline rules are met, with no exceptions. The time limit for re-billing claims is 15-27 months from the date of service (find the appropriate Claims Processing Manual, Chapter 1, Section 70, here).

To complicate matters, the rules for inpatient versus outpatient designation generally are not well understood, and unfortunately, least of all by the persons writing the orders for admission: the physicians themselves.

How and Why the Change Occurred

Late in 2008, CMS changed designations for certain inpatient procedures to outpatient, a move that carries significant reimbursement implications for hospitals and physicians. Such procedures, for example, include certain cardiac procedures, such as Post Cardiac Implant (PCI), which previously have been considered to be appropriate for inpatient admission but now are considered to be safely managed in an outpatient setting.

The driving force behind the CMS decision to change these designations is certainly economics. However, proper patient risk screening is (and always was) necessary to identify patients whose conditions (i.e., their ‘medical necessity’) are appropriately cared for in the outpatient versus inpatient setting. Provider liability will continue to require accuracy in screening and adequacy of documentation to support the status and the resultant billing of the services.


The difference in what the hospital is reimbursed, between inpatient designations for PCI versus an outpatient designation, is approximately $5,000.00 per case – this presents huge potential depending upon service volumes.

Low-risk patients could and should be identified by provider prior to an elective, scheduled procedure and ‘observed’ over a 10-to-12 hour time period following it, then safely discharged.
High-risk patients should be identified for inpatient care (inpatient designation) and must have complete and specific physician documentation in the record to that effect in order to be in a position to stand up to subsequent RAC (or any other regulatory agency) review and challenge.

Emphasis is Not New

The assignment of status and the determination of medical necessity in a hospital setting is not new – it’s been there for many years in the Medicare program. But as we can see from the above list of entities focused on controlling and monitoring payment accuracy, transparency in the entire cycle is expected, and the integrity of medical record documentation is the foundation for all payment and payment retention. The daily news coming out of the new administration in Washington should be enough evidence to convince us all that the mantra of the day is payment accuracy, and all providers will continue to be in the crosshairs.


Nevertheless, to put the payment climate in context, it is important to note that the emphasis on status assignment and medical necessity of patient care in a hospital is nothing new. To see this clearly, we will consider an actual case from the latter part of 2007.


A Real Life Example

In December 2007, St. Joseph’s Hospital in Atlanta agreed to pay $26 million to settle certain allegations that included claims of inappropriate or incorrect “medical necessity” labeling of inpatient care vs. outpatient or observation care. Understanding the admission criteria and getting the assignment correct is the function of a physician making good decisions at the time of an admission order. Those decisions actually constitute a contractual issue, not a clinical one. To make a contractually appropriate assignment, this question must be asked and answered: do the patient and the conditions being treated, monitored or evaluated, and documented by the physician, serve to meet the inpatient criteria necessary to receive payment as an inpatient, or in fact, does the case seem to relate more to an observation stay or an outpatient visit?


In the case of St. Joseph’s, the hospital had a four-month employee who had been hired to help with the assignment of patient status at the time of admission. Unfortunately, physicians there generally were unresponsive, and, frustrated, that individual ultimately found an attorney — and out of the $26 million settlement, was paid $5 million by CMS for bringing the information forward.


The settlement with St. Joseph’s included the imposition of a five-year Corporate Integrity Agreement (CIA); and for the first time in a CIA, there was a mandate to institute and use a specific Case Management Protocol, which is a process designed to help reduce inappropriate assignment errors at admission — not to dissuade patient admission or patient care, but rather to assign the correct status to the patient. In other words, as patients present to hospitals (elective or emergent), the decision on whether they should be given an inpatient, outpatient observation status needs to be clearly and accurately determined.


Is It Really So Hard?

Given the example above, one might conclude that this problem would have a simple solution, but one would be mistaken in that conclusion. Unfortunately, identifying patient status correctly is not necessarily easy; in some instances, in fact, it is downright difficult.


For example, individuals with chest pain, gastroenteritis, back pain, or syncope might qualify for a legitimate, medically necessary one-day stay as an inpatient. However, certain documentation and criteria, certain clinical manifestations, and certain symptoms all must be documented clearly to support the validity of such care, as must a provider be certain that the inpatient status/designation is supported clearly and accurately on a claim and therefore can be reimbursed and kept, if reviewed.

Other areas that can provide difficulty in identifying proper status include elective or scheduled procedures, which are sometimes appropriate to be admitted and billed as inpatient rather than outpatient. Conversely, there are some inpatient services that can and should be performed in an outpatient setting as long as it is safe for the patient.


Knowing how to make these judgments is crucial for a Medicare provider if it wants to keep its reimbursements. Unfortunately, due to what the government considers to be widespread fraud, misuse and apathy, the issue is not so much about actual care as it is about “playing by the rules” that CMS has issued in order to treat the Medicare population and be paid for doing so.


Education and Processes

A “short” prescription is to educate, educate, and educate some more. Plus a provider facility must insure that its processes for determining and documenting admission status are sound. RAC University offers a full course on just this issue, “Observation vs. Inpatient Stay” (watch a short preview of the course here); however, a single course is not enough. Again, RAC University can provide a basis for the education component of this prescription (watch previews of all the courses here), but there are processes to be considered, as well.


Here then is a “short” prescription for the processes that need to be reviewed:


• Admission status criteria either can be published and generally accepted medical standards (such as InterQual or Milliman) or pre-established, hospital-specific standards.

• Admitting physicians, either ED or Primary Care MDs, must identify in the record an order to place a patient into and discharge from observation or inpatient status. This must be stated clearly and consistent criteria must be followed across the entire medical staff for the hospital.

• ED case managers or ED nursing staff can assist the physician with their determination of “medical necessity” for admission status, which of course means that they must be educated appropriately on the subject.

• There must be a supportive process in place for the physicians so that the hospital’s and the physician’s own billings for services can be accurate, consistent and supported in both the billing document and the medical record. By this we mean other staff must be available and willing to support the physicians. This process is not meant to be done in a vacuum – physicians should not have to memorize these criteria, as this is in no way a component of their medical judgment. Staff is the logical choice to support them in this area.


In the next few weeks, RAC Monitor and eduTrax will be presenting a webinar, a live eLearning event, with much more detail on this subject. This webinar will be focused on Medical Necessity: Documentation and Coding of 1-Day Stays for Cardiac Services.


This session will be appropriate for staff from the following departments: HIM, Medical Records, Case Management, Utilization Review, Coding, Billing, Documentation Specialists, Physician Assistants and Nursing staff who assist in any of these processes.


Watch for e-mail notices to be sent out soon from RAC Monitor.


About the Author

Patricia Dear has more than 30 years of experience in the healthcare industry, working within corporate healthcare entities, for-profit and non-profit hospital systems, legal defense and plaintiff counsel. She is a recognized national speaker on reimbursement and compliance. Ms. Dear is President and CEO of eduTrax®


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