While supplies last! Free 2022 Coding Essentials for Infusion & Injection Therapy Services book with every RACmonitor webcast order. No code required. Order now >

“Short-stay admissions, especially one-day stays, are easy targets for the  recovery auditors,” says Sandra Routhier, RHIA, CCS, a senior healthcare consultant with Panacea Healthcare Solutions, Inc. “They now are reviewing short stays for medical DRGs—such as syncope, transient ischemic attack and chest pain—and surgical DRGs, including  cardiovascular stent procedures.”

At the start of the recovery audit contractor (RAC) process, the complex reviews primarily related to MS-DRG validation, which put hospitals at risk of losing the reimbursement associated with the difference between the MS-DRG payments for denied cases. 

Now, approved RAC issues and complex review requests relate to the medical necessity of inpatient admissions. Medicare only pays for inpatient hospital services that are medically necessary for the setting billed and that are coded correctly. Denied claims put hospitals at risk of losing most or all their payments for these cases.

AHA Survey Results

The latest AHA RACTRAC Survey findings (issued August 22) support Routhier’s observation. In its 2nd Quarter 2012 Report, the American Hospital Association summarized the experiences of hospitals as they relate to RAC activity. According to the 2,266 hospitals participating in the survey, medical-necessity denials were the most costly complex RAC denials for hospitals. In the case of 84 percent of the survey participants, two-thirds of the denials were for one-day stays where the healthcare was found to have been provided in the wrong setting, not because the care was not medically necessary.

Fortunately, hospitals are having some success appealing inpatient medical necessity denials.

More than half (56 percent) of the hospitals had a denial overturned because the care provided was found to be medically necessary. Another 40 percent of the hospitals submitted additional information to substantiate their claims.

Widespread Issue

Specific examples of problems with short-stay admissions also are being discovered by auditors with the Department of Health & Human Services Office of Inspector General (OIG). In a report issued July 2012 (A-03-11-06101), for example, the OIG summarized findings from its audit of the not-for-profit Christiana Care Health System, which includes two acute-care facilities (Christiana Hospital, a 913-bed hospital located in Newark, Delaware, and Wilmington Hospital, a 241-bed hospital located in Wilmington, Delaware).

The OIG sampled 281 inpatient and outpatient claims from 2008–2010, and found 66 inpatient claims with billing errors and 54 outpatient claims with billing errors. Auditors identified $640,530 in Medicare overpayments that were the result of billing errors in areas commonly at risk for noncompliance, including inpatient short stays.

Specifically, auditorsfound that the health system incorrectly billed Medicare Part A for beneficiary stays that should have been billed as outpatient or outpatient with observation services. According to the OIG, these errors occurred due to inadequate controls in some areas of the hospital and plain old human error. Hospital officials attributed the errors to weaknesses in the patient admission and admission-screening processes.

No Easy Solution

About this last point, Routhier explains that hospitals are required to use screening criteria such as InterQual and Milliman to assist with the care-status determination (inpatient vs. observation) as well as to have an established review process (i.e., utilization review [UR], case management) that includes physician advisors for second-level review for cases that don’t meet the initial screening criteria.

In fact, the hospital conditions of participation (CoPs) require all hospitals to have a UR plan. Hospitals must ensure that all of their UR activities, including the review of medical necessity of hospital admissions and continued stays, are fulfilled as described by law. (The current CoP for hospitals is available at http://www.cms.gov/Regulations-and-Guidance/Legislation/CFCsAndCoPs/Hospitals.html.) The CoPs require hospitals to have a UR plan to assure a formal evaluation of coverage, medical necessity, appropriateness of health care services, and individual treatment plans.

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.”

However, says Routhier, “It’s not always an easy decision and the criteria are not black and white. It’s pretty complicated and almost impossible for hospitals and physicians to get it right 100 percent of the time—especially since the rules of the game are gray at best.”

Improving the Odds

The Centers for Medicare & Medicaid Services (CMS) have several publications available that provide the rules and regulations covering inpatient and outpatient services. (For the list of manuals, go to http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/index.html?redirect=/Manuals/.) Although there may be more, here are a few good places to start:


Medicare Benefit Policy Manual:

  • Chapter 1: Inpatient Hospital Services Covered Under Part A, Section 10—Covered Inpatient Hospital Services Covered Under Part A
  • Chapter 6: Hospital Services Covered Under Part B, Section 20—Outpatient Hospital Services

Medicare Program Integrity Manual:

  • Chapter 6: Intermediary MR Guidelines for Specific Services, Section 6.5—Medical Review of Inpatient Hospital Claims

Medicare Claims Processing Manual:

  • Chapter 1: General Billing Requirements, Section 50.3—When an Inpatient Admission May Be Changed to Outpatient Status
    • Chapter 4: Part B Hospital (Including Inpatient Hospital Part B and OPPS), Section 290—Outpatient Observation Services

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

Language Matters: Choose Your Words Carefully


Janis Oppelt

Janis Oppelt was the former editorial director for MedLearn Publishing.

You May Also Like

Leave a Reply

Your Name(Required)
Your Email(Required)