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I am opposed to the Eighteenth Amendment to the U.S. Constitution, which prohibits the manufacture, transportation, and sale of alcohol. I think that prohibition has done more harm than good and that alcohol should be legal to sell and consume in the United States. I therefore call on Congress to hold hearings on repealing the Eighteenth Amendment.

Oh, wait, it was repealed in 1933. So I guess there is no reason to hold congressional hearings on the subject. 

Likewise, the 2014 Inpatient Prospective Payment System (IPPS) Final Rule, which became effective on Oct. 1, 2013, “prohibited” long observation stays, declaring that no patient who requires hospitalization should remain in observation longer than two midnights. 

Yet on July 30, 2014, the U.S. Senate Special Committee on Aging held another hearing on observation services, eliciting testimony that was the modern-day equivalent of having Bureau of Prohibition agents testifying on organized crime’s role in circumventing the Eighteenth Amendment.

The committee first heard from U.S. Sen. Susan Collins, R-Maine, who described “the increasing use and duration of observation status in hospitals.” Citing a 69 percent increase in seniors entering hospitals for observation during the last five years, Collins also noted an increase in Medicare patients with observation stays lasting longer than 48 hours, a figure that climbed from 3 percent in 2006 to 8 percent in 2011.

But this statistic is irrelevant today.

The so-called “two–midnight rule” does not allow for these long observation stays. If a patient is in observation for more than 48 hours today, it is either because he or she does not need to be in the hospital at all, or the hospital is misinterpreting Centers for Medicare & Medicaid (CMS) regulations. A Medicare beneficiary, Sylvia Engler, testified at the hearing about her 91-year-old husband’s two five-day hospitalizations in March 2013 after an emergent hernia surgery. In both cases he was not admitted as an inpatient, resulting in a $7,859 bill from the skilled nursing facility (SNF) to which he was sent after hospitalization.

Once again, it seems to me that this testimony is not relevant. The admission rules are all different now. Hernia surgery is usually performed as an outpatient surgery, but in Mr. Engler’s case, the surgeon had the option to either document that Mr. Engler’s condition likely would require a hospital stay of more than two midnights and admit him preoperatively, or to perform the surgery as outpatient (and when it became clear after the first midnight that he would be unable to be safely discharged before the second midnight, to order inpatient admission). In either case, Mr. Engler would have had enough inpatient days during either admission to qualify for the Part A SNF benefit. The fact that he wasn’t admitted is not a condemnation of the rules; it’s an indication that they weren’t followed.

Marna Borgstrom, the president and chief executive officer of the Yale-New Haven Health System, testified about a patient who was appropriately hospitalized for one day. To quote her testimony, “the family wanted her to go to a skilled nursing facility and was visibly upset and angry that she could not because of her placement into observation status.”

The patient went home with home services but returned and required another one-day observation stay. Borgstrom also noted that “the family desperately wanted her in a skilled nursing facility but could not afford $250 per day at the facility nor the $20-per-hour home health aide. The family had no choice but to take her home with the limited services that they could afford. 

This is another case that has absolutely nothing to do with observation or the two-midnight rule, but everything to do with the requirement that a patient spend three medically necessary days in the hospital (not counting the day of discharge) in order to access the Part A SNF benefit. Even if the patient in question here had been admitted as an inpatient, she did not have a three-day qualifying stay.

Ms. Borgstrom then described the case of a patient who presented with chest pain and left the hospital against medical advice rather than accept observation treatment, stating that “the patient noted that he just lost his job and insisted that he cannot afford the copays if placed in observation status.” In fact, the deductible for an observation stay is $147 (the annual Part B deductible, which may have already been paid to other outpatient providers) and the patient is responsible for 20 percent of approved charges, as compared with a $1,216 copayment for an inpatient stay of even one day. Even accounting for the cost of self-administered medications, the out-of-pocket cost for this patient for an observation stay would have been highly unlikely to exceed the inpatient deductible. 

The horror stories of huge hospital bills from observation stays, as promulgated by several media sources, were from cases prior to the introduction of the two-midnight rule and have contributed to current misunderstandings about the relative cost of inpatient admission versus observation care as an outpatient. 

There is a consensus developing that the requirement for three consecutive inpatient days to access the Part A SNF benefit is flawed, and that days in observation should be counted toward that qualifying stay. In fact, CMS is allowing Pioneer Accountable Care Organizations in a demonstration project to disregard this requirement and send patients who need care in a SNF directly to a SNF without a “qualifying” stay. 

But the two-midnight rule itself is not the problem when it comes to passing the burden of paying for medically necessary SNF care to the beneficiary, and the Senate should not be presented with anecdotal cases from the pre-two-midnight era when they have no relevance to patients who are hospitalized today. 

You can read the Senate testimony in its entirety online at http://goo.gl/Ao6lwo.

About the Author

Ronald Hirsch, MD, is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the American Case Management Association and a Fellow of the American College of Physicians. 

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