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Often overlooked in the discussions about determining correct patient status are the patients themselves. We have heard from the Centers for Medicare & Medicaid Services (CMS) and the U.S. Department of Health’s Office of Inspector General (OIG) that they have felt that hospitals have been overusing observation in an attempt to avoid inpatient denials, and that they are concerned about the effect that can have on beneficiary financial responsibility.

We have seen articles in newspapers such as the Chicago Tribune and magazines such as AARP urging patients to ask their doctors to admit them as inpatients in order to avoid being charged for self-administered drugs and other outpatient expenses if they are placed in observation. But if hospitals admit patients to inpatient status when they do not need inpatient care, they face denials by the myriad of auditors looking over their shoulders, along with accusations of fraud.

CMS has stated that beneficiaries are entitled to receive information about co-insurance and deductibles, and that CMS has a duty to protect these rights. To ensure that beneficiaries maintain that right, when CMS developed Condition Code 44, it required that a hospital could change an inpatient admission to outpatient only while the patient is still hospitalized.

“Requiring that the decision resulting in a change in patient status be made before the beneficiary is discharged is intended to ensure that the patient is fully informed about the change in status and its impact on the co-insurance and deductible for which the beneficiary would be responsible,” the agency noted at the time. CMS references 42 CFR 482.13, in the Conditions of Participation patient rights section, when discussing this.

Financial Liability

What is the financial liability, however? For Medicare beneficiaries, the 2013 inpatient deducible is $1,184, payable once in each 60-day period in which the patient is hospitalized. On the other hand, if a patient is placed in outpatient status, the patient is responsible for a $147 deductible and 20 percent of the approved Medicare amount for all other services. This means that the break point at which beneficiary outpatient obligation exceeds the inpatient deductible is when the outpatient services’ Medicare-approved amount exceeds $6,000 (exclusive of charges for self-administered medications).

What is rarely discussed by providers, and totally ignored by CMS, is the increasing beneficiary liability when CMS moves a surgical procedure from status indicator C (which means the procedure only can be performed under inpatient status and billed as a DRG) to status indicator T, meaning it can be performed as an outpatient service and billed as an APC (or as an inpatient service, depending on the clinical circumstances). As noted earlier, if the APC payment exceeds $6,000, the patient will pay more out of pocket if the surgery is performed as an outpatient procedure than as an inpatient procedure. And in recent years, CMS has been very aggressive in removing high-cost interventional cardiac procedures from the inpatient-only list – the agency even considered removing total knee arthroplasty from that list in 2012.

The $6,000 Defibrillator

While most outpatient surgeries have an APC reimbursement of less than $6,000, cardiac catheterization with stenting exceeds that threshold by $1,000 to $2,000. The APC for pacemaker placement reimburses the hospital about $8,200, and placement of a cardiac defibrillator reimburses approximately $31,000. That means that the patient who has a cardiac catheterization with stent will owe more than $2,000, and a patient who has an elective defibrillator placed during an outpatient procedure has a financial liability of more than $6,000. And of course, outpatients also are charged for any “self-administered” medications given to them, at “chargemaster” prices.
As specified in the conditions of participation, patients are supposed to have an active role in making informed decisions about their care, and they should be informed of their financial obligations related to their care. But this is seldom done. Imagine telling a patient on a fixed income, with no supplemental insurance, that the defibrillator that may save their life is going to cost them $6,000.

What options are there if the patient declines the procedure because of the cost? The cost to the hospital for the defibrillator itself is more than $20,000, so the payment from CMS and the patient copay amount barely allows the hospital to break even on the procedure – and writing off the patient copay is not financially sound, nor legal. And in fact, the issue of patient financial liability should not even be an issue to providers; CMS makes the rules and providers are required to follow those rules. Choosing patient status based on patient financial liability would be fraudulent.

Patient Liability Under Part B

On March 18 CMS published CMS-1455-P, a proposed rule on rebilling denied inpatient care giving hospitals the opportunity to accept an inpatient denial and get paid a full part B payment if requested within the statutory timeframe. The request also must fall into compliance with CMS-1455- NR, an interim rule that allows hospitals to withdraw any appeal currently being processed and to re-bill for full part B payment, regardless of the date of service. So, how does the beneficiary fit into this?

Once again, their financial liability may increase significantly, as hospitals are likely to use this ruling to re-bill for part B for high-cost procedures such as cardiac catheterization with stent, pacemaker placement, and defibrillator placement in order to be assured of some revenue (rather than risk denial at the ALJ level with no option for the partial victory of a part B award, which CMS now forbids). In these cases, the patient may be financially liable for thousands of dollars for care they received years ago.

Next Move: CMS

So, what is the solution to this problem? Since CMS stresses the importance of protecting beneficiary rights (and it hardly seems right to bill a patient for care they received years ago), yet hospitals can ill-afford to write off these costs, the rational solution seems to be for CMS to accept blame for creating a confusing system and violating beneficiary rights, and to pay hospitals the full part B amount for those patients who do not have supplemental insurance or dual eligibility.

All providers will be anxiously awaiting the publication of the final rule in several months to see how CMS chooses to act.


About the Author

Ronald Hirsch, MD, is a vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health, Inc. Dr. Hirsch was medical director of case management at Sherman Hospital. He was also a general internist and HIV specialist at Signature Medical Associates. Dr. Hirsch’s career 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. Throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic.

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