Understanding the Medicare Case-By-Case Exception

Exceptions should be never rare nor unusual.

I recently had the opportunity to participate in a discussion with colleagues who also deal on a daily basis with a variety of Medicare regulations. During this discussion, I asked the group’s opinion about Medicare’s case-by-case exception, added to the Two-Midnight rule in 2016. I asked, “How often do you think the Centers for Medicare & Medicaid Services (CMS) expects physicians to use the exception?”

One response was the response I hoped I would not hear. One participant said, “CMS added this as a rare and unusual exception so I would expect it to be used rarely.” And of course, that answer is wrong. Allow me to explain my logic.

The Two-midnight Rule (or is it the two-midnight rule or the 2 midnight rule?) became the law of the land on Oct. 1, 2013 via the 2014 Inpatient Prospective Payment Final Rule (IPPS), instructing physicians to make the decision on inpatient admission based on the expectation of a two-midnight stay. The nuances of that rule have been discussed ad nauseum so I will not go into the details about the point at which time starts to be counted (spoiler: it is when symptom-related care begins) or what represents an appropriate two-midnight expectation (although I know it is not appropriate simply because a doctor says it is appropriate.)

CMS did note that patients who require care in an intensive care unit do not automatically qualify for inpatient admission, stating “We do not believe beneficiaries treated in an intensive care unit should be an exception to this standard, as our 2-midnight benchmark policy is not contingent on the level of care required or the placement of the beneficiary within the hospital.”

Then in the 2016 Outpatient Prospective Payment System Final Rule (OPPS), CMS adopted the case-by-case exception and inadvertently created confusion by stating, “We noted that, under the existing rare and unusual policy, only one exception—prolonged mechanical ventilation—has been identified to date.  Upon further consideration and based on feedback from stakeholders, we stated our belief that there may be other patient-specific circumstances where certain cases may nonetheless be appropriate for Part A payment, absent an expected stay of at least 2 midnights, and that such circumstances should be determined on a case-by-case basis.”

Note that they never stated that the case-by-case exception should be rare or unusual. Not once. In fact, they even stated, “We would like to clarify that our proposed modification to the current exceptions process does not define inpatient hospital admissions with expected lengths of stay less than 2 midnights as rare and unusual. Rather, it modifies our current ‘rare and unusual’ exceptions policy to allow Medicare Part A payment on a case-by-case basis for inpatient admissions that do not satisfy the 2-midnight benchmark.”

Yes, they are clearly stating the rare and unusual policy includes a circumstance that is not rare or unusual. In fact, they do actually address a circumstance that they truly feel should be rare and unusual, stating, “We continue to expect it to be rare and unusual for a beneficiary to require inpatient hospital admission after having a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for only a few hours and not at least overnight, and thus such admissions will be prioritized for medical review.” Of course, this would not apply to the inpatient-only surgery that is discharged on the same day as the procedure since inclusion on the inpatient only list requires a part A inpatient claim to be paid (although the trustees of the Medicare Trust Fund would be happy to allow hospitals to perform inpatient only surgery as outpatient and not have to pay at all.) But alas I have wandered away so let me get back on track.

In addition, if one refers to the “BFCC QIO 2 Midnight Claim Review Guideline” provided by CMS to the BFCC-QIOs on May 3, 2016, Step 5 indicates “Does the claim fit within one of the ‘rare and unusual’ exceptions identified by CMS (currently mechanical ventilation)?” Clearly, if CMS expected the case-by-case exception to be rare and unusual, they would have included it in Step 5 of this official document produced five months after the case-by-case exception was adopted.

That flowsheet then goes on to Step 6 which does address the case-by-case exception, stating “For admissions with a date of admission on or after Jan. 1, 2016, does the medical record support the admitting physician’s determination that the patient required inpatient care despite not meeting the two-midnight benchmark, based on complex medical factors such as patient history and comorbidities and current medical needs, severity of signs and symptoms and risk of an adverse event.” This Step 6 is clearly not a subset of Step 5, the “rare and unusual” step. One can only get to Step 6 by answering “no” to Step 5, affirming the claim does not fit within a “rare and unusual” exception.

This all means that CMS established the case-by-case exception for physicians to use as often as they feel appropriate. The only requirement is that the physician considered the “complex medical factors” listed above in making the admission decision on an individual patient basis. As with all decisions, that physician’s decision should be clinically reasonable. In other words, “I have determined this physician with a one midnight expectation warrants inpatient admission because I said so” would not be a valid determination but “This patient with life-threatening hyperkalemia and EKG changes warrants inpatient admission” is a valid determination even if they get dialyzed and are expected to be discharged the next day.

Likewise, “This patient’s suboptimally controlled diabetes and sleep apnea increases this patient’s surgical risk for knee replacement and inpatient admission is warranted” should not be second guessed by a reviewer simply because the patient did well and experienced no hyperglycemia or prolonged need for respiratory support and was able to be discharged the day after surgery as planned. Just as CMS requested, this patient’s physician preoperatively assessed the comorbidities and risks and determined inpatient admission was warranted and ordered inpatient admission preoperatively, and clinically the medical literature supports that determination.

While many commercial and Medicare Advantage plans require that the risk be realized to justify inpatient admission, such as the diabetic patient developing ketoacidosis post-operatively, that is not true for Medicare. The admission decision should be based purely on the assessment of the risk prior to the procedure happening and in fact a review of that admission decision should consist of the review of the records up until the point the surgery commences, with the reviewer blinded to the outcome and length of stay.

CMS clearly understood in 2015 that expected length of stay as the sole determinant of who warranted inpatient admission was not perfect, so they used their rule-making authority to modify the qualifications recognizing that higher risk patients do indeed use more resources.

The case-by-case exception should be used as often as is warranted. Do not let the regulatory ambiguity deprive you of compliant revenue.

Programming Note: Listen every Monday when Dr. Ronald Hirsch makes his Monday rounds on Monitor Mondays, 10 Eastern and sponsored by R1RCM.