Corporate Compliance

Note from the instructor: OIG Testifies on Observation Services-Again

Medicare Insider, August 5, 2014

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This week’s note from the instructor is written by Debbie Mackaman, RHIA, CHCO, regulatory specialist for HCPro.  
As we wait for the release of the FY 2015 IPPS final rule and what changes may be in store, if any, to the 2-midnight rule, observation services, and a short stay payment, a report from the Office of Inspector General (OIG) caught my eye and I thought it may be another window into the world of what CMS may be conjuring up for the coming fiscal year.
On July 30, the OIG testified before the United States Senate Special Committee on Aging regarding observation services and the impact on Medicare beneficiaries. The transcript of the hearing is titled “Admitted or Not? The Impact of Medicare Observation Status on Seniors”.
Last year, just before the release of the FY 2014 IPPS final rule and CMS’s announcement of the two-midnight hospital policy, the OIG published a similar report called Hospitals' Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries. Over the past year, there has been a lot of confusion, to say the least, and continued education of both Medicare Administrative Contractors (MACs) and providers regarding this regulation.
Although this memorandum appears to be related to a request for full funding of the OIG’s FY 2015 budget to allow them to focus on hospital payment policy, there are some interesting statements that makes me wonder just what might be in the soon to be published IPPS final rule.
Here are the three key points as cited by the OIG:
  • 3-day acute care qualifying stay for a covered skilled nursing facility (SNF) stay: “It is important to ensure that beneficiaries with similar post-hospital care needs have the same access to and cost-sharing for SNF services. Allowing nights spent as an outpatient to count toward the three nights needed to qualify for SNF services may require additional statutory authority.”
  • Alternative to the 2-midnight rule: “CMS expects this policy to reduce the numbers of short inpatient stays and of observation stays lasting two nights or longer. The policy has not been evaluated to ensure that it is working effectively. This policy will affect hospitals’ use of observation stays and short inpatient stays, which in turn will affect Medicare and beneficiary payments to hospitals. The new policy may also affect beneficiaries’ access to SNF services. Because providers have been vocal in their opposition to the 2-midnight policy and because CMS and Congress are considering alternatives, a careful evaluation of the 2-midnight policy and possible alternatives is essential.”
  • Short stay payment structure: “A number of factors must be carefully considered, including clear guidelines for hospitals and contractors; similar payments for similar care; and the overall impact on Medicare payments, hospitals, and beneficiaries. This will continue to require a concerted effort by a number of key players, including CMS, CMS’s contractors, providers, OIG, and Congress.”
For years, providers have been asking CMS to consider time spent in observation to be counted towards the beneficiary’s three-day qualifying stay for a covered SNF stay. Maybe CMS has finally heard our pleas. In regards to an alternative to the 2-midnight rule, we need to be careful what we ask for, as any changes or clarifications to the current regulation are sometimes less palatable than the current one.  As far as the short stay payment structure, this would be much easier to implement for a hospital paid under the prospective payment system (PPS) than a hospital paid under cost such as a critical access hospital (CAH) but in the world of Medicare, anything is possible. Stay tuned for breaking news from HCPro on the release of the FY 2015 IPPS final rule.

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