Health Information Management

Observation rule continues to cause controversy

APCs Insider, September 27, 2013

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When CMS finalized its new 2-midnight rule to determine inpatient status in the 2014 IPPS final rule, it was trying to reduce confusion and controversy. It may have had the opposite effect.

When the proposed rule became final in August—with an effective date of October 1—hospitals and other stakeholders began a push to delay or change the rule.

Members of the U.S. House of Representatives recently joined their first. Representatives formed a bipartisan coalition of more than 100 congressmen to protest the change in a letter to CMS Administrator Marilyn Tavenner. The congressmen are asking for a six-month delay in the rule’s implementation, giving CMS time to revise or eliminate the rule.

As currently written, the rule will grant inpatient status to patients whose stays cross two midnights. Hospitals are concerned about counting hours and specific physician orders, while patients worry it could lead to more out-of-pocket expenses for shorter stays.

This isn’t the only controversy related to observation status that hospitals are facing. A federal judge in Connecticut this week dismissed a suit filed by Medicare beneficiaries who were denied nursing home coverage after being placed in observation, according to Connecticut newspaper The Day.

The beneficiaries argued that the distinction between inpatient admission and observation status is semantic and hospitals should eliminate observation time or tell patients when they are defined as such. The distinction is important because Medicare patients who are admitted for at least three days will have subsequent nursing home care covered, but observation time does not count.

The American Hospital Association (AHA) is also suing the government on similar grounds to eliminate observation status. AHA takes issue with the refund payments hospitals have to make for admitted patients that auditors later determine to have been in observation.

It’s hard to tell whether these lawsuits or objections from politicians will end up changing the rule, but if there’s been one thing to count on throughout CMS’ changes, it’s that the controversies will likely continue.



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