Health Information Management

CMS to address long outpatient stays with observation services in OPPS rule

APCs Insider, April 24, 2015

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By Steven Andrews
Since nearly the moment it was announced, CMS' 2-midnight rule—created to help  define appropriate inpatient stays—has been controversial.
The 2-midnight rule was originally set for implementation October 1, 2013, as part of the 2014 IPPS rule. However, because of confusion about the rule, CMS created a probe and educate period for MACs to review hospitals' application of the rule, as well as prohibiting Recovery Auditors from auditing claims. In the face of provider pushback, including lawsuits, Congress has also gotten in on the act, twice extending this period, which currently runs through September 30, 2015.
Generally, the 2-midnight rule established a benchmark that stays expected to cross at least two midnights would be considered inpatient, while those expected to last less than two midnights would be considered outpatient. This designation obviously can have a large impact for patients, hospitals, and Medicare due to the massive difference in costs and copayments for services depending on such designations.
CMS made some concessions to providers by removing the physician certification requirement, except for long-stay cases of 20 days or longer and outlier cases, in the 2015 OPPS final rule. CMS appears ready once again to modify its policy in the upcoming 2016 OPPS proposed rule, according to the agency. In the recently released 2016 IPPS proposed rule, CMS states that it is considering provider feedback, as well as recommendations from the Medicare Payment Advisory Commission (MedPAC), in order to "include a further discussion of the broader set of issues" regarding short inpatient hospital stays and long outpatient stays with observation services.
At this point, it's difficult to predict what CMS will change, but MedPAC is clear in its recommendations, according to an April 2 meeting. The group proposes eliminating the 2-midnight rule and direct Recovery Auditors to focus on short inpatient stays only for hospitals with the highest rates of this type of stay.
MedPAC further recommends a possible penalty for hospitals with excess rates of short inpatient stays.
In addition to other observation-related recommendations, MedPAC also states Congress should package payment for self-administered drugs provided during observation stays on a budget-neutral basis within OPPS.
We can expect more information—and likely more controversy—regarding these policies when CMS releases the 2016 OPPS proposed rule, likely in early July.

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