2014 IPPS Final Rule: CMS finalizes changes to inpatient guidelines, Part B rebilling

HCPRO Website, August 5, 2013

By Michelle A. Leppert, CPC

CMS offered hospitals some additional guidelines for inpatient admissions and finalized requirements for the Part A to Part B rebilling in the 2014 IPPS Final Rule, released August 2.

CMS also finalized a negative 0.8% recoupment adjustment as part of the documentation and coding adjustment mandated by the American Taxpayer Relief Act of 2012. The rule lays out the framework for the new Hospital-Acquired Condition Reduction Program, which will begin in FY 2015. The rule updates the measures and financial incentives in the Hospital Value-Based Purchasing and Readmissions Reduction programs.  

Inpatient guidelines

CMS stated it was attempting to clarify guidelines around when a patient should be admitted to the hospital in its updated inpatient admission guidelines. In the past, CMS used 24 hours as a benchmark for medical necessity for inpatient admission. CMS finalized a change to that timeframe, making it care that is expected to cross two midnights.

“I am not sure how facilities will communicate the new ‘two-midnights’ regulation to their physicians, staff, and patients,” says Debbie Mackaman, RHIA, CHCO, regulatory specialist for HCPro, Inc., in Danvers, Mass. “Medicare has stated that the purpose of the new rule is to provide ‘both consistency and clarity.’ I am not convinced that they have done that and I am concerned that the beneficiaries will be impacted by this new rule more than what CMS has stated.”

If a physician expects a patient’s treatment to cross two midnights and admits the patient based on that belief, then CMS will generally consider the inpatient admission to be appropriate. The physician must write an order for inpatient services and document the reasons for the admission in the patient’s record.

The change in the definition of inpatient admitting status is crucial for hospitals to understand, says James S. Kennedy, MD, CCS, CDIP, managing director for FTI Consulting.

CMS made it clear that the inpatient order is required for payment of hospital inpatient services under Medicare A. “What I believe this rule says is that the physician must also state at the time he or she writes the inpatient order that he or she expects the patient to require care for two or more midnights and why he or she believes that,” Kennedy says. “I personally know of no physician or admitting process that captures this information; changing this documentation process will be a tremendous paradigm shift.”

The presumption is based on the expected length of stay and not on the actual time the patient spends as an inpatient. In some cases, such as death, faster than expected recovery, or transfer, a patient’s stay may not cross two midnights. However, the presumption still applies because the physician expected the patient to be in the hospital over two midnights as long as the physician documented why he or she believed the stay would cross two midnights.

CMS stressed that deciding whether to admit a patient is a complex medical decision that only the physician can make using his or her clinical judgment. CMS also expects the physician to use his or her clinical judgment to determine what services and level of nursing care (for example, low-level, monitored, or one-on-one) the beneficiary will need and where (unit) the services should be provided.

“All patients are unique in their presentation and in their resolution of their illness and even CMS states in the rule that they ‘have expected and continue to expect that physicians will make the decision to keep a beneficiary in the hospital when clinically warranted and will order all appropriate treatments and care in the appropriate location based on the beneficiary’s individual medical needs,’ Mackaman says. “Unfortunately, it appears that the two-midnights rule paints all of the patients with the same brush and paints the physicians into a corner.”

Commentors pointed out that determining a patient’s expected length of stay is difficult and contradictory to the physician’s training. CMS acknowledged that physicians may have trouble estimating length of stay, but stated, “It has been longstanding Medicare policy to require physicians to admit a beneficiary as a hospital inpatient based on their expected length of stay.”

If the physician is unable to estimate the length of stay, CMS instructs physicians to continuing treating patients as outpatients until they have enough information to determine whether the patient should be admitted.

In response to additional comments, CMS stated that it expects physicians to make the decision to admit the beneficiary “based on the cumulative time spent at the hospital beginning with the initial outpatient service.”

In other words, if the physician makes the decision to admit after the beneficiary arrived at the hospital and began receiving services, he or she should consider the time already spent receiving those services in estimating the beneficiary’s total expected length of stay. For example, if the beneficiary has already passed 1 midnight as an outpatient observation patient or in routine recovery following outpatient surgery, the physician should consider the 2 midnight benchmark met if he or she expects the beneficiary to require an additional midnight in the hospital.


Although CMS also stated that the documentation in the medical record needs to support that the physician had reason to believe the patient would stay two midnights, a Medicare review contractor can potentially deem that the documentation is not strong enough and reverse the complex medical decision made by the physician based on what they knew at the time, Mackaman says.

CMS stated that it would be easy for the patient to understand the two-midnight rule but Mackaman disagrees. “If patients are being cared for in inpatient areas, which is not uncommon for patients who are receiving observation services, and they stay two midnights, this will not mean they are an inpatient and they may have greater out-of-pocket expenses,” Mackaman says.

In addition, the two-midnights rule will create a huge operational burden on facilities, beyond what they already do to try to stay in compliance with monitoring the appropriateness of admissions, she adds.

Part A to Part B rebilling

CMS also finalized the enforcement of the timely billing requirement for Part A to Part B rebilling of additional services. On March 13, CMS issued a ruling and a proposed rule that would allow hospitals to rebill Part A services as Part B for claims deemed not medically necessary.

The hospital will receive full Part B reimbursement for the services provided during the inpatient stay rather than the “short list” that hospitals were able to bill.

The ruling, which went into effect immediately, allowed hospitals to rebill as Part B the services that the hospital would have provided if the patient had been an outpatient rather than an inpatient. The ruling did not include a timely filing requirement. However, in the IPPS Final Rule, CMS includes the timely filing requirement beginning on October 1, 2013. Hospitals will now have one calendar year after the date of service to rebill the stay.

“Under the final rule, hospitals will have fewer Recovery Auditor claims that will fit into this time frame but they will be able to use this process for ‘self-denials’ that are discovered after the patient has been discharged,” Mackaman says. 

This allows the hospital the ability to bill for Part B service when the facility has determined the stay did not meet medical necessity criteria or could apply when the patient did not stay two midnights and the documentation is not strong enough to support the short stay.

The patient will also be responsible for outpatient coinsurance, deductible, and out-of-pocket expense, even for services that occurred prior to the inpatient order being written because the three-day payment window will not apply for PPS hospitals, Mackaman says. CMS also stated in the final rule that the decision by a hospital to not bill the patient for their portion of the outpatient services may implicate other regulations and that hospitals should contact the OIG for more guidance. 

Documentation and coding adjustment

The American Taxpayer Relief Act of 2012 requires CMS to recover $11 billion over the next four years to fully recoup documentation and coding overpayments for prior years. For 2014, CMS will apply a negative 0.8% recoupment adjustment in FY 2014.

“The documentation and coding reduction will need attention of hospital leaders, especially HIM, coding and CDI,” says Gloryanne Bryant, RHIA, CCS, CDIP, CCDS, an HIM coding professional and advocate with more than 30 years of experience. “With ICD-10 efforts underway further awareness and collaboration with physicians will be needed. Reenforce documentation concepts.  Now is the time to establish a physician champion or liaison for documentation and coding.”

Bryant also recommends conducting an audit to identify areas for improvement now even if you have a CDI program in place.

The final IPPS rule can be downloaded from the Federal Register.

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