Health Information Management

Observation scrutiny continues

APCs Insider, August 9, 2013

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By Michelle A. Leppert, CPC

Chest pain is the leading reason for both observation services and short inpatient stays, according to the OIG’s July 29 report, Hospitals' Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries.

The OIG reviewed claims from 2012 to determine the frequency of observation, short inpatient stays, and long outpatient stays for Medicare beneficiaries. The OIG also analyzed the reasons for those stays.

In addition to chest pain, fainting, digestive disorders, nutritional disorders, and irregular heartbeat all landed spots on the top 10 list of diagnoses for both observation and short inpatient stays.

So why are some physicians admitting patients and others are ordering observation for the same condition?

You might be tempted to say it’s because of the physician’s clinical judgment. In a perfect world, it would be. In the real world, hospital protocols and admitting guidelines probably have more to do with the admit vs. observation decision.

Some hospitals are so concerned about Recovery Auditor take backs and losing money that they err on the side of caution and instruct physicians to place everyone in observation. Other hospitals take the other extreme and admit everyone instead of using observation.

Based on the OIG’s report, more hospitals are opting for observation. Medicare beneficiaries had 1.5 million observation stays and 1.4 million long outpatient stays (some of which included observation services the hospital didn’t bill). Medicare beneficiaries had 1.1 million short inpatient stays.

As part of the IPPS final rule, released August 2, CMS finalized a two-midnight presumption for inpatient stays. Basically, if a physician believes a patient’s care will span two midnights in the hospital and admits the patient based on that belief, CMS will consider the stay to be medically necessary. In addition, CMS stated that hospitals and physicians can count time spent in observation toward the two midnights.

CMS believes this will lead to more inpatient stays and fewer patients in observation. We’ll see.

CMS finalized another proposal aimed at short inpatient stays that could affect outpatient billing as well. In March, CMS issued a ruling that allowed hospitals to rebill Part A claims denied because of medical necessity as Part B claims. CMS also expanded the list of services hospitals could rebill.

In the past, hospitals could only rebill for a small number of services. In the ruling, which went into effect in March, CMS is allowing hospitals to rebill for any service that would have been provided if the patient had correctly been treated as an outpatient. However, CMS explicitly states that does not include observation. So if you are rebilling Part A services on a Part B claim, you cannot include observation for the time the patient was in the hospital. You can only bill observation if the physician ordered observation.

Hospitals no longer need to change the patient’s status from inpatient to outpatient during the stay using condition code 44. If the hospital determines through a self-audit after the patient’s discharge that the patient didn’t meet medical necessity criteria, the hospital has one year from the date of service to rebill the services as Part B. The same holds true if a Recovery Auditor determines the stay was not medically necessary.

The only real change between the ruling and the final rule is the enforcement of the timely filing requirement.

New editor: Beginning next week, APC Insider will have a new editor. Steven Andrews is taking over the e-newsletter as well as HCPro’s other outpatient coding products. Look for insights from Steven starting next week

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