Inpatient Facility Coding & Compliance Alert

Warning: CMS has a different perspective on ‘inpatient’ or ‘observation’ than you’ve been using.

The final update to the 2014 IPPS (Inpatient Prospective Payment System) contained a surprise for hospitals: new rules for determining whether a patient should be admitted as an inpatient versus admitted to observation. These new rules were implemented along with the IPPS update on October 1, 2013. The information could be easy to overlook in the hundreds of Federal Register pages, so read on for what you need to know.

Check the CMS Difference

“For years, the standard for determining inpatient admission that appeared in the CMS rules was a 24-hour benchmark,” explains Duane Abbey, President of Abbey & Abbey, Consultants, Inc., in Ames, Ia. “If the physician determined that it would take more than 24 hours to resolve a given situation, then an inpatient admission was appropriate. If the physician determined that a given situation would be resolved in less than 24 hours, then an observation admission was appropriate.”

The change: While hospitals have spent years training medical staff on this 24-hour benchmark, CMS itself through various audits, particularly the RAC audits (Recovery Audit Contractor, now referred to as simply recovery auditors), has not followed this guideline. Federal auditors look at the case after the fact and often determine that an inpatient admission was not medically necessary regardless of physician documentation supporting the use of the 24-hour benchmark.

“Note that the fundamental disconnect in this situation is that physicians, and thus hospitals, must make decisions prospectively, while auditors have the luxury of looking at the entire care retrospectively,” Abbey says.

Start Thinking of ‘Over 2 Midnights’

In some sense, CMS has now expanded the 24-hour benchmark to the concept of an “over two midnights” time frame.

CMS perspective: If the patient needed hospitalization that spanned at least two midnights, then the patient is properly an inpatient. If the care spanned only one midnight, then an inpatient admission is not justified and the patient should be classified as outpatient observation.

Reaction: “A moment’s consideration and you’ll realize that this almost nonsensical,” Abbey says. “For example, we can take two Medicare beneficiaries with the same symptoms who receive exactly the same care but are admitted at slightly different times. The first individual may be admitted at 11:00 p.m. Tuesday while the other individual is admitted at 1:00 a.m. on Wednesday. Both patients receive exactly the same services and are both discharged after 36 hours of care. The first stay will be categorized as an appropriate inpatient admission. Only one midnight will be spanned in the second case, so this case will be questioned as to the propriety of an inpatient admission.”

At first glance, the change appears to be an aid to federal auditors, some experts say. If a given case spans at least two midnights, then the case is presumed an appropriate inpatient admission. If the case spans only one midnight (or no midnights), then the case is presumed as inappropriate for an inpatient admission, and the case should be flagged for review.

“We’ll have to wait to see whether this type of stratification will be used by federal auditors,” Abbey says.

Possibility: Another reason behind the change could be that CMS is making certain that any overnight, post-surgical services are classified as observation and not as inpatient admissions.

“Particularly with outpatient surgeries, CMS does not want to pay for any post-operative services because these post-operative services are really a part of the operative procedure itself,” Abbey explains. “Observation services are always bundled into the payment for the surgery itself in the outpatient APC grouper.” The packing of observation services into an associated surgery occurs when the Status Indicator for the surgery is “T”. This process is embedded in the programming for the APC grouper.

Reset Physician Thinking

Regardless of CMS’s motivation, Abbey predicts that hospitals face a very real challenge in training and reorienting physicians to the new guideline.

“Utilization review also will need to look at the overall situation,” he says. “Recently, the general trend has focused on using observation first and then switching the status to inpatient as necessary. While this approach is really not useful, it is basically a reaction to the RACs questioning any inpatient short stay. Hospitals will need to move away from that line of thinking.”

Final note: When considering the details of a rule such as the “over two midnights” rule, remember some of the underlying issues behind inpatient admission challenges.

“The disconnect is that CMS does not recognize any national standard criteria for determining inpatient admissions,” Abbey says. “If there were nationally recognized and adopted inpatient admission criteria for both CMS and hospitals, then everyone would be able to judge whether or not an inpatient admission was appropriate based on those criteria.”