Inpatient Facility Coding & Compliance Alert

Get familiar with MedPAC policy recommendations and more.

The high profitability of one-day stays under the inpatient payment system has heightened federal scrutiny about the appropriateness of inpatient one-day stays. Read on to stay current on what auditors could be reviewing next year.

The Medicare Payment Advisory Commission (MedPAC) discussed hospital short-stay policy and other issues in a meeting Nov. 7, 2014. MedPAC also discussed the policy options to sort the issues.

Background: Medicare beneficiaries may receive care in various hospital settings, such as an inpatient hospital stay or through a visit to an outpatient department, depending on the severity and type of illness or injury. Inpatient and outpatient care are reimbursed using separate prospective payment systems, in which hospitals receive a fixed payment for the care provided to a patient. “A patient may receive exactly the same services either as an outpatient or as an inpatient. The difference in payment for the same services with different status can amount to thousands of dollars.” Explains Duane C. Abbey, PhD, president of Abbey and Abbey Consultants Inc., in Ames, IA. He adds that “Generally, the decision as to inpatient versus outpatient is a clinical decision, not a payment decision.” 

Current situation: As inpatient stays have shortened and some inpatient services have migrated to the outpatient setting over the years, the issue of whether a patient requires inpatient care or could be treated successfully as an outpatient has received increasing attention. The MedPAC analyzed the trends in hospital care and expenses to make recommendations to the Medicare program. Here’s the scoop on four common issues and MedPAC’s stance on each. 

Issue 1: Validating the Appropriateness of Inpatient 1-Day Stays

Problem: Inpatient admission criteria are ambiguous and open to interpretation by the hospitals and payers. The fact is that one-day inpatient stays are common and paid more than similar outpatient stays. RACs therefore frequently focus their audits on issues related to the appropriateness of one-day stays. This focus has led to hospitals shifting more patients to outpatient observation status.

MedPAC suggests the introduction of one-day stay DRGs in an attempt to reduce the payment difference between one day inpatient stays and similar outpatient stays. 

During the meeting, a MedPAC simulation of a one-day stay DRG policy focused on a subset of DRGs. They took 94 existing DRGs and split each into a DRG for stays of at least two days and a DRG for one-day stays. The approach condensed the 94 one-day stay DRGs into 44.

Mixed result: The potential effect of the simulated one-day stay DRGs on incentives is mixed:

• Reduces but does not eliminate the payment cliff between outpatient and one-day inpatient stays.
• Creates new payment cliff between one-day and two-day inpatient stays.

With one-day stay DRGs, inpatient payment rates decrease for one-day stays and increase for admissions of two or more days. Hospitals with an above average prevalence of one-day stays within these DRGs would see a revenue decrease; other hospitals will see a revenue increase or no change. “If this change can be implemented, then reimbursement will be more in line with the actual hospital resources that are used,” opines Abbey.

Issue 2: RACs Reviews of Rebilled Claims After Denial

Problem: RAC reviews of short hospital stays are frequent and widespread. This leads to a lot of administrative burden on the hospitals due to extensive audits and the subsequent appeals process associated with denials. Hospitals are permitted to rebill limited portions of denied inpatient claims as outpatient claims up to one year after the patient’s discharge date, but RACs can review claims up to three years after the discharge date. That means RACs commonly deny claims after the rebilling window. 

MedPAC suggests that the policy allowing hospitals to rebill denied inpatient claims as outpatient claims either go beyond the RAC notice of denial time frames, or the RAC look back period for short hospital stays be shortened.

MedPAC also considered modifying RAC’s contingency fees to be based in part on the RAC overturn rate. At present, RACs receive a contingency fee as much as 9.0 to 12.5 percent of the recovered amount, which some feel could be an incentive for RACs to target high dollar claims. RACs must return the contingency fee if their recovery is overturned on appeal but currently incur no other penalty in such cases. “If there were a penalty imposed, then the RACs would probably be much more careful in those cases that are denied”, reflects Abbey.

Issue 3: SNF Coverage

Problem: The members present in the meeting raised concerns about the correlation of skilled nursing facility (SNF) coverage with the service rendered in patient observation because SNF’s three-day policy requires a qualifying three-day inpatient hospital stay. Because of this, the patient must have been admitted as an inpatient for three consecutive days in order to receive post-hospital extended care services. The time in observation status is not currently counted toward the three-day threshold. 

Inpatient discharge data of year 2012 shows that 100,000 stays in 2012 were for three or more days, including observation and inpatient time, but the beneficiary did not qualify for the SNF benefit. Moreover, 11,000 of those stays were discharged to a SNF without SNF coverage. 

MedPAC suggests that the commission consider three policy options:

• Retain the 3-day threshold
• Count time spent in outpatient observation status toward the threshold
• Require at least one of the three days to be an inpatient day.

Other options MedPAC considered included:

• Extending the hospital post acute care transfer policy to include hospice transfers
• Adjusting the IPPS base rate 
• Increasing beneficiary liability in Part A deductibles and SNF copayments 
• Adjusting the SNF base payment rate 
• Exploring a penalty for nursing facilities that inappropriately certify their long term residents

Issue 4: Differential Coverage of Self-Administered Drugs (SADs)

Problem: The Medicare hospital payment systems cover self administered drugs (SADs) for inpatients but not generally for outpatients. Generally, hospitals bill outpatients for SADs at full charges, and then the beneficiaries have to pay out of pocket although they may be able to submit claim to Part D for limited payment. SADs charges are a source of patient dissatisfaction. This is  “a source of compliance concern in that some hospitals do not charge at all for SADs, which is obviously non-compliant,” says Abbey. 

MedPAC suggests a policy option to permit hospitals to waive SADs charges for beneficiaries receiving outpatient observation care. “Whether such a change in the rules would really assist hospitals is open to debate,” Abbey adds.

The road ahead: These suggestions will be evaluated and incorporated into CMS policy at the next meeting which takes place mid-December 2014. Watch for updates in future issues of Inpatient Coding and Compliance Alert. 

Resource: For further information visit http://www.medpac.gov/documents/november-2014-meeting-presentation-hospital-short-stay-policy-issues.pdf?sfvrsn=0.