Hospital leaders testifying before the House Ways and Means Committee derided Medicare's two-midnight and observation rules, saying that not only are the policies not working, they've also added huge costs and quality issues for providers and patients.
Hospital officials and a Medicare advocate expressed their extreme frustration with Medicare's two-midnight and observation rules before the House Ways and Means Subcommittee on Health hearing Tuesday, saying that not only are the policies not working, they've also added huge costs and quality issues for providers and patients.
"We know the two-midnight rule was spawned out of an attempt to limit lengthy stays and add clarity to the definition of an inpatient," said Amy Deutschendorf, senior director of clinical resource management at Johns Hopkins Hospital in Baltimore. "Unfortunately, the rule adds a new layer of complexity that not only does not meet the [Centers for Medicare & Medicaid Services] objective, but has created confusion and stress for our providers and patients, and has been operationally difficult to implement."
Meanwhile, patients are being assigned to observation status to avoid visits from Recovery Audit Contractors, Deutschendorf and others said. Those RACs are questioning far too many claims as inappropriate, a number that "has increased by 33%" in the last year and has "required our physicians to become soothsayers as they try to project" whether an emergency room patient with multiple symptoms and comorbidities will require a stay that lasts longer than two midnights, she said.
Deutschendorf said the rules have had the unintended consequence of creating safety and quality problems. In some cases, "patients have actually left [hospitals] and refused important diagnostic studies and medications" because when their stays are classified as "observation," they are not eligible for full coverage under Medicare's Part A. Instead, they are obligated for deductibles and 20% co-payments under Medicare's Part B.
She also criticized Medicare's RAC auditors, who earn a commission on claims they say were not medically justified by a patient's condition, but don't suffer any penalties when their decisions are overturned at an appeal level.
"Even though Hopkins has a rigorous compliance process, by which we review every day for every Medicare patient stay," she said, the "RAC denied 50% of the medical records that were requested. "We took 239 of these to discussion [a pre-appeal review] and immediately 135, or almost 60%, were overturned."
The rules mean that patients who receive care in observation status—and who often are unaware they were placed in that category—then can't qualify for Medicare Part A coverage in a skilled nursing home because they weren't an inpatient for at least three days.
Ann Sheehy, MD, chief of the Division of Hospital Medicine at University of Wisconsin Hospital, expressed similar concerns to the committee, saying that for her hospital, patients need much longer than two midnights to determine whether they need to be officially admitted as an inpatient. "One in six of our observation patients lasted longer than 48 hours," demonstrating that "real observation care in real clinical practice is vastly different than how CMS defined observation status.
Additionally, Sheehy testified, the use of midnight as the time to determine a patient's status is too arbitrary.
Take the example of a patient who improves enough to leave the hospital after 40 hours. If the patient "presents to the hospital Tuesday at 1 a.m., this means I would discharge them at 5 p.m. on Wednesday, a one-midnight stay. But if this same patient becomes sick at 10 p.m. on Tuesday, needing the exact same care, I would discharge them at 2 p.m. on Wednesday, and it's now a two-midnight stay. So, when a patient gets sick, not their clinical need, determines the patient's stay and insurance benefits."
Arbitrary timing makes the difference between inpatient and observation status for almost half of the patients seen last year at her hospital, she said.
Severity of the patient's presenting condition is not always a factor, she added.
"For example, a patient with diabetic ketoacidosis may be sick enough to require intensive care unit admission and an extraordinary amount of services that can be life-saving—certainly a level of care that could not be delivered safely as an outpatient. Yet these patients can improve quickly, sometimes within 24-48 hours." And in such a case, a severely ill patient stay, even in the ICU, is considered outpatient, she said.
On the RAC program, she said from Oct. 1, 2012, to Sept. 30, 2013, "we appealed 92% of our RAC audits for medical necessity, and we've won every single appeal decided as of May 2014. That's two-thirds of these cases."
Subcommittee chairman Kevin Brady, R-TX, called the three-hour hearing to find a permanent solution to RAC audit and observation issues, which includes a moratorium called last October of RAC audits for medical necessity, in an effort to lessen what had been a three-year backlog of audits and appeals.
In a statement, he said: "Observation is meant to be a temporary tool allowing clinicians to closely monitor patients without using full-blown inpatient hospital resources. However, observation services are now being used as a tool to avoid certain adverse effects, including RAC audits, and in some cases avoiding readmission penalties.
"The saga continues when we turn to the appeals process. Hospitals disagree with RAC audit denials for short stays. As a result, hospitals appeal the decision. Hospitals have found a high level of success at overturning RAC denials at the Administrative Law Judge or ALJ level."
The committee also heard from Toby Edelman, an attorney with the Center for Medicare Advocacy, who described one patient who spent 13 days in the hospital in observation status, only to be discharged to a skilled nursing home for which Medicare Part A would not pay because the patient had not met the rule requiring an inpatient hospital stay for at least three consecutive days.
Another patient, age 90, had a hematoma on his leg. "The daughter who called me told me that as her father was being wheeled into the operating room, the hematoma burst. He had emergency surgery…and remained for four midnights, all outpatient. And from there to rehabilitation where he stayed for 18 days."
But because he had been placed in outpatient observation status, he had to pay out of pocket for that service, plus Medicare Part B co-payments, and he had to pay for all his prescription drugs.
"The cost-shifting in observation status is considerable," Edelman said.
"Some people really do not have the money to pay for nursing home care out of pocket. And when they're told what the cost is, they go home … then a couple of days later, they have a fall, break a hip, and they're back in the hospital. The cost to the system is immense."