Hospitals are putting more patients into observation status for longer than 48 hours instead admitting them, in part out of fear of what happened at one hospital this month, the American Hospital Association says.
Observation status is a Medicare billing category for patients not sick enough to qualify for acute admission but too sick to be sent home.
Fear of Recovery Audit Contractor audits, or "post-payment reviews of inpatient claims" has been partly responsible, said Rick Pollack, AHA executive vice president, in a letter to Centers for Medicare & Medicaid Services chief operating officer Marilyn Tavenner on Wednesday.
"A related enforcement risk—prosecuted under the False Claims Act—also may affect the decision to place patients in outpatient observation rather than admit them as inpatients," he wrote.
"As recently as this month, the Department of Justice announced a hospital's agreement to pay more than $2 million to settle a qui tam suit alleging that, in order to receive additional Medicare reimbursement, the hospital admitted patients for inpatient stays when those patients should have been in observation beds."
Pollack did not name the hospital, but earlier this month DOJ officials announced that El Centro Regional Medical Center, about 100 miles east of San Diego, paid $2.2 million to settle such federal accusations.
According to a DOJ statement on the case, "The government alleges that the 165-bed acute care hospital fraudulently inflated its charges to Medicare patients to obtain larger reimbursements from the federal health care program. The settlement covers claims submitted by the hospital for short inpatient admissions, usually of one day or less, when the services should have been billed on an outpatient 'observation' basis or as emergency room visits."
Said Laura Duffy, U.S. Attorney for the Southern District of California: "Our office will aggressively work with investigative partners to protect healthcare funds from fraud and abuse. Today's settlement demonstrates our commitment to holding health care providers who receive federal funds and knowingly defraud or overcharge federal health care programs accountable."
The allegations arose from a whistleblower lawsuit filed by former El Centro Regional employee, Pietro Ingrande, who is set to receive $375,000 as his share of the money recovered.
Additionally, the hospital had to agree to enter into a corporate integrity agreement with the Office of Inspector General.
"The costs of such suits in financial and human terms, as well as the damage that they do to a hospital's reputation, likely makes hospitals more wary about admitting patients for short inpatient stays," Pollack wrote.
Last month, many hospital officials voiced complaints that they are taking financial hits by placing patients in observation status. In observation, a patient gets the exact same level of care they would have received had they been admitted. "Observation" status claims, however, are generally billed at one-third the rate of bills for patients who were officially admitted as inpatients.
According to a CMS chart, in the four calendar years from 2006 to 2009, "observation" status claims climbed from 828,353 to 1.131 million. Especially noteworthy was the increase in claims for observation stays for patients kept for more than 48 hours, which more than tripled from 26,176 to 83,183.
Because of that jump, the federal agency held a listening session to hear hospitals explain why that might be. Many echoed concerns that fear of RAC audits and confusion about the rules were to blame.
Pollack said in his letter to the agency that "no one single factor is driving the trend." But in a recent survey of 500 hospital leaders indicated that hospitals are essentially stuck.
"Hospitals cannot discharge patients—whether from the inpatient or outpatient setting ? before they are medically ready," he wrote. "With inpatient admission criteria becoming more stringent and with more patients coming to hospital emergency departments, it is not surprising that more patients may require observation services, or that observation services need to be longer."
Additionally, he wrote, confusion about the rules seems to be part of the problem. "The requirement for reporting observation services has changed five times in the 10 years since the OPPS (Outpatient Prospective Payment System) was implemented."
And then there is the question over something called " 'Condition Code 44,' which governs when a hospital may change an inpatient admission to an outpatient encounter for billing purposes, likely affected inpatient/outpatient status determinations" However, it can only be done after a hospitalization utilization review committee decision and agreement with the treating physician, Pollack wrote.
"Making this status change is elaborate operationally; therefore physicians are more likely to order observations services when there is a question as to whether the patient's condition qualifies for an inpatient admission."
Pollack's letter didn't mention it, but hospital officials also are concerned about the rule's impact on relationships with their patients and family members. When Medicare patients are not considered admitted for at least three days, the agency will not cover subsequent care in a skilled nursing home, and certain self-administrated drugs. That can sour relations with patients and their families—who often don't understand why a five or 10-day stay in the hospital was not considered an admission, angry at the hospitals.
Even a patient who is in the hospital for 10 days, but was only "admitted" for two of them, would not have that Medicare coverage.
Pollack says the AHA supports a bill by Rep. Joe Courtney, D-CT, and a similar one to be introduced in the Senate, which would count time spent as a patient in observation toward meeting that three day rule.