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Hospitals Caught Between a Rock and a Hard Place Over 'Observation'

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   September 15, 2010

Like thousands of acute care facilities across the country, Immanuel St. Joseph's, a Mayo system hospital staffed for 161 beds in Mankato, a small town 80 miles southwest of Minneapolis, is caught between a rock and a hard place.

On one side, administrators and physicians are required by Medicare's strict billing criteria to place certain patients in "observation" status rather than admit them as regular inpatients, explains ISJ chief financial officer Jim Tarasovitch.

That means ISJ can submit claims for only one-third of what the facility would be reimbursed if the patients were officially admitted, or the difference between $4,500 per day and $1,500 "even though the care of the patient and the expenditures we do on that patient are exactly the same," he says.

If they admit these borderline patients and bill Medicare accordingly, he confides, the hospital might face recovery audit contractor (RAC) investigations and a possible interpolation of an error rate across a larger swath of its claims. It could mean a lot of headache and worse, a huge loss of federal reimbursement dollars. 

No matter what, hospitals like ISJ can't win.

Though they follow the rules, they hear the wrath from patients and family members. One who is extremely frustrated is Sandi Lubrant, whose 82-year-old mother, a resident of Mankato, has been denied Medicare reimbursement for $19,000 so far for two separate nursing home stays plus the cost of drugs she subsequently needs.

Her mother was taken to ISJ for five nights in the spring, two nights more than the Three-Day Rule for qualifying stays required by Medicare for skilled nursing facility benefits. However, she was told her status was "observation," even though the family has hospital documentation indicating she was admitted from the emergency department as an inpatient.  The same thing happened last week.

"This has been so incredibly stressful for my dad and our family," Lubrant told me this week. "We're lost. What rights and options do we have? Mankato is a small town with only one hospital."

Nevertheless, fear at ISJ and many other hospitals over possible RAC investigations if they do things any differently is apparently increasing so fast across the country, many hospitals are dramatically bumping up their use of observation status, statistics show.

The Centers for Medicare & Medicaid Services says it also has noticed the trend, and on Aug. 24 held a "listening session" in Baltimore to get a better sense of the reason.

According to CMS spokeswoman Ellen Griffith, more than 2,103 hospital, nursing home, patients, family members, and others dialed in on the phone lines, a "listening session" record, Griffith says. Providers across the country called out their exasperation with the system.

"We're here to understand why this trend is growing," Jonathan Blum, CMS's deputy administrator and director of its Center for Medicare told them. "How can CMS better educate beneficiaries? Should CMS make changes to guidance policies? We're all ears; we want to understand why this trend is happening."

Earlier this month, I asked CMS to give me actual numbers on how much more the "observation" category is being used. Griffith sent me a chart showing that in the four calendar years from 2006 to 2009, "observation" status claims climbed 26.7%, 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.

Observation was supposed to be limited to 24 or 48 hours, so clearly many hospitals want to keep the patients close by in the belief that they may be too sick to go home, but too healthy to qualify for a RAC-free admission.

Tarasovitch says that between 2008 and 2009, ISJ's observation days "have risen considerably. We have to do the right thing for the right reason," he says.

But still, the complaints from family members have risen as well. There have been three so far this year from families with concerns such as those expressed by Lubrant, who've been saddled with bills they didn't think they deserved, and certainly didn't expect, he says.

"Their frustration levels are getting higher and higher," he says, "and we're caught in the middle."

Nationally, the complaints are rolling in to Toby Edelman, an attorney with the Center for Medicare Advocacy in Washington, D.C. Every day, it seems, she gets yet at least one more complaint from a weeping family members over bills they never thought they'd have to pay because Medicare would always be there.

"The cases don't seem to stop," Edelman says.  She adds that at long last, there's one issue on which hospital officials, advocates, and skilled nursing homes agree with family members and patients.  There has to be a way to put a limit on the number of days a patient can stay in the hospital, after which the patient must be admitted, so follow up care won't break the family bank, and hospitals can be paid for the quality care they deliver, she says.

From Sandi Lubrant's perspective, the situation has been a nightmare not just for her, but for her father who recently suffered a stroke.

The last time her mother was taken to the hospital just a week ago, "she had fallen after dinner while throwing bread crumbs to the birds, and hit her head on the door jamb and then the floor, resulting in a goose egg-sized knot on her forehead and concussion."

She couldn't walk, didn't speak like she usually did, and was unable to finish sentences. "Her words just trailed off," Lubrant says.  

With an underlying diagnosis of subcortical dementia, she didn't meet evidence-based criteria for admission, Lubrant said.

In March, there was a similar incident. Her mother woke up unable to move her legs or perform three activities of daily living. She was taken by ambulance to ISJ, given tests and X-rays and a variety of physical therapies. "We were told it was just normal aging," Lubrant said, keeping her frustration under control.

Then when her mother was ready for discharge, Lubrant recalls, the family was told that her mother was never admitted, and therefore not qualify for Medicare benefits, and would have to pay the nursing home bill privately. Worse, they had no rights of an appeal that an inpatient has.

I know there's a reason why policies like observation status designation exist. We must make sure that over-eager hospitals, perhaps those with poor diagnosticians or those with low census, don't admit patients who don't really need to be there.

But the growth in the number of observation status patients—without a corresponding reason—should tell us that this is a problem that sorely needs fixing. 

Hopefully, CMS is working on it.  But as of this week, CMS' Griffith says, there is "nothing new to report."


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