Inpatient or observation: Will the difference ever be clear?
Clarifications by CMS just created more confusion
April 1, 2016
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EXECUTIVE SUMMARY
It’s been more than two years since the Two-Midnight rule went into effect, but the Centers for Medicare & Medicaid Services’ attempt to clear up confusion about patient status just has people more uncertain.
- Case managers should monitor patients at every access point in the hospital and work with the admitting physicians to ensure that patients are in the proper status.
- Observation patients should be easily identified, preferably in a dedicated observation unit, so clinicians know to give them priority and either admit or discharge them.
- Now that CMS has agreed that some short stays may qualify as inpatient admissions based on physician judgment, case managers should make sure the documentation supports the admission.
The Centers for Medicare & Medicaid Services (CMS) has been trying for several years to clear up the confusion about which patients should be admitted as inpatients and which should receive observation services as outpatients, but the new rules seem to make it more difficult to understand.
Hospitals have long struggled with patient status, and CMS tried to make it easier by issuing the Two-Midnight rule, which states that stays spanning two midnights or longer are presumed to be inpatient stays. Then the agency modified the rule in the Outpatient Prospective Payment System (OPPS) final rule for 2016, which went into effect Jan. 1 and said that shorter stays could qualify for inpatient reimbursement based on physician judgment.
“There has been a lot of discussion and a lot of written material about inpatient versus observation since the Two-Midnight rule went into effect on Oct. 1, 2013. But there is still a lot of confusion and misunderstanding about what constitutes an inpatient admission,” says Deborah K. Hale, CCS, CCDS, president of Administrative Consultant Services, a Shawnee, OK, healthcare consulting firm.
“In the OPPS final rule, CMS gave a nod to physicians and said that they will consider physician judgment in addition to their previous directions on how to determine inpatient status. This doesn’t mean much because they did not give any examples of how it would work,” Hale says. (For information on the need for good documentation, see story later in this issue.)
When CMS “clarified” the Two-Midnight rule, it made choosing between inpatient and observation more complicated, says Linda Sallee, RN, MS, CMAC, ACM, IQCI, director for Huron Healthcare, headquartered in Chicago. “CMS said that hospitals could bill some one-night stays as inpatient stays based on physician judgment, but gave absolutely no guidance and no examples of what kind of stays would qualify,” she says.
But CMS has made one thing abundantly clear, says Beverly Cunningham, RN, MS, consultant and partner at Oklahoma-based Case Management Concepts.
“CMS has said over and over that it is not their intent for hospitals to put everyone in observation,” Cunningham says.
As she consults with organizations around the country, Cunningham finds that hospital clinicians still aren’t clear about when to admit some patients or when to provide observation services.
The problem often is compounded by inadequate staffing in the case management department, she adds.
“Staffing is a challenge in many case management departments. We see people staying in observation for extended periods because the case managers don’t have time to focus on patient status and the Two-Midnight rule. Many times, the case managers know what they are supposed to do, but at some hospitals they cannot get it done because of staffing levels,” Cunningham says.
More and more healthcare professionals are realizing how important the role of case managers are in helping hospitals stay compliant and solvent, but they often overload case managers with tasks “because they’re already in the chart,” Sallee says.
“This puts a lot of pressure on case managers and dilutes the focus on the primary responsibilities. When you have a lot of responsibilities, it’s hard to do all of them well. It’s very important for case management directors to protect the ability for case managers to do the work they do and not to give them other tasks that bog them down. This requires the director to be able to present a return on investment report to ensure that there is sufficient staff to do the tasks required,” Sallee says.
The bottom line is that case managers need to monitor patients to ensure that they are discharged or admitted as an inpatient in a timely manner, she adds. (For information on identifying and monitoring observation patients, see story later in this issue.)
When patients receive observation services, there are financial and other consequences for patients as well as for the hospital, Cunningham points out.
On the hospital side, CMS made a significant change in hospital reimbursement for observation services in the OPPS final rule, shifting reimbursement to a single, comprehensive payment that covers the emergency department visit, the observation hours, and most billable services provided during observation, Hale reports. CMS raised reimbursement for hospital-based observation services by almost $1,000 but stated that the additional reimbursement will cover all tests and procedures, which in the past have been paid separately. (For details on the changes, see story later in this issue.)
“The issue of the financial implications of physician decisions is going to be extremely important. The need for case managers to closely monitor observation patients and the services they receive is much stronger than it’s been in the past,” she says.
Patients receiving observation services are outpatients and if they are covered by Medicare Part B, they are responsible for up to 20% of the bill if they don’t have secondary insurance. In addition, the time that patients are in observation does not count toward the minimum three-day inpatient stay CMS requires in order to cover the cost of a skilled nursing facility.
Case managers should make sure that physicians understand the financial effect a stay in observation can have on patients, Cunningham says.
If patients are admitted to the hospital when they don’t meet the requirements for an inpatient stay, the level of care can be changed using Condition Code 44 as long as the conversion is made before the patient is discharged and the additional requirements are met, Sallee points out.
When case managers believe an admitted patient may not meet inpatient criteria, they should refer the case to a utilization management committee physician member, or the physician advisor for case management.
“The physician advisor has to agree with the case manager that the patient doesn’t require an inpatient admission. Then the physician advisor should discuss with the admitting physician who has to write an order for the conversion,” Sallee says.
When patients are placed in observation status after being admitted as inpatients, the hospital must give them a written notice of their change in status and alert them that they may be responsible for their Medicare Part B deductible and copay for outpatient services. If patients insist on continuing as an inpatient, the hospital must give them a Hospital-Issued Notice of Noncoverage (HINN) notifying them that Medicare does not cover their care, Sallee says.
“It’s better to get it right in the beginning and let the patients know up front about their financial responsibilities. If patients who don’t meet criteria are admitted and their status is changed to observation, they are going to be highly dissatisfied when they learn what they will have to pay,” Cunningham says. (For information on the importance of reviewing cases for status up front, see story later in this issue.)
Patients who spent the night in the hospital are not likely to be happy if they find out that being in observation means being an outpatient, Sallee adds.
“I’ve had a number of patients tell me that if they had known they were outpatients, they would have chosen to go home,” Sallee says.
To educate your patients on their status, Sallee recommends the booklet, “Am I an Inpatient or an Outpatient?,” published by Medicare. The booklet explains the difference in observation and admissions in easy-to-understand language, Sallee says.
Beginning August 1 under a law passed by Congress, hospitals will be required to give patients receiving observation services a written notice of their financial responsibility. Some states already require notification of observation services, but CMS is requiring it nationwide, Cunningham says.
The new law requires hospitals to give them oral notice of observation status within 24 hours and written notice within 36 hours.
The notice must include the reason the patient is an outpatient and not an inpatient, the cost-sharing requirements, and the effect on eligibility on a skilled nursing stay. The law requires the document be written in plain language that is understood by the recipient and that it be signed by the patient or his or her representative.
To be effective in today’s healthcare environment, case managers need to be well-versed and up to date on rules and regulations issued by CMS and other payers, as well as have the clinical knowledge that allows them to ask questions of physicians, Sallee says.
“Physicians are not likely to learn all the rules because they need to spend so much time keeping up with the clinical side. As case managers talk with the physicians, they should let them know what the rules are,” Sallee says.
Case management directors should educate the case managers and the emergency department physicians and hospitalists on the Two-Midnight rule and whatever criteria set the hospital uses to establish medical necessity, she says.
Cunningham suggests that case management directors make sure their staff receives education about the rules and regulations they should follow at least once a year. “Education should include the CMS requirements, but also cover the hospital’s contracts with other payers. Commercial payers and state Medicaid organizations also have rules governing observation, and the case management staff needs to understand their requirements as well,” she says.
While it is good for case managers to educate physicians one on one as they review cases, Cunningham also recommends that case management directors or the case management educator provide education to as many physicians as possible at one time. “This helps provide consistent education. If a case manager is interpreting the rules the wrong way, they’ll pass it on to the physician. This way, everybody gets the same message,” she says.
Emergency department physicians and hospitalists should be top priority for education, and surgeons and other high volume hospital admitters should be included in the education as well, she adds.
The CMS requirement that hospitals perform self-audits on the Two-Midnight rule falls through the cracks at some hospitals, Cunningham says. She urges case management directors to comply with this requirement.
“It is important for case management directors to review what the staff is doing right and what they are doing wrong. Then they need to educate the case management staff and the physicians about what needs to be changed to be in compliance,” she says.
The self-audits provide a good opportunity to zero in on common mistakes, Cunningham says.
She suggests going over some of the hospital’s self-denials as examples during education for both the case management department staff and physicians. “When you can go back and use the same verbiage that was in the chart, it’s really helpful,” she says.
CMS has been trying for several years to clear up the confusion about which patients should be admitted as inpatients and which should receive observation services as outpatients, but the new rules seem to make it more difficult to understand.
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