EXECUTIVE SUMMARY
CMS changed the payment methodology for observation services to a flat rate that covers most major services patients receive during the observation period.
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Hospitals can no longer bill for individual services such as injections, infusions, MRIs, and other services, but will receive a flat fee for the entire stay, which in some cases may not cover the observation stay.
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Case managers should monitor observation patients closely and ensure that the services they receive are necessary for the physician to make a decision on whether to admit or discharge the patient.
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Collect data on avoidable delays in observation that are due to inappropriate tests and procedures and how the cost of the procedures affect the hospital’s bottom line.
The move by CMS to change the payment methodology for patients receiving observation services means it’s more important than ever for case managers to ensure that patients receive the services they need in a timely manner and that they receive only the care they need while they are in an acute care setting, says Amy M. Smith, RN, MSN, CCM, director of case management at Dartmouth-Hitchcock Medical Center, a 421-bed academic medical center in Lebanon, NH.
On Jan. 1, 2016, CMS raised the rate hospitals receive for observation patients from $1,234 to $2,174, but eliminated payment for individual services such as injections, infusions, MRIs, stress tests, and other services. CMS issued the new rule in the Outpatient Prospective Payment System (OPPS) final rule for 2016.
“At first, it looks like CMS is paying more for observation services but in reality, the new payment is like a mini DRG. It is going to incentivize smart hospitals to carefully manage the services they provide to observation patients,” says Deborah K. Hale, CCS, CCDS, president of Administrative Consultant Services, a Shawnee, OK, healthcare consulting firm.
The $2,174 payment covers the ED visit, the observation hours, and most billable services, Smith adds. “The observation payment is going up, but it most likely won’t cover the cost of care. This makes it more important for patients in observation to receive services as efficiently as possible and receive only necessary testing and procedures,” Smith says.
Historically, hospitals have been paid a flat rate for observation services and additional payment for each service provided to the patient, Hale points out. “The more you provided, the more you got paid,” she adds.
Then in fiscal year 2015, CMS began bundling some observation services. “If a hospital qualified for an observation payment, they still got paid for big-ticket items, but services such as laboratory were bundled into the observation payment,” Hale says.
“CMS is slowly transitioning the multiple payment for services in the outpatient setting to a comprehensive payment for certain major services,” she says. Right now, the new rule applies only to patients receiving outpatient services in the acute care hospital, and not patients being treated and released from the ED or treated in outpatient clinics, Hale says.
The new rule may give seasoned case managers a sense of déjà vu, Hale says. “When CMS began the prospective payment system and began paying hospitals a flat fee based on DRGs, the average length of stay was about 10 days. If hospitals wanted to stay afloat, they had to find a way to reduce the length of stay. Now, the average length of stay is about four days,” Hale says.
The new rule by CMS puts hospitals in the same position when it comes to outpatient services. “Case managers and utilization reviewers are going to have to help hospitals become efficient in delivery of observation services,” Hale says.
Emergency department case managers tend to focus on utilization review and discharge planning rather than care progression, but that’s got to change, says Linda Sallee, RN, MS, CMAC, ACM, IQCI, director for Huron Healthcare, headquartered in Chicago.
“Case managers need to be asking questions and pushing back when physicians order a lot of services for observation patients. In our litigious society, physicians may order tests and procedures to protect themselves. Case managers should try to distinguish between these and procedures that are necessary,” Sallee says.
Case managers need to work with physicians to determine what patients need in the observation setting in order to be discharged in stable condition, Hale adds. “This means no more annual colonoscopies or mammograms while the patients are receiving observation services. Instead, case managers should schedule the patients to receive the tests as outpatient services,” Hale suggests. For instance, if patients come in with stomach pain, case managers should work with the physician to decide if they can be scheduled for an endoscopy later, as an outpatient, she adds.
When a physician orders tests and procedures that could be performed in an outpatient setting, Sallee suggests asking, “Will the results of this test help you make a decision about what to do with the patient in the hospital?” If the answer is “no,” ask if it can’t be scheduled at another time, when the patient is not in the hospital.
Under the old system, tests and procedures ordered during the observation period added more money to the hospital’s bottom line, Hale says. “The Medicare Administrative Contractors [MACs] have put out local coverage determinations that hospitals wouldn’t be paid for a CT scan just for a headache, but CMS hasn’t done a lot to limit services. Until now, there haven’t been any penalties or incentives to stop hospitals from packing in services to the observation payments,” Hale says.
Hale predicts that it will take a while for the reality of the new payment methodology to set in and hospitals may lose money the first year.
Case managers should make everyone in the hospital aware of the changes in observation payment methodology and the financial implications for the hospital, Smith says.
“We are implementing Milliman Care Guidelines and hope that we will able to use them to prevent wasteful and unnecessary testing, particularly with observation patients since we will no longer be reimbursed in the same way for them under the new observation payment structure,” Smith says.
Sallee advises case management directors to collect data that can demonstrate efficiency or lack of it when observation services are provided. Look for patterns of avoidable delays for observation patients that are related to inappropriate tests and procedures in the hospital. Collect data on high-cost procedures that are typically performed in an outpatient setting, but that physicians order for observation patients.
Analyze the cases of patients who spend more than 18 to 20 hours in observation to determine the reasons for longer stays, and look for ways to decrease the amount of time patients spend in observation, she says.
