It’s been nearly four years since the Centers for Medicare & Medicaid Services announced its Two-Midnight Rule, but hospital staff still are grappling with the gray areas in the rule.

  • Some hospitals classify patients as receiving observation services if their status isn’t clear-cut, potentially increasing patients’ out-of-pocket expenses and making them ineligible for a skilled nursing stay.
  • Hospitals should have case managers at all entry points to ensure that patient status is correct up front.
  • Case managers should conduct self-audits of short-stay patients before the bill drops, make corrections, track the self-denials, and educate physicians on where the mistakes are.
  • Case managers should work with physicians to ensure documentation is complete on all patient records, but especially those with short inpatient stays.

The Centers for Medicare & Medicaid Services (CMS) issued the Two-Midnight Rule four years ago as part of the 2014 Inpatient Prospective Payment System final rule, but hospitals still struggle with determining whether some patients should be admitted as inpatients or receive observation services as an outpatient.

In a report issued in December 2016, the Health and Human Services’ Office of Inspector General (OIG) concluded that a significant number of hospital stays are classified as outpatient when they should be inpatient and vice versa, and that 39% of the short stays were potentially inappropriate.

However, the OIG study is limited, uses old data, and may not reflect what hospitals are doing now, says Kurt Hopfensperger, MD, JD, vice president of compliance and education at Optum Executive Health Resources, a healthcare consulting firm in Newtown Square, PA. (For details on the report and its recommendations, see related article in this issue.)

Despite all the efforts to clarify patient status and to educate clinicians, the difference between inpatient and observation still is “clear as mud,” says Mark Clemens, RN, senior managing consultant with Berkeley Research Group.

“We are still seeing significant issues with the Two-Midnight Rule and observation services versus inpatient admissions,” he adds.

In fact, physicians who attend educational sessions about the Two-Midnight Rule have so many questions about patient status that Clemens and his colleagues at Berkeley shortened their hospitalist training sessions to make more time for the questions.

“People don’t understand the Two-Midnight Rule and the difference in inpatient admissions and outpatient observation services. When we discuss it during training programs for hospital staff, we get a lot of deer-in-the-headlights looks. Many times, nobody knows what we’re talking about,” he says.

Medicare has tried to make the difference between inpatient and observation straightforward, but it has become an administrative burden for hospital staff, adds Wanda Pell, MHA, BSN, a director with Novia Strategies, a national healthcare consulting firm.

“There are a lot of patients whose status is clear-cut, such as high acuity patients whose need for admission is obvious, and patients who will definitely go home. The problem is those in the middle,” Pell says.

It’s no wonder there is confusion, since the CMS instructions on observation versus inpatient has been scanty at best, says Deborah K. Hale, CCS, CCDS, president of Administrative Consultant Services, a Shawnee, OK, healthcare consulting firm.

“First, CMS issued guidance that patients who receive care for longer than 24 hours should be admitted as inpatients, and beginning in fiscal 2014, they said it is two midnights, beginning with the clock time care began in the outpatient setting. There are so many gray areas that hospital staff are unsure what to do,” she says.

But CMS didn’t clarify the confusion in the Benefits Policy Manual until February 2017, Hale points out. It merely changed “24 hours” to “two midnights,” she says.

Case management leadership doesn’t have time to research the various CMS opinions or to sit down and read the lengthy rules that CMS posts in the Federal Register, Hale says. “And if they do read the rules, they may still be confused because the guidance is confusing,” she adds.

Meanwhile, hospitals are spending enormous amounts of time and money in an effort to get patient status right, Clemens says. “Some hospitals have an entire department that does nothing but work on issues surrounding status,” he adds.

“Every client I work with is grappling with how to deal with patient status. They continue to be confused, even with the Two-Midnight Rule,” Pell says.

The staff at some hospitals take the path of least risk and choose observation services for patients whose status may be questionable, she adds.

“Hospitals are risk-averse. They are afraid they will be reviewed on the back end if they admit patients who fall into the gray area between inpatient and outpatient status. For years, we told physicians that if they are in doubt, to order observation services — and that’s what is happening,” she says.

Patients receiving observation services may have significant out-of-pocket expenses if they don’t have secondary insurance, Beverly Cunningham, RN, MS, consultant and partner at Oklahoma-based Case Management Concepts, points out. In addition, observation stays don’t count toward the three-day stay requirement for Medicare to cover a skilled nursing facility stay, she adds.

“We shouldn’t put patients at risk for copays by designating them as observation patients when they meet inpatient criteria. At the same time, we should not be billing for short inpatient stays when the patients should not be admitted,” Cunningham says.

Differentiating between inpatient admissions and observation services continues to be difficult for providers, says Debra Primeau, MA, RHIA, FAHIMA, president of Primeau Consulting Group in Torrance, CA.

That’s why hospitals need to have case managers at all entry points to determine whether patients meet criteria. “What is happening in many hospitals is that they have to fix patient status on the back end. To avoid this, I recommend that they get case managers involved as much as possible on the front end,” Primeau says.

Case managers don’t necessarily have to be on the premises 24/7, but they should be accessible, Primeau says. She suggests providing the on-call case managers with secure access to the electronic medical record so when there is a question, they can be contacted to review the patient information and collaborate with the physician on the appropriate status.

“Hospitals need to have case management coverage of all access points where patients enter the hospital, whether it’s the emergency department, the same-day surgery area, or a community physician office,” she says.

“Hospitals can avoid some of the problems with patient status if they have an admissions nurse who conducts a utilization management review as the patient comes in and before the physician writes an order,” Pell says.

“With the 2014 Inpatient Prospective Payment System final rule, case management departments found that the presence of case managers in the admitting department and the ED was critical to provide gatekeeping functions,” Cunningham says.

“Case managers should review planned admissions, urgent admissions, direct admissions, and transfers for potential breaches of compliance, especially with the Two-Midnight Rule,” Cunningham says.

“Avoiding denials because of patient status is still all about documentation. The reason for the inpatient stay has to be well documented and it’s up to the busy physicians to document,” Pell says.

Clemens advises case managers to work admitting physicians and ED physicians to provide detailed documentation, particularly in instances where the physician feels the patient needs to stay more than two midnights, regardless of the screening criteria used by case management staff.

“Case managers should make sure the admitting physicians understand and comply with the regulations in the Two-Midnight Rule and that the documentation is complete,” Hopfensperger says. For instance, if a physician believes a patient will stay two midnights or longer and the patient has an unexpected clinical improvement, the case manager should ensure the improvement is thoroughly documented.

“Physicians must warrant and document that short inpatient stays are medically necessary,” he says. In the 2016 OPPS, CMS declared that an inpatient admission of less than two midnights would be payable under Medicare Part A on a case-by-case basis, based on physician judgment, he adds.

Hale points out that CMS has clarified that hospitals don’t need to create a separate physician certification statement, but that the documentation in the medical record should reflect the physician’s rationale for an inpatient admission.

She cautions case managers to stop the common practice of cutting and pasting from the patient history and having the physician sign off on it as a substitute for a physician certification statement.

“Information on the patient’s acuity is already in the medical record. What needs to be in the certification statement is the risks of providing care in a non-hospital setting and the reasons the physician believes the patient will require care for more than two midnights. Only the attending physician can provide those answers,” Hale says.

“It’s a mistake to think that an auditor would review a record and not notice that the certification statement was copied and pasted from existing documentation in the medical record but doesn’t provide a rationale,” Hale says.

“A dedicated observation unit can help hospital staff avoid lengthy observation stays, but it won’t work unless it’s a closed unit that is fully staffed with clinicians who are trained to watch the patients closely for changes in their conditions,” Clemens says. (For details on a successful observation unit, see related article in this issue.)

“In some busy emergency departments, admitted patients are placed in the observation unit or observation patients are placed on the inpatient unit because that’s where there is an empty bed. It ends up defeating the purpose of the unit,” Clemens says.

Hopfensperger recommends that case managers review every observation patient whose stay is approaching two midnights or has exceeded two midnights to determine if they are appropriate for an inpatient admission.

“If case managers aren’t reviewing patients on a regular basis, they’ll miss identifying observation patients who meet inpatient criteria. Case managers need to know when patients qualify for an inpatient admission and get the order written,” Pell says.

A strong physician advisor program is essential for hospitals to ensure that patient status is correct, Clemens says. He recommends that the case management physician advisor be knowledgeable about Medicare documentation requirements and stay current on changes in the rules. “Some hospitals do not have a strong physician advisor program in place and they rely on physicians who are not trained on status,” he says.

“To be effective, the physician advisor should be an expert in determining patient status so that when there is a question, he or she can be part of the conversation with the ED physician and/or the admitting physician,” Clemens says. “This works out much better for hospitals and patients,” he says.

More information is available through the on-demand webinar, “Compliance Measures for the Case Manager’s Daily Practice,” presented by Toni Cesta, PhD, RN, FAAN, and Beverly Cunningham MS, RN, partners in Case Management Concepts. For more information on the webinar, visit: http://bit.ly/2n7fQdk.