Alert access staff can prevent costly errors with observation cases

Insurance regulations lack consistency

Observation status — that category of care created by the shift in surgeries from inpatient to outpatient and accompanying changes in reimbursement and clinical practice — continues to pose a challenge for hospital access departments. With the tightening of utilization management and closer scrutiny of who qualifies as sick enough to be in the hospital, comes this new, "orphan" group of patients. They need supervision but don’t fall in the outpatient category, nor do they meet the criteria for acute care admission.

Determining admission to observation status remains a grey area subject to physician judgment, community practice, and review of charts. When physicians issue an order that says, "Admit the patient," access personnel are forced to ask, "Admit the patient to what? — observation status? Inpatient status?"

Observation units are popular but difficult to manage. They can be a lucrative source of income for your organization but also can subject it to intense scrutiny. Regulations can be confusing, and doctors don’t always follow them, resulting in misclassification of patients. Hospitals whose revenue from observation patients increases dramatically may find themselves scrambling to answer difficult questions about why patients were placed in this category. Complicating the reimbursement issue is the fact that third-party payers have conflicting rules on what constitutes an observation patient — some use clinical criteria, some use financial criteria. It varies so much that, as one veteran access professional noted, "If you’ve seen one observation unit benefit, you’ve seen one."

But alert and informed access departments can play a vital role in ensuring that their organizations walk the observation tightrope with as much certainty as possible. Memorial Hospital in Jacksonville, FL, recently put together a task force headed by business manager Carolyn Bellamy to address concerns about observation patients and make sure it is in compliance with Medicare regulatory guidelines that went into effect in November 1996, says Darla Clavier, manager of registration services and a task force member.

"If doctors understand the rules, observation status works great," she says. "If not, it’s very difficult for facilities to control this. It’s very important that all departments participate. Thanks to the task force, everyone fully understands the process."

Observation status is primarily intended to evaluate an outpatient’s medical condition or determine if there’s a need for admission as an inpatient. "Patients may be admitted as observation patients and later converted to inpatients, but once the inpatient designation is made, it can’t be converted to observation status," Clavier emphasizes.

Observation cases are usually of short duration, less than 24 hours, but there is no formal across-the-board time limit, she adds. Medicare will not allow observation cases to extend beyond 48 hours — and there must be specific documentation showing why a patient has stayed longer than 24 hours. Most HMOs, Clavier says, have 24-hour limits.

"Typical observation cases are ‘rule-out’ and symptomatic patients whose medical condition is being evaluated for inpatient admission, cases likely to respond quickly to care, outpatient surgical cases where patients require care beyond normal post-operative care associated with the surgery," she explains. "The medical necessity must be specified through documentation."

The following six services are not covered under observation status, Clavier points out:

1. Services in excess of 48 hours.

2. Services provided for the convenience of the patient, physician, or patient’s family.

3. Services covered by Medicare Part A.

4. Services provided in conjunction with therapeutic services.

5. Standing orders for observation.

6. Services ordered by the physician as inpatient but billed as outpatient.

When billing for observation services, hospitals should use Medicare Revenue Code 762, report the hours of care as "units," and round them to the nearest hour. Units in excess of 48 will be denied and paid only on appeal and if extraordinary circumstances are proven, Clavier says.

If a hospital intends to retain a patient beyond 48 hours, she adds, the patient must be given proper written advance notice of noncoverage. Although standing orders for observation following outpatient services will be denied, this does not mean catheterizations and other procedures cannot be done on an outpatient basis, she says.

Observation services billed concurrently with treatments such as chemotherapy are not covered, and inpatient services such as complex surgery clearly requiring an overnight stay, are billed as outpatient and will be denied, she says. She lists these guidelines to ensure compliance:

• Observation patients must be identified prior to placement in beds.

• Criteria for admission must be reviewed carefully prior to admitting.

• Appropriate charges vs. timing issues must be developed.

• Processes for identifying and determining continued stay must be followed sufficiently before the 48-hour maximum time limit to allow arrangements for discharge to be made.