CMS eyes outpatient observation stays longer than 48 hours

With recovery audit contractors (RACs) and other auditors breathing down their necks to ensure the medical necessity of Medicare Part A inpatient services, hospitals could be forgiven for thinking the safest course is to keep questionable patients on Part B observation status. But while outpatient observation services may be justified, there is a well-defined limit that hospitals should probably think twice about crossing.

The Centers for Medicare and Medicaid Services (CMS) has notified the American Hospital Association (AHA) and other trade associations that it is "increasingly concerned" about hospitals keeping patients on observation status for more than 48 hours instead of admitting or discharging them, according to a July 7 letter issued by then-Acting Administrator Marilyn Tavenner.

According to CMS, the expanded use of observation status actually started prior to 2008. "CMS claims data indicate a modest trend toward proportionally more observation services extending beyond 48 hours, from approximately 3 percent in 2006 to nearly 6 percent in 2008," said Tavenner. However, the pace appears to have picked up over the past two years. The Center for Medicare Advocacy in Washington, D.C., has received complaints about hospitals' use of observation status from 18 states since 2008, senior policy attorney Toby Edelman told Bloomberg Businessweek. "We're getting calls from all over the place about this," he said.

In addition, last year skilled nursing facilities (SNFs) began making almost monthly anecdotal reports during CMS' SNF/Long-term Care Open Door Forums that some hospitals were routinely keeping patients on observation status for four to five days (and in at least one case 13 days) rather than the 24 to 48 hours indicated by Section 20.6, "Outpatient Observation Services," in Chapter 6, "Hospital Services Covered Under Part B," of the Medicare Benefit Policy Manual.

Why the concern? Medicare patients are paying a hefty price. First, they are subject to 20 percent Part B co-pays (and potential self-administered drug costs) on observation status. Second, patients who require Part A extended-care SNF services can't access their benefits because they don't have a qualifying three-day inpatient hospital stay. (Observation days don't count as inpatient days.) One patient who spent eight days on observation status at John Dempsey Hospital in Canton, Conn., didn't find out that Medicare wouldn't pay for months of necessary post-hospital SNF services until his fourth day at the hospital, reports Bloomberg. In total, the patient ended up on the hook for $36,000 in unreimbursed services.

CMS is "unaware of any policies that would cause a hospital to extend observation days for Medicare patients," said Tavenner, who stressed that "only in rare and exceptional circumstances would it be reasonable and necessary for outpatient observation services to span more than 48 hours."

The agency wants the AHA and the other associations to provide information "about why this trend is occurring ... to better inform further actions CMS can take on this issue," said Tavenner. The AHA is "examining the issue and gathering feedback from our member hospitals," spokeswoman Alicia Mitchell told FierceHealthFinance.

To learn more:
- read this Bloomberg Businessweek article
- read this Philadelphia Inquirer article
- read the CMS letter here
- access Chapter 6 of the Medicare Benefit Policy Manual here