RAC denials a threat to hospitals and patients

Guest post by Kerry Gillespie

From the football coach facing the media after a big game to a mom or dad reviewing with their spouse a parenting decision made in the heat of the moment, no one enjoys being second-guessed. For doctors and healthcare professional who work in hospitals, however, it is almost an everyday occurrence, thanks to Recovery Audit Contractors--entities that never actually examine a patient.

Since the permanent Medicare Fee-for-Service Recovery Audit Program began in 2009, the amount of reimbursements these contractors have rescinded after services were delivered--services no one has disputed were provided--has grown at a staggering pace.

This type of second guessing goes beyond just questioning a professional decision of a doctor. It has real consequences for patients.

Being second-guessed, by itself, isn't a bad thing, as accountability is important and necessary. What concerns us at Health Management Associates, Inc., however, is to see how physicians and our patients and their families are caught up in the unintended consequences of RACs. The shift to the use of observation status has been a troubling consequence, as patients who are properly cared for in the inpatient setting are shifted to outpatient observation status.

Consequently, the cost to the patient is far greater and their post-hospital options are limited. Hospitals are shortchanged, because their costs are the same whether the patient is admitted as an inpatient or not. The result can be deteriorating hospital financial performance, which threatens a hospital's viability.

How can this be good for a community or its hospital?

Independent data suggest that more and more patients are learning about observation status and its costs for them. Researchers at Brown University showed that observation status among Medicare patients grew by 25 percent between 2007 and 2009, while inpatient admissions concurrently declined.

What's more, many of these patients are staying in observation far longer than the intended 24 hours, some even longer than 72 hours, so the effects of the pressure from RACs on hospitals to use observation status is pretty clear. Keep in mind that under the federal guidelines, observation status is typically used for the short-term purpose of determining whether a patient needs to be admitted--and has never been intended as a substitute for hospital admission.

Consider a patient who stays in the hospital for 72 hours but whose treatment is classified as an observation visit. The hospital and physician services for this outpatient visit are covered under Medicare Part B, with a hefty co-pay for the patient. If a patient with observation status requires post-acute care, such as skilled nursing or rehabilitation, Medicare will not cover those services, even if the patient actually spent three days in the hospital. Medicare covers post-acute care for inpatient admissions of three days or longer, but the treatment must be classified as inpatient in order for post-acute coverage to kick in.

For the hospital, the treatment for this observation patient is the same. The hospital still has to pay its staff, provide supplies and drugs and all the other expenses associated with the care--just as if the patient had been admitted. Yet, the Part B reimbursement is significantly less than the Part A reimbursement would be for an inpatient admission, and again, the patient's out-of-pocket expenses are substantially higher than had they been admitted as an inpatient.

Further, when a patient is in observation status, and physicians determine one or two days later that the patient needs to be admitted, the admission begins from the time the patient is admitted, and not when they were placed in the original observation status. The result? The hospital stands to be criticized for having a higher number of short-stay admissions--a criticism completely unfounded if the patient's stay is not reviewed in context.

Litigation has commenced with two major organizations filing lawsuits against CMS related to the over-use of observation status. One, filed by the American Hospital Association, has highlighted a number of hospitals that have faced serious challenges with the process of care related to this issue. The other, filed by the Center for Medicare Advocacy, has challenged the very use of observation status at all. 

Additionally, leaders at our organization and its 70 hospitals believe patients have a right to know how this impacts them clinically and financially, and we are educating our patients using information provided by CMS. We also are consulting with our medical staffs to ensure hospital policies do not support the inappropriate placement of patients into observation status--particularly for lengths of time not supported by the evidence and best practice. 

We believe our hospitals have a responsibility to advocate for our patients. We always strive to do what's best for our patients, first and foremost, and we stand ready to work with our federal partners to accomplish our mutual goals of providing the best care to the patients entrusted to us.

Kerry Gillespie is executive vice president of Operations Finance for Health Management Associates, Inc., in Naples, Fla., which operates 70 hospitals in 15 states. Gillespie is a Certified Public Accountant and a fellow of the Healthcare Financial Management Association.

Suggested Articles

Electronic prescribing company Surescripts has fired back at the Federal Trade Commission in its antitrust case and filed a motion to dismiss the FTC's…

Siemens will provide $133 million worth of medical technology and equipment for the University of Missouri’s health research initiatives.

Amazon pledged Thursday to spend over $700 million to upskill 100,000 of its employees across the country.