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OIG recommends revision of proposed CMS rule

August 16, 2013
by Bob Gatty
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The Department of Health and Human Services (HHS) Office of Inspector General (OIG) is urging the Centers for Medicare & Medicaid Services (CMS) to make certain Medicare beneficiaries just released from hospital observation stays have coverage for skilled nursing facility (SNF) services required for follow-up care.

In a report issued July 29 following an investigation and analysis of hospitals’ use of observation stays, OIG said a proposed CMS rule should be revised to make certain Medicare coverage for SNF services is appropriate.

The report came as the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) urged passage of H.R. 1179, the Improving Access to Medicare Coverage Act of 2013, which the organization said would resolve SNF coverage restrictions when patients are released to SNFs following extended hospital stays in observation status.

To access the SNF coverage benefit under Medicare Part A, patients must be admitted to a hospital for at least three days. The OIG report said that in 2012 Medicare beneficiaries had 1.5 million observation stays of one night or more in the hospital, while another 1.4 million had long outpatient stays that were not coded as “observation stays.”

In addition, OIG reported that beneficiaries had over 600,000 hospital stays that lasted three nights or more but did not qualify them for SNF services, although coverage was inappropriately provided in four percent of those stays at a cost of $255 million.

AHCA/NCAL, in an online Issue Brief, noted that if a Medicare beneficiary spends an extended period in the hospital as an observation patient and needs SNF care once released, the patient will have to pay out-of-pocket for post-acute care. Medicare will not cover SNF services under Part A, even if the observation stay lasted more than three days because, technically, the patient was not admitted as an inpatient.

Under CMS’ proposed rule, CMS contractors would presume that inpatient stays lasting two nights or longer were reasonable and necessary and would qualify for payment as inpatient stays. CMS also proposed that time spent in any outpatient area of the hospital would not count towards the two-night presumption.

CMS said it expected those changes would reduce the number of observation stays lasting two nights or longer or reduce the number of short inpatients, with the overall net result being a shift from outpatient to inpatient stays. To offset the costs, CMS proposed implementing an across-the-board reduction in Medicare payments for all inpatient stays.

However, OIG said that while the number of short inpatient stays would be significantly reduced under the proposed rule, the number of observation and long outpatient stays may not be reduced if outpatient nights are not counted towards the two-night presumption.

“Our results further indicate that, under the polices proposed….some hospitals would likely follow the provisions and continue to bill these as outpatient stays; other hospitals—given strong financial incentives and few barriers—would likely not follow the provisions and would admit beneficiaries as inpatients as soon as possible to meet the two-night presumption,” OIG said.

“CMS should consider how to ensure that beneficiaries with similar post-hospital care needs have the same access and cost-sharing for SNF services,” the OIG report stated, adding that allowing nights spent as an outpatient to count toward the three nights needed to qualify for SNF services may require additional statutory authority.

The OIG also said it is also “critical” to make certain controls are in place so Medicare does not inappropriately pay when beneficiaries do not qualify for SNF services, and said it would provide CMS with details of the $255 million in inappropriate payments so the agency can seek recoupment.

“The OIG report is just one more argument in favor of changing these arcane laws and speeding care to thousands of seniors trapped in this no man’s land of health care,” said AHCA/NCAL president and CEO Mark Parkinson. “We hope this federal affirmation by the Inspector General will echo around Capitol Hill as lawmakers consider our proposed legislation. The time for Congress to pass this bill is now.”

Reps. Joseph Courtney (D-CT) and Tom Latham (R-IA) sponsored H.R. 1179. A companion bill, S.569, was introduced by Sen. Sherrod Brown (D-OH) and cosponsored by Sen. Susan Collins (R-ME).

Bob Gatty has covered governmental developments for the trade and business press for more than 30 years. He is founder and president of G-Net Strategic Communications, Sykesville, Md.