Observation Status: OIG Provides an Analysis and CMS Issues Final Regulations
Tuesday, August 20, 2013
by: VNAA Policy Team

Section: Public Policy and Advocacy

In late July, the Department of Health and Human Services' Office of Inspector General (OIG) issued a memorandum report describing the use of hospital observation and outpatient stays in 2012. OIG reports that Medicare beneficiaries had more than 600,000 hospital stays lasting at least three nights but not including at least three inpatient nights, the minimum qualification for transferring to a skilled nursing facility (SNF). These non-inpatient stays can also cause confusion for home health and hospice agencies at the time patients are admitted.

OIG reported two concerns about observation stays. First, the Centers for Medicare and Medicaid Services (CMS), Congress, and others are concerned about Medicare beneficiaries spending considerable periods in observation without being admitted as inpatient resulting in ineligibility for a Medicare SNF stay. Second, CMS is concerned about improper payments for short inpatient stays when they should have been outpatients. 

OIG report contained no formal recommendations, however OIG believes CMS should consider how to ensure that beneficiaries with the need for post-acute SNF care have the same access and same cost-sharing for these services. OIG recognizes that potentially counting outpatient nights towards the qualifying three-day inpatient stay may require action by Congress to change the law. OIG plans to conduct future work on hospital observation stays as well as inappropriate Medicare payment for SNF services for beneficiaries who do not have three-night qualifying hospital stay.

The final regulations the time-based presumption and the A-B rebilling were issued by CMS on August 2 and attempt to address the issue of observation stays. One creates time-based presumptions of inpatient status, using two midnights as the benchmark for inpatient admission. The second, allows hospitals to rebill Part B if a Medicare contractor, or the hospital itself, decided that an inpatient admission was not medically necessary.

Click here to read a summary of the report completed by the Center for Medicare Advocacy.
Click here to read the full OIG memo.
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