Inside Health Policy: MedPAC Recommends RAC, Observation Status Reforms

MedPAC Recommends RAC, Observation Status Reforms

Posted: April 08, 2015

Congress’ Medicare payment advisers unanimously approved a series of recommendations that some commissioners said could help alleviate the burden on beneficiaries — and in some situations, hospitals — from the use of observation status and short hospital stays.

The Medicare Payment Advisory Commission (MedPAC) voted for reforming the Recovery Audit Contractors (RAC) program, withdrawing the two-midnights inpatient admission rule, notifying some beneficiaries under observation of their outpatient status and counting some time spent in observation toward Medicare’s required three-day nursing home eligibility requirement.

Commissioners further voted to have HHS evaluate establishing a penalty for hospitals with excess rates of short inpatient stays to substitute, in whole or in part, for RAC reviews of short inpatient stays. MedPAC staff said the commission plans to run its own evaluation of such a penalty system, as well.

However, some commissioners expressed concern that a formula penalizing hospitals for too many short stays might stand in the way of efforts to shorten lengths of hospital stays.

A four-part draft recommendation to reform the RAC program says that HHS should direct the contractors to focus their reviews of short inpatient stays on hospitals with the highest rates of this type of stay, base each RAC’s contingency fees in part on its claim denial overturn rate, and make sure the RAC look-back period is shorter than the Medicare rebilling period for short inpatient stays.

After commissioners raised concerns at the last MedPAC meeting that the recommendation did not address the controversial two-midnights policy, which assumes inpatient stays are necessary if doctors believe patients will be hospitalized for at least two-midnights and shorter stays are considered outpatient, MedPAC added to the recommendation that HHS should withdraw the two-midnight rule.

Many commissioners expressed strong support for the addition. Commissioner Jay Crosson said that lots of people will be happy to get rid of the two-midnights rule. On the other hand, it did provide a safe harbor for longer stays, Crosson pointed out, and it’s important to emphasize that the recommendation doesn’t stand alone but is part of overall reform of the RAC process.

An official with the Association of American Medical Colleges said that while the hospitals would be happy to see the two-midnight rule withdrawn, stays longer than two midnights still should not be subject to audits. The American Hospital Association agreed

“If the two midnight policy is withdrawn, as the Commission recommends, hospitals would no longer be required to follow this arbitrary time benchmark. However, hospitals would lose the certainty of an inpatient payment for a stay spanning at least two-midnights, and be subject to the overzealous audits of the Recovery Audit Contractors,” said Linda Fishman, AHA’s senior vice president for public policy analysis and development.

“While we appreciate MedPAC’s recommendations that attempt to address the RAC program’s misaligned financial incentives, they do not fully address the program’s systemic problems. We urge the Commission to examine fundamental RAC reforms, including the contingency fee structure that encourages RACs to deny claims,” Fishman added.

The Council for Medicare Integrity, which represents RACs, expressed concern about basing RAC’s contingency fees on appeals overturn rates.

“As we all know, the ALJ [Administrative Law Judge] level of appeals is riddled with inconsistencies due to judges who may or may not decide cases in line with Medicare policy. The wide discretion afforded to ALJ judges make appeals outcomes a moving target,” a spokesperson for the council said in a statement. “We would instead recommend a more objective measurement be used, one that would require that the rules that recovery auditors need to work within would be applied similarly to the ways in which they are measured.”

For Medicare beneficiaries placed under observation rather than admitted, the commission recommended that lawmakers should require acute care hospitals to notify beneficiaries that their status may affect how much they would have to pay for nursing home care after discharge. The notice must be provided to patients in observation status for more than 24 hours and who are expected to need nursing home care.

“The notice should be timely, allowing patients to consult with their physicians and other health care professionals before discharge planning is complete,” the recommendation says.

Commissioner Cori Uccello said she appreciated that the commission specified the timing around when beneficiaries must be notified of their observation status, as it’s important that beneficiaries are informed before they are on their way out of the hospital.

The House recently passed the NOTICE Act, which would similarly require hospitals to notify those under observation of their status. The Ways & Means Committee in February expanded the bill to include acute hospitals and critical access hospitals before it was passed out of committee. Though some expected the NOTICE Act to be included in the House’s Sustainable Growth Rate replacement bill, it did not make it in the version that passed prior to recess.

Commissioners tweaked the draft recommendation to count time spent in observation toward Medicare’s three-day stay nursing home eligibility requirement. The draft recommendation discussed by commissioners at last month’s meeting said that all time spent in observation would be counted toward the three-day stay as long as a beneficiary also spent one day as an inpatient. The recommendation approved by the commission on Thursday said that lawmakers should allow for up to two outpatient observation days to count toward meeting the three-day stay requirement.

MedPAC also approved a recommendation calling for Congress to package payment for self-administered drugs provided while a beneficiary is under observation on a budget-neutral basis within the hospital outpatient prospective payment system.

Commissioner David Nerenz supported the recommendations, and added that MedPAC should look for a way to avoid the sometimes arbitrary distinction between inpatient and outpatient stays. The commission still has work to do in this area, he said. — Michelle M. Stein

  • Share

Comments are closed.