ATTACHMENT I. Outpatient Status: Solicitation of Public Comments

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1 ATTACHMENT I The following text is a copy of the Federation of American Hospitals ( FAH ) comments in response to the solicitation of public comments on outpatient status that was contained in CMS-1589-P; Medicare and Medicaid Programs: Hospital Outpatient Prospective and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Electronic Reporting Pilot; Inpatient Rehabilitation Facilities Quality Reporting Program; Quality Improvement Organization Regulations; 77 Fed. Reg. 45,061(July 30, 2012). We incorporate these comments by reference into our current comment letter as referenced under the section titled V.N. Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services under Medicare Part A. XI. Outpatient Status: Solicitation of Public Comments The FAH appreciates that CMS is soliciting public comments on the important issue involving hospital inpatient/outpatient status determinations. Hospitals and CMS share the goal of proper Medicare payments made in the first instance. Determining inpatient/outpatient status is an issue that hospitals spend a substantial amount of time, money and energy trying to manage effectively. A. Defining the Problem Even with this commitment in place, hospitals still experience significant confusion and uncertainty by physicians regarding these important decisions, and those decisions can be second guessed during post-payment Medicare audits or even through fraud and abuse allegations or investigations. Thus, this is an important topic requiring additional guidance and clarification from the Medicare program. The fundamental starting point is that physicians not hospitals must make the decision regarding whether to designate a Medicare beneficiary as a hospital inpatient or an outpatient. The Medicare Hospital Conditions of Participation ( CoPs ) require a patient to be admitted pursuant to a physician order. (See 42 C.F.R (c)(1).) Unfortunately, in most instances, physicians may not be very knowledgeable about standards that the Medicare program may use to assess whether a patient should be an inpatient or outpatient. Hospitals routinely provide case managers to consult with physicians to assist with, and to educate about, patient status decisions. While hospitals endeavor to provide this support, physicians often are challenged to maintain indepth knowledge of the various standards that address this issue and often have strong personal views on the issue. Also, physicians may be less attentive to the nuances of making these determinations because Medicare payment for a physician s professional service is the same regardless of whether the patient is an inpatient or outpatient for hospital payment purposes. Patient status determinations have become more challenging over time for a variety of reasons. Technology and medical advances now allow certain procedures to be performed in an outpatient setting that were historically provided only to inpatients. Also, there has been a rise in Recovery Audit Contractor ( RAC ) recoveries related to overturning short stay inpatient admissions because the site of service was not medically necessary (i.e., the service should have

2 been provided during an outpatient encounter). There even have been cases alleging that certain inpatient determinations are fraudulent and should be sanctioned under the Civil False Claims Act or other fraud and abuse authorities. Understandably, the current landscape has led hospitals to employ a very cautious approach to billing for inpatient admissions. This cautious approach has created other issues, including increased use of outpatient observation services and longer lengths of observation encounters issues that CMS has expressed concern about to the hospital industry. 1 In addition, policies requiring the use of Condition Code 44, which is a cumbersome process used to change a patient s status from inpatient to outpatient during a hospital stay, have further complicated matters in the name of protecting patients from the impact on beneficiary out-of-pocket liability. The reality of the current situation is hospitals now find themselves caught in the middle. On one hand, their inpatient admissions are being closely scrutinized and second guessed more than ever before through multiple activities including post-payment reviews, fraud allegations, and even lawsuits by Medicare beneficiary advocacy groups. In many instances, the same clinical services are being furnished to patients regardless of whether the patient can qualify for inpatient status, yet they are being paid much less than the cost of providing that care under CMS s Part B Only payment policy. On the other hand, while the Medicare program presumably prefers to make the lower hospital payments associated with outpatient services, classifying a patient as an outpatient has a significant financial impact on beneficiaries through higher cost sharing and ineligibility for coverage of post-hospital skilled nursing services. For all of these reasons, the FAH believes it is time for CMS to clarify these policies in a way that recognizes the challenging environment under which hospitals operate in good faith, promotes objective standards, and better respects a physician s real time judgment with hospital assistance. CMS s formal solicitation of public comments is an important step in the process, and the FAH looks forward to working with CMS as it considers and develops necessary changes in this policy area. In our view, there are several issues to address. First, the front end determination of when a patient should be classified as an inpatient needs more guidance and clarity. While certain industry standards (e.g. Interqual and Millman) are often used to assist in making patient status determinations, there are no definitive Medicare policy guidelines that govern these decisions. Whether it s patients being held in observation status longer than desired because they may not meet inpatient criteria, or a patient requiring surgical services for whom a physician must decide between an inpatient admission or outpatient encounter, the challenge is the same an attending physician, with hospital support, tries to make the proper, real time patient status decision. Even so, hospitals face the distinct possibility of a post-payment denial and appeals process or even possible fraud and abuse allegations made based upon a physician s good faith decision. 1 In 2010, we responded to a letter from the CMS Principal Deputy Administrator raising concerns about the length of stays for Medicare patients in observation status and the financial impact that has on beneficiaries. While we acknowledged the trend and concern for beneficiaries, the FAH explained that hospitals felt it was the Medicare program s policies that were driving those results. We attach a copy of the FAH s correspondence with these comments, and ask that our letter be incorporated into this rulemaking record. 2

3 Second, in cases where a Medicare contractor denies that an inpatient admission was appropriate, hospitals can only receive a partial, very minimal Part B payment under the existing Part B Only payment policy. Essentially, Medicare has made a policy judgment (not mandated by statute or regulation) not to pay the full Part B reimbursement in these situations. This outcome is illogical and fundamentally unfair. A common example illustrates the point. Assume a physician orders an inpatient admission during which an internal defibrillator is implanted in a patient to address a cardiac clinical condition. The hospital bills a Part A claim to Medicare, which reimburses for all of the services and related device through the appropriate inpatient payment Diagnostic Related Group. Later, the Part A payment is overturned because of a finding that the claim did not represent a medically necessary inpatient service. In this case, no one disputes the patient had a clinical condition that required a defibrillator to be implanted, but a Medicare contractor questions whether the procedure needed to be done as an inpatient service. In light of the postpayment denial, Medicare s Part B Only policy would not allow the hospital to rebill Medicare and be paid for the surgical service and implanted device as a covered outpatient service. Also, the patient sees an increase in his out-of-pocket cost sharing under Part B and could become responsible for the cost of the implant and related service, because they are a noncovered Medicare item and service. However, it is often difficult for the hospital to collect these charges when the patient is responsible, making the final result uncompensated care for the hospital that cannot even be claimed as Medicare bad debt. In our view, the impact on the Medicare program is nonsensical, the shifting of financial responsibility to the beneficiary seems unconscionable, and the likely negative financial impact on the hospital is patently unfair. Yet, this example and outcome is a common occurrence today for hospitals. B. Potential Solutions There are a number of potential solutions that can address these ongoing problems. 1. Hospital case managers should play a more formal role in making hospital patient status determinations through Case Management Admission Protocols. CMS should approve the use of Case Management Admission Protocols ( CMAP ) to make hospital patient status determinations. The concept of CMAP is not new to the Medicare program, but is one that has not been embraced fully in Medicare policy to date. Under such a process, physicians, through a CMAP approved by a hospital s Medical Executive Committee, can delegate patient status determinations to hospital case managers, with the physicians signing a validation order at some reasonable point after clinical care commences. Here s how a CMAP would work. At the time of ordering hospital services, a physician would order necessary clinical services based upon the stated diagnosis and the patient is admitted per Case Management Protocol. Consistent with other Medicare policies, the clinical care then could begin. For patient status purposes, the patient would remain in a hold status for a specified amount of time, during which the hospital s utilization management team would 3

4 assign a status using specific, internally-adopted criteria. The physician would then be made aware of utilization management s decision and co-sign the final order to authenticate the appropriate patient status. If and when physicians do not agree with utilization management s patient status assignment, a specific process would be available for the physician to protest and the disagreement resolved. We believe the CMAP approach would satisfy the Medicare Hospital CoPs, because a physician first orders the clinical care with the first CMAP order, and then the physician subsequently would approve the case management order or seek a change to that order as the final patient status determination. Essentially, the physician would be approving the order twice. While the CMAP approach has not been embraced fully, the concept is consistent with verbal order authentication and medical protocol policies already permissible under the CoPs. (See 42 C.F.R (c).) Notably, there are several demonstration projects that support using CMAP. First, in 2003, the Florida Quality Improvement Organization, FMQAI, implemented the protocol at 20 hospitals and experienced a 67 percent drop in denials for short stay admissions. In another CMS-funded project, FMQAI focused on medically unnecessary chest pain admissions and recruited 10 hospitals to use CMAP. Participating hospitals reduced inappropriate chest pain admissions by 37 percent, with a projected decrease annually of 67 percent. Health Services Advisory Group conducted a similar project in Arizona which resulted in a 90 percent reduction in one-day inpatient admissions for chest pain. The New Mexico Medical Review Association implemented a later CMAP demonstration project (ending in 2008) with 16 select hospitals in six states, which showed a 53 percent drop in unnecessary short-stay admissions. While these demonstrations are dated, their results at the time were unassailable, yet there was no clear indication why CMS did not move to adopt the approach across the Medicare program. Thus, we strongly urge CMS to state officially that the use of CMAP is an acceptable practice. This will help with patient status determinations on the front end, which has both benefits for hospitals (receiving in the first instance proper, full payments) and to the Medicare program (reducing its payment error rate). Implementing CMAP is also likely to go a long way to reducing, if not eventually eliminating, the need for the Condition Code 44 process, which is cumbersome as a practical matter and also can result in negative interactions between physicians and hospital personnel. 2. CMS should adopt a policy allowing hospitals to receive full Part B payment when a Part A inpatient admission is denied as not medically necessary. The FAH has corresponded with CMS previously on this recommendation. Specifically, in 2011, the FAH sent two letters to CMS advocating that full Part B payment should be made when a Part A inpatient admission is denied as not medically necessary due to patient status. In our view, there is nothing in the Medicare statute that prohibits CMS from adopting this policy. In fact, the statute does not differentiate between Part B Only services and other Part B services, so we respectfully think the better reading of the statute is to provide full Part B payment over Part B Only payment. 4

5 We also presented the trend emanating from the Departmental Appeals Board decision in the O Connor Hospital case that has resulted in Administrative Law Judges ( ALJ ) ordering full Part B payment when there are Part A medical necessity denials. We also offered operational suggestions and our members cooperation and support for logistics on how Medicare contractors could effectuate the proper Part B payment. We attach a copy of those letters with these comments, and ask that they be incorporated into this rulemaking record. Separately but similarly, the Proposed Rule provides an update on the AB rebilling demonstration project. We appreciate the update, but are compelled to express that overall our members are disappointed by the scope of this demonstration project. Hospitals feel that the combination of being required to forego your appeal rights and the best-case outcome of less than 100 percent of total Part B reimbursement for outpatient services were significant disincentives to participation in the demonstration project. There is even less incentive to participate in the demonstration because hospitals can achieve the remedy of full Part B payment by going through appeals process and obtaining an ALJ order requiring full Part B payment. In summary, we maintain that CMS has the authority to implement a permanent policy change that would allow for providers to receive a full Part B payment when a Part A claim is denied for lack of medical necessity due to improper patient status. As we believe this is the better reading of the statute, we are unclear as to the purpose and rationale of the current Part B Only policy. While logistical issues arise regarding the need to obtaining appropriate information to determine Part B payment, FAH members are prepared to work with CMS to implement a reasonable process that balances the burden on both providers and the Medicare program to receive an appropriate Part B claim. 3. CMS should consider implementing a short stay outlier to address the Agency s concerns about short stay admissions CMS should consider implementing a short stay outlier payment policy under the hospital inpatient prospective payment system ( IPPS ). This would reduce the financial incentive of hospitals receiving full IPPS payments for short stay admissions, which has been an ongoing concern for CMS and law enforcement, while preserving respect for the clinical judgment of physicians who believe those patients should be admitted as inpatients. A short stay outlier may also help mitigate CMS s concern about increasing use of observation status, as it could be crafted in a way to make hospitals feel more comfortable about admitting observation patients as inpatients in appropriate circumstances. The possibility that such cases may come under scrutiny later on because a hospital has received a full IPPS payment should decrease because of the reduced financial incentive to the hospital. There is precedent for this type of payment adjustment, as it has been adopted under the Long Term Acute Care Hospital Prospective Payment System ( LTACH PPS ). Under that payment system, the short stay outlier is an adjustment to the applicable base payment for cases that are considerably shorter that the average length of stay for similar cases. 5

6 4. Longer term, CMS may wish to evaluate implementing a preauthorization process for inpatient admissions like those used by private insurance plans. For hospitals, such an approach would not create significant additional burden given hospitals already have appropriate staff in place to handle pre-authorizations with most private payers. While implementing a pre-authorization process would require new processes by Medicare contractors, we believe the program would potentially eliminate and/or reduce some existing processes. For example, pre- and post-payment audits of the medical necessity of inpatient status could likely be significantly reduced or eliminated by a pre-authorization program. Medicare contractor resources from these services could likely be reallocated to the new pre-authorization process. In addition, a pre-authorization process would be in sync with both CMS and the administration s desire to make appropriate payments for quality care and reduce the payment error rate and need for the current pay and chase recovery audit contractor process. An inpatient status pre-authorization program would also help to improve the transparency of appropriate inpatient stays for Medicare beneficiaries. CMS indicates that stakeholders believe hospitals are electing to treat beneficiaries as outpatients receiving observation services instead of as inpatients due to financial risk of the stay being denied at a later date. A pre-authorization program for inpatients status should eliminate and/or significantly reduce such concerns. 6

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