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Class Action Lawsuit Alleges Right to Inpatient Hospital Stays: Hospitals Are Damned If They Do…and Don’t!

Hospitals – “Lend me your ears; I come to warn you, not to praise RACs. The evil that RACs do lives after them; The good is oft interred with their appeals; So let it be with lawsuits.” – Julius Caesar, with modifications by me.

A class action lawsuit is pending against U.S. Health and Human Services (HHS) alleging that the Center for Medicare and Medicaid Services (CMS) encourages (or bullies) hospitals to place patients in observation status (covered by Medicare Part B), rather than admitting them as patients (covered by Medicare Part A). The Complaint alleges that the treatments while in observation status are consistent with the treatments if the patients were admitted as inpatients; however, Medicare Part B reimbursements are lower, forcing the patient to pay more out-of-pocket expenses without recourse.

The United States District Court for the District of Connecticut refused to dismiss the class action case on February 8, 2017, giving the legal arguments within the Complaint some legal standing, at least, holding that the material facts alleged warrant investigation.

The issue of admitting patients versus keeping them in observation has been a hot topic for hospitals for years. If you recall, Recovery Audit Contractors (RACs) specifically target patient admissions. See blog and blog. RAC audits of hospital short-stays is now one of the most RAC-reviewed issues. In fiscal year 2014, RACs “recouped” from hospitals $1.2 billion in allegedly improper inpatient claims. RACs do not, however, review outpatient claims to determine whether they should have been paid as inpatient.

On May 4, 2016, CMS paused its reviews of inpatient stays to determine the appropriateness of Medicare Part A payment. On September 12, 2016, CMS resumed them, but with more stringent rules on the auditors’ part. For example, auditors cannot audit claims more than the six-month look-back period from the date of admission.

Prior to September 2016,  hospitals would often have no recourse when a claim is denied because the timely filing limits will have passed. The exception was if the hospital joined the Medicare Part A/Part B rebilling demonstration project. But to join the program, hospitals would forfeit their right to appeal – leaving them with no option but to re-file the claim as an outpatient claim.

With increased scrutiny, including RAC audits, on hospital inpatient stays, the class action lawsuit, Alexander et al. v. Cochran, alleges that HHS pressures hospitals to place patients in observation rather than admitting them. The decision states that “Identical services provided to patients on observation status are covered under Medicare Part B, instead of Part A, and are therefore reimbursed at a lower rate. Allegedly, the plaintiffs lost thousands of dollars in coverage—of both hospital services and subsequent skilled nursing care—as a result of being placed on observation status during their hospital stays.” In other words, the decision to place on observation status rather than admit as an inpatient has significant financial consequences for the patient. But that decision does not affect what treatment or medical services the hospital can provide.

While official Medicare policy allows the physicians to determine the inpatient v. observation status, RAC audits come behind and question that discretion. The Medicare Policy states that “the decision to admit a patient is a complex medical judgment.” Ch. 1  § 10. By contrast, CMS considers the determination as to whether services are properly billed and paid as inpatient or outpatient to be a regulatory matter. In an effort to avoid claim denials and recoupments, plaintiffs allege that hospitals automatically place the patients in observation and rely on computer algorithms or “commercial screening tools.”

In a deposition, a RAC official admitted that if the claim being reviewed meets the “commercial screening tool” requirements, then the RAC would find the inpatient status is appropriate, as long as there is a technically valid order. No wonder hospitals are relying on these commercial screening tools more and more! It is only logical and self-preserving!

This case was originally filed in 2011, and the Court of Appeals overturned the district court’s dismissal and remanded it back to the district court for consideration of the due process claims. In this case, the Court of Appeals held that the plaintiffs could establish a protected property interest if they proved their allegation “that the Secretary—acting through CMS—has effectively established fixed and objective criteria for when to admit Medicare beneficiaries as ‘inpatients,’ and that, notwithstanding the Medicare Policy Manual’s guidance, hospitals apply these criteria when making admissions decisions, rather than relying on the judgment of their treating physicians.”

HHS argues that that the undisputed fact that a physician makes the initial patient status determination on the basis of clinical judgment is enough to demonstrate that there is no due process property interest at stake.

The court disagreed and found too many material facts in dispute to dismiss the case.

Going forward:

Significant discovery will be explored as to the extent to which hospitals rely on commercial screening tools. Also whether the commercial screening tools are applied equally to private insureds versus Medicare patients.

Significant discovery will be explored on whether the hospital’s physicians challenge changing a patient from inpatient to observation.

Significant discovery will be explored as to the extent that CMS policy influences hospital decision-making.

Hospitals need to follow this case closely. If, in fact, RAC audits and CMS policy is influencing hospitals to issue patients as observation status instead of inpatient, expect changes to come – regardless the outcome of the case.

As for inpatient hospital stays, could this lawsuit give Medicare patients the right to appeal a hospital’s decision to place the patient in observation status? A possible, future scenario is a physician places a patient in observation. The patient appeals and gets admitted. Then hospital’s claim is denied because the RAC determines that the patient should have been in observation, not inpatient. Will the hospitals be damned if they do, damned if they don’t?

damned

In the meantime:

Hospitals and physicians at hospitals: Review your policy regarding determining inpatient versus observation status. Review specific patient files that were admitted as inpatient. Was a commercial screening tool used? Is there adequate documentation that the physician made an independent decision to admit the patient? Hold educational seminars for your physicians. Educate! And have an attorney on retainer – this issue will be litigated.

CMS Proposes Mandatory Bundled Medicare Reimbursements: Financial Risk on Hospitals!

A new CMS proposal could transform durable medical equipment (DME) Medicare reimbursements to hospitals. The proposal, if adopted, would implement a mandatory bundled Medicare reimbursement for hip and knee replacements or lower extremity joint replacements (LEJRs).

CMS has proposed this change to be piloted in 75 metropolitan areas prior to being implemented nationwide.

This mandatory bundled Medicare reimbursement will be unprecedented, as, thus far, CMS has only implemented voluntary bundled reimbursement rates. However, CMS has stated that its goal is to have at least 50% of all Medicare fee-for-service reimbursement to be paid under an alternative payment model by 2018, and, in order to meet this objective, CMS will need to implement more  mandatory alternative payment models.

Another first is that CMS proposes that hospitals bear the brunt of the financial risk. To date, CMS has not targeted a type of health care provider as being a Guinea pig for new ideas, unlike the other proposed and implemented Bundled Payments for Care Improvement (BPCI) initiative where there are many types of providers that can participate and bear risks.

Will this affect NC hospitals?

Yes.

Of the 75 metropolitan areas chosen as “test sites” for the new bundled payment plan, 3 are located in NC.

1. Asheville
2. Charlotte
3. Durham-Chapel Hill

Apparently, CMS believes that Durham and Chapel Hill are one city, but you got to give it to them…by hyphenating Durham and Chapel Hill, CMS gets both Duke and UNC health systems to participate in the mandatory trial. Other large metro areas included in the trial are Los Angeles, New York City, and Miami.

LEJRs are the most frequent surgeries in the Medicare population. The average Medicare expenditures for LEJRs, including surgery, hospitalization, and recovery, can range from $16,500 to $33,000.

The mandatory bundled reimbursement will become effective January 2, 2016; however, the hospitals will not carry the financial risk until January 1, 2017.  So, hospitals, you got a year and a half to figure it out!!

What exactly will this bundled reimbursement rate include?

Answer: Everything from an inpatient admission billed under MS DRG 469 or 470 until 90 days following discharge.

And we are talking about everything.

Thus, you will be reimbursed per “Episode of Care,” which includes:

“All related items and services paid under Medicare Part A and Part B for all Medicare fee-for-service beneficiaries, including physicians’ services, inpatient hospital service, readmissions (subject to limited exceptions), skilled nursing facility services, durable medical equipment, and Part B drugs.”

What should you do if you are a hospital so graciously selected to participate?

1.  Assess your protocol as to discharging patients.  Where do your patients go after being discharged?

2. Determine whether you want to partner with any critical care facilities, skilled nursing agencies, or home health agencies.

3.  Assess your current reimbursement rates and analyze what current delivery patterns must be revamped in order to maintain profitability.

4. Determine future care management and clinical reprogram needs.

5. Analyze ways to provide more efficient delivery components.

6. Communicate with your DME vendors.  Discuss ways to decrease spending and increase efficiency.

7.  Plan all ways in which you will follow the patient after discharge through the 90 day period.

8. Consult your attorney.

If you would like to comment on the proposed rule, you have until September 8, 2015 at 5:00pm.

Proposed Federal Legislation Will Provide Relief to Hospitals and Medicare Patients in Need of Post-Acute Care

The Center for Medicare and Medicaid (CMS) announced that the new RAC contracts in North Carolina should be ready by the end of the year.  This means that, next year, RAC audits on hospitals and other providers will significantly increase in number. Get prepared, providers!!

However, there is proposed federal legislation that could protect hospitals and Medicare patients if passed.

Hypothetical: You present yourself to a hospital. The hospital keeps you in observation for 1 day. You are then formally admitted to the hospital as an inpatient for 2 more days. Under Medicare rules, will Medicare now cover your post-acute care in a skilled nursing facility (SNF)?

Answer: No. Observation days in hospitals do not count toward the Medicare 3-day requirement.

On November 19, 2014, Congressman Kevin Brady introduced draft legislation that would allow hospital observation stays to count toward establishing Medicare eligibility for post-acute services, as well as improve and supervise the RAC program.

You are probably wondering…Why would a hospital keep me in observation for a full day without admitting me as an inpatient when hospitals are reimbursed at a significantly higher rate for inpatient versus outpatient?

Answer: To avoid RAC recoupments.

In recent years, recovery audit contractors (RACs) have been exceedingly aggressive in post payment review audits in challenging hospital claims for short, inpatient stays. The RACs are motivated by money, and all of the RACs are compensated on a contingency basis, which leads to overzealous, sometimes, inaccurate audits. Here in North Carolina, Public Consulting Group (PCG) retains 11.5% of collected audits, and Health Management Systems (HMS) retains 9.75%.  See my blog: “NC Medicaid Extrapolation Audits: How Does $100 Become $100,000? Check for Clusters!”

Why have RACs targeted short-stay admissions in hospitals? As mentioned, one-day inpatient stays are paid significantly more than similar outpatient stays. Because of the financial incentives, RACs often focus audits on whether the short-stay is appropriate because this focus will yield a larger overpayment. As a result, hospitals become hesitant to admit patients as an “inpatient” status and, instead, keep the patient in outpatient observation for longer periods of time.

Keeping a person in observation status rather than admitting the person could impact the person’s health and well-being, but it will also impact whether a Medicare patient can receive post-acute care in a SNF (or, rather, whether Medicare will pay for it).

In order for a Medicare patient to receive covered, skilled nursing care after a hospital stay, Medicare requires a 3-day inpatient stay.  With the onslaught of RAC audits, hospitals become leery to admit a person as an inpatient.  When hospitals are tentative about admitting people, it can adversely affect a person’s post-acute care services.

To give you an idea of how overzealous these RACs are when it comes to auditing Medicare providers, there are over 800,000 pending Medicare appeals. That means that, across the country, RACs and other auditing companies have determined that over 800,000 providers and hospitals that accept Medicare were improperly overpaid for services rendered due to billing errors, etc. Over 800,000 providers and hospitals disagree with the audit results and are appealing. Now, obviously, all 800,000 appeals are hospitals appealing audits findings short-stay admissions not meeting criteria, but enough of them exist to warrant Congressman Brady’s proposed bill.

The proposed bill will significantly impact RAC audits of short-stay admissions in hospitals.  But the proposed bill will also extend the current short moratorium on RAC audits on short-stay admissions in hospitals.  Basically, the RACs became so overzealous and the Medicare appeals backlog became so large that Congress placed a short moratorium on RACs auditing short-stay admissions under the two-midnight rule through the end of March 2015.   The proposed bill will lengthen the moratorium just in time for NC’s new RACs to begin additional hospital audits.

The moral of the story is…you get too greedy, you get nothing…

Remember “The Goose That Laid the Golden Eggs?”

A man and his wife owned a very special goose. Every day the goose would lay a golden egg, which made the couple very rich.  “Just think,” said the man’s wife, “If we could have all the golden eggs that are inside the goose, we could be richer much faster.”  “You’re right,” said her husband, “We wouldn’t have to wait for the goose to lay her egg every day.”  So, the couple killed the goose and cut her open, only to find that she was just like every other goose. She had no golden eggs inside of her at all, and they had no more golden eggs.

Too much greed results in nothing.

Similar to the husband and wife who killed the goose who laid the golden eggs, overzealous and inaccurate audits cause Congress to propose a temporary moratorium on RACs conducting audits on short-term hospital stays until the reimbursement rates are implemented within the same proposed bill (which, in essence will lengthen the moratorium until the rates within the bill are implemented, which also includes additional methods to settle RAC disputes).

The proposed bill, entitled, “The Hospitals Improvements for Payment Act of 2014,” (HIP) would revamp the way in which short hospital stays are reimbursed and how observation days are counted toward Medicare’s 3-day rule for post-acute care; thereby alleviating these painful hospital audits for short inpatient stays. Remember my blog: “Medicare Appeals to OMHA Reaches 15,000 Per Week, Yet Decisions Take Years; Hospital Association Sues Over Medicare Backlog.”

HIP would create a new payment model called the Hospital Prospective Payment System (HPPS) that would apply to short-term hospital stays.

What is a “short stay?” According to the proposed bill, a short stay is a: (1) stay that is less than 3 days; (2) stay that has a national average length of stay less than 3 days; or (3) stay that is “among the most highly ranked discharges that have been denied for reasons of medical necessity.”

Proposed HIP would also require the Department of Health and Human Services (HHS) to establish a new base rate of payment, which will be calculated by blending the base operating rate for short stays and an equivalent base operating rate for overnight hospital outpatient services.

The draft bill would also repeal the 0.2 percent ($200 million per year) reduction that CMS implemented with the two-midnight rule, which is the standard that presumes hospital stays are reasonable if the stay covers two midnights.

The proposed bill also mandates more government supervision as to the RACs.

This proposed bill comes on the cusp of an increased amount of RAC audits in NC on hospitals. As previously discussed, our new RAC contracts will be awarded before the end of this year. So our new RACs will come in with the new year…

The moral of the story?

Expect hospital RAC audits to increase dramatically in the next year, unless this bill is passed.

Dealer Has an Ace: Do You Take the “Insurance?” CMS Incentivizes Hospitals to Drop Appeals

Medicare appeals are at an all-time high. Back in January 2014, the Office of Medicare Hearings and Appeals (OMHA) stated that a health care provider with a Medicare appeal, may not have the case assigned to a judge for at least two years, and may wait even longer for the appeal to be heard.

Since the beginning of 2014, the Medicare appeal backlog has only grown. With the passing of the Affordable Care Act (ACA), which increased the amount of regulatory audits on providers in an attempt to partially fund the Act, more and more providers are finding themselves audited and in disagreement with the overzealous results. More and more providers are fighting the audit results and filing Medicare appeals at OMHA.

Now, because in large part of the massive backlog, the Center for Medicare and Medicaid Services (CMS) is offering hospitals an “administrative agreement mechanism.” In other words, if the hospitals agree to dismiss the appeal, CMS will agree to partial repayment for the claims at issue. Specifically, the hospital will be reimbursed for 68% of the disputed claims.
Notice the offer from CMS only pertains to hospitals. CMS has made no such offer to long-term care facilities (LTCF), which have been vocal when it comes to aggravation resulting from the Medicare appeal backlog.

For CMS’s offer, if a hospital is owed $1 million, then CMS will agree to reimburse the hospital $680,000 if the hospital dismisses the appeal.

What if the hospital has multiple appeals? CMS will only offer this meagre, olive branch if no other appeals are pending. As in, you must dismiss all lawsuits in order to receive the partial payout.

Personally, I call this a raw deal.

Think of blackjack. The purpose of blackjack is to have two cards’ sums equal 21. Only with 2 cards equaling 21 does the player receive more than the bet. You bet $100 and hit 21 with an ace and a king? You get paid $150.

“Insurance” is a side bet which you can take when the dealer’s face up card shows an ace and only pays 2:1. You bet half your bet for insurance; so if you placed a $100 blackjack bet, your insurance bet should be $50. If the dealer hits blackjack, you lose your $100 bet but get paid on the insurance. On a $50-insurance bet, you’d win $100, and lose your $100 bet. If the dealer doesn’t have a blackjack, your insurance bet is forfeited. Either way, by making an insurance bet, you lose money.. You do not have the chance to win 100% of a blackjack payout.

This is essentially what CMS is offering. You are holding an ace and CMS is holding an ace. Will you take the partial payout?

Many of these pending appeals by hospitals are a result of auditors’ determinations that a Medicare recipient was received as an inpatient instead of (as the auditor believes proper) an outpatient.

One of the reasons that I believe the 68% payout from CMS is a raw deal is because the auditors are not always right. Why take 68% when you are owed 100%?

My question is: Are these auditors M.D.s?

When I present myself at a hospital emergency room, I hope that the decision for me to be admitted as inpatient or outpatient hospital admission is a complex medical decision contemplated by my doctor based on medical necessity, not an insurance auditor. After the physician determines that a patient needs to be admitted, an auditor is second guessing a physician’s decision that was made in “real time” with multiple variables at issue.

The Social Security Act (SSA) provides numerous defenses for a provider to assert against an auditor challenging the medical necessity of a service, in this case whether the patient is admitted into the hospital as inpatient. The rendering physician’s medical decision should be upheld absent clear and convincing evidence to the contrary.

Some people suggest that the auditors’ emphasis on inpatient stays versus outpatient stays will cause hospitals to err on the side of caution and just keep patients in observation status to avoid inpatient status.

We need to prevent the hospitals from fearing to admit patients as inpatient due to overzealous audits and mistaken determinations from non-M.D.s who believe the patient should have been outpatient. I say, go all in. Do not take the “insurance.” Do not take the 68%, if you deserve 100%.

RACs Medicaid Audits Scrutinize Short, Inpatient Hospital Stays

Found a great article on RAC audits on hospitals, specifically short hospital inpatient stays, written by Julie Knudson.  Fantastic!

Here is a glimpse of what is to come in North Carolina…

Short Stays, Complicated Decisions