Observation care is a type of care that is commonly offered to patients who present to the emergency department at a hospital and that patient may require a significant period of treatment to determine whether the patient should be formally admitted to the hospital as an inpatient or discharged. The primary concern for patients is that they are not classified specifically as an inpatient because the admitting practitioner might not believe the patient is sick enough to actually be admitted.
Observation vs. Admission Status
As stated earlier, observation status is a type of classification that is made by hospitals. It is important to note that there is different payment and reimbursement for observation classified patients as opposed to admission status patients. Admission status or being admitted as an inpatient is when the patient is actually classified outside of observation care and would not be receiving inpatient care. From an operational perspective, the patient may have little if any knowledge that he or she is an inpatient vs. solely being admitted for observation care.
How Is Observation Care vs. Inpatient Care Decided?
Generally, the actual decision for inpatient admission is a complex medical decision. A practitioner is in charge of deciding the medical necessity of hospital care. As discussed in more detail below, CMS has developed the two midnight rule which states if the patient is expected to need 2 or more midnights of medically necessary hospital care, the hospital, along with the practitioner’s decision, should admit the patient to become an inpatient. Noridian Medicare provides some interesting examples of how this process might occur from the clinical standpoint. Above all, the primary practical difference relates to payment.
How Does Payment Differ for the Services?
If a patient is formally admitted as an inpatient, Medicare Part A covers the inpatient hospital services. In addition, Medicare Part B covers the practitioner services when the individual is an inpatient. The patient would still be responsible for paying the 20% amount after paying the Part B deductible. However, if the patient is still in observation status, the patient is considered an outpatient which means Part B would cover the outpatient hospital services and the practitioner services. CMS notes that the total copayment for outpatient services may be more than the inpatient hospital deductible.
What is the Risk for Hospitals in Getting the Status of a Patient Incorrect?
The biggest risk for any hospital would be a violation of the False Claims Act. Remember, Medicare only pays for medically necessary services. If a hospital is admitting patients as inpatients and such services are not otherwise medically necessary, the payments should not have been made and thus might be False Claims.
Recently, the Medical Center of Central Georgia agreed to pay $20 million to settle allegations that the hospital violated the False Claims Act by billing Medicare for inpatient services when the hospital should have billed outpatient or observation services. As part of these allegations, the government reiterated that “because hospitals generally receive significantly higher payments from Medicare for inpatient admissions as opposed to outpatient or observation services, the admission of numerous patients whose care should have been billed as outpatient or observation services, as alleged here, can result in substantial financial harm to Medicare.”
What Guidance is Available to Reduce Risk?
In 2014, the government provided guidance that came to be known as the two mightnight rule. Generally, this rule stated that hospital inpatient admission would be covered and considered medically necessary if the length of stay is expected to exceed two midnights or if the patient is receiving a procedure that is considered inpatient only. Any decision making of course would be based upon the actual services being provided and how those services would make a practitioner expect the patient to require a hospital stay of at least two midnights. Further, CMS stated that there is a presumption that such stays are appropriate unless there is evidence leading contractors to believe there is gaming of the system.
CMS further developed a rare and unusual exceptions policy which states that a patient could be admitted as an inpatient if they did not meet the two midnight expectation so long as medical documentation supports the decision. CMS stated that Part A payment could occur in these situations but the contractors would look to the severity of the patient, the symptoms of the patient, the predictability of the patient, and the need for any diagnostic services. Nevertheless, CMS explained that it expects this exception to be used in rare circumstances.
Must Patients be Notified of Their Status?
Recently, the signed into law was the NOTICE Act. In short, the NOTICE Act requires hospitals, including critical access hospitals, to inform patients of their status as an outpatient receiving observation services for more than 24 hours of such status. Further, the hospitals must explain the implications of such status within 36 hours of the beginning of such service or upon the release of the patient if such a release occurs earlier than 36 hours. This notification to the patient must be written, be in plain language and in the appropriate language of the patient, and explain the status of the individual as an outpatient, and the implications of such status (including cost implications). Further, the notice must be signed by the individual or the individual’s representative. In the event the individual refuses to sign, a staff member who presented the notice must sign. Please keep in mind, the law becomes effective 12 months after it is signed into law. Further, hospitals should look to state law to see if the local rules and regulations already require such notice.
Conclusion
Observation status and inpatient status can be a major risk for hospitals considering the time CMS has spent analyzing these issues. Further, there has been significant enforcement in this area. Therefore, it is extremely important that hospitals take a proactive approach to these issues to avoid the liabilities associated with any False Claims Act actions.