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CMS, Hospitals Fight Over Payment for Short Stays

By Kerry Young, CQ Roll Call

August 4, 2016 -- Medicare is sparring with hospitals over attempts to reduce excess payments for short patient stays, in what could be a prelude to a broader reimbursement overhaul reflecting advances that have made many surgical procedures less invasive.

The American Hospital Association (AHA) last week said it was "dismayed" that Medicare could let a new set of contractors begin reviewing short-stay claims under rules that will quickly become outdated. In response to earlier complaints from the industry group, the Centers for Medicare and Medicaid Services (CMS) made plans to shift major responsibility for this work from recovery audit contracting (RAC) firms that are paid on commission to quality improvement organizations (QIO)—often nonprofit groups staffed by doctors and other health professionals that focus on ensuring best practices are widely adopted.

CMS is setting rules for the QIOs through the 2016 payment rule for hospital outpatient stays, which takes effect Jan. 1. AHA has suggested the agency wait at least that long to get the QIOs moving on this work, to avoid having the organizations begin working under an outdated version of what's known as the "two-midnight" rule on inpatient stays. AHA was disappointed that CMS didn't include a special provision regarding the "two-midnight" rule in a hospital inpatient rule that takes effect Oct.1.

Medicare officials and hospital administrators have been at odds for years on how care should be reimbursed for people who don't need to spend many days admitted as patients. Advances in technology that have substantially shortened hospitals' average inpatient lengths of stay, according to the Medicare Payment Advisory Commission. "Because hospitals generally receive higher payments for clinically similar patients served in the inpatient setting as compared with the outpatient setting, hospitals may have a financial incentive to admit patients," the commission stated in May testimony to Congress.

The procedure for implanting stents in coronary arteries, for example, can be covered under often less generous outpatient, or Part B, reimbursement, for uncomplicated cases, CMS stated last year. Yet, hospitals have sometimes billed for overnight stays connected with uncomplicated cases as inpatient care, which CMS classifies as an improper payment. One-day inpatient hospital stays remain relatively common in Medicare, accounting for more than 1 million inpatient admissions, or 13 percent of the total, in 2012, according to MedPAC.

In 2013, CMS had hoped to settle what constituted a proper claim for more generous inpatient Medicare pay and what should be billed under outpatient care. But hospitals have protested the original design of the rule that generally calls for a minimum stay of two midnights to trigger inpatient payments. Congress and CMS have since stopped audit contractors from targeting claims of short inpatient stays.

Conflicts over the audits are something of a sideshow to the larger issue of getting CMS and hospitals to agree on reimbursement for overnight and other short stays, said Dan Mendelson, chief executive of consultant Avalere Health and a former associate director for health at the White House Office of Management and Budget.

"The issue is the payment policy, not the RACs in my opinion," he said in a Monday interview. "It's a lot easier to fire at the RACs. Ultimately, CMS will need the tools to make sure there is appropriate billing for these short stays."

With the 2016 outpatient rule, CMS intends to modify the two-midnight rule to allow more flexibility for physicians' judgment in making claims for inpatient reimbursement. "However, we continue to expect that stays under 24 hours would rarely qualify for an exception to the 2-midnight benchmark," CMS said in the draft payment rule.

Before being put on hold, the RACs had disputed many short stay claims in their audits, and hospitals have contested their decisions in many cases. That helped trigger a backlog of about 75,000 appeals, with some cases taking more than five years to resolve. Lawmakers in Congress have heard many complaints from leaders of hospitals in their districts about the RAC work, which CMS says is carried out by four firms: Performant Recovery, CGI Federal, Inc., Connolly Inc., and HealthDataInsights, Inc.

"I must tell you that when the contractors ride into town in western Kansas, the doors shut," said Sen. Pat Roberts, R-Kansas, at a hearing earlier this year. People in hospitals hope that "no RAC person comes and knocks on the door. I think they put hospital administrators on the rack, if you will."

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