Medicare payment policies encourage hospital gaming
Care providers often struggle with whether a patient should be admitted as an inpatient hospitalization or under an “observation” status. What’s the difference?
According to the Medicare Payment Advisory Commission (MedPac) [page 57]:
“If a Medicare patient does not initially meet the criteria for inpatient admission but the attending physician concludes the patient should be observed in the hospital for a period of time before being sent home, the patient can remain in the hospital in observation status. Observation stays are billed as outpatient services rather than inpatient admissions.”
For the inpatient care team, whether someone should be admitted as an inpatient or under observation rests on the judgment of whether the patient needs hospital treatment or is, in fact, just in need of short-term observation.
Patients admitted for “observation” most often go to a regular inpatient bed, receiving the same level of care as other inpatients. However, Medicare treats the admission as outpatient care, which means the patient picks up a larger share of the costs. In addition, a patient on observation status doesn’t qualify for Medicare coverage of rehab or skilled nursing facility care upon discharge. “Observation,” therefore, isn’t such a great deal for patients.
Turns out, however, that observation status is a good deal for the federal government and hospitals. The U.S. Department of Health and Human Services has touted the drop in hospital readmissions as an improvement in patient safety. However, a large percentage of this drop is attributable merely to a shifting of readmissions to observations, which aren’t counted by Medicare as admissions. Between 2006 and 2013, observation stays increased by 96 percent, accounting for more than half of the apparent decline in total Medicare admissions during that 7-year period (see page 55).
Hospitals are calling increasing numbers of stays “observation.” Following a wave of disallowed payments to hospitals for brief inpatient admissions, hospitals began increasing observation stays. Although such observation stays pay less than an inpatient admission, less payment is preferred over no payment at all!
Moreover, Medicare instituted new penalties for readmissions, which also incents hospitals to shift patients returning within 30 days of a prior discharge to observation status. Remember, a patient stay under “observation” is outpatient care, not an inpatient hospitalization, and, means the hospital avoids a penalty for readmission on such a patient.
According to the Centers for Medicare and Medicaid Services (CMS), about 10 percent of all hospital stays occurring within 30 days of discharge are now classified as “observation.” A quarter of hospitals classified 14.3 percent or more of all repeat stays as “observation,” and between 2010 and 2013, 36 percent of the claimed decrease in readmissions was actually just a shift to observation stays.
So, the hoopla around the decline in hospital readmissions may be overblown. Hospitals are meeting Medicare metrics for quality (and avoiding fines) with some improvement in care — and some gaming.