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Outpatient Status Determinations for Medicare Patients Costly, Time-Consuming


The process of determining outpatient and inpatient status for hospitalized Medicare beneficiaries needs reform, according to a recent article in the Journal of Hospital Medicine.

These status determinations, made by Recovery Audit Contractors (RACs), are a growing concern for hospitals as increasing numbers of Medicare patients are hospitalized as outpatients under observation status and are not covered by Medicare Part A hospital insurance and subject to uncapped out-of-pocket charges under Medicare Part B.

The paper’s lead author, Ann M. Sheehy, MD, MS, FHM, a hospitalist at the University of Wisconsin School of Medicine and Public Health in Madison and member of SHM’s Public Policy Committee, has testified before Congress on the issues of patient observation status and Medicare’s RAC program.

“The increase in RAC audits has prompted the growth, or at least been one of the factors in the growth, of observation care across the country,” Dr. Sheehy says.

The recent study by Dr. Sheehy and colleagues focused on Medicare Part A complex reviews at three academic hospitals between 2010 and 2013. All 8,110 RAC audits that occurred during the time period, from the more than 100,000 Medicare encounters at those institutions, all challenged billing status, never the care delivered. To manage these audits, each institution needed 5.1 full-time employees. “It’s very costly for hospitals and the government to manage this process,” Dr. Sheehy says.

The report also found that the mean duration for appeals of RAC decisions was 555 days. “It’s pretty easy to say that’s a failure of due process,” Dr. Sheehy says. “It’s hard for a hospital to have payments tied up for two or three years and still have enough money to take care of patients.”

Likewise, the RAC reporting was not transparent, Dr. Sheehy notes. Most successful hospital appeals were won during the discussion period, but because that is not part of the formal appeal period, the RACs didn’t report those numbers, meaning that most favorable decisions for hospitals did not appear in federal appeals reports. “We feel that any report of RAC accuracy is meaningless without reporting what happens in discussion, where most overturns are occurring,” Dr. Sheehy says.

“It is a process that’s flawed at this point,” Dr. Sheehy adds. “We hope this paper will contribute in some way to RAC reform, and that will help providers.”

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