Society of Hospital Medicine (SHM) Calls for Overhaul of Medicare's Observation Status Rules


A hospitalist and SHM Public Policy Committee member is hopeful that SHM's recently released position paper recommending changes to the way the "observation status" designation is used for admitted hospital patients will help improve patient care.

The increasing use of the Centers for Medicare & Medicaid Services' (CMS) patient observation status designation—which grew 88% from 2006 to 2012—has frustrated hospitalists. Under the rule, patients are ineligible for skilled-nursing facility (SNF) care, may not claim insurance coverage for some medications, and may face uncertain cost-sharing and other financial liabilities for their hospitalization.

SHM outlined its concerns about the policy and suggested solutions in the report titled "The Observation Status Problem: Impact and Recommendations for Change."

CMS has attempted to address the issue by creating the "two-midnight rule." The report notes, however, that amid confusion on the application of the "two-midnight rule," Medicare auditing and enforcement have been pushed back several times, most recently to March 31, 2015.

"We still are unclear about what patient vulnerability is under this," says SHM Public Policy Committee member Ann Sheehy, MD, MS, FHM, a hospitalist at the University of Wisconsin School of Medicine and Public Health in Madison, who testified before Congress last May on observation status and other Medicare policies.

"We know that patients can't get SNF coverage when they're under observation," Dr. Sheehy says. "We know that patients are subject to unlimited co-pays when they're under observation, as opposed to when they're hospitalized as inpatients under Medicare Part A, which has a one-time deductible."

The SHM white paper outlines both short- and long-term fixes to the policy. In the near term, SHM recommends:

• Educating providers and patients on the purpose of observation status and raising confidence in when and how it should be applied;

• Changing SNF coverage rules to ensure patients’ eligibility; and

• Reforming the Medicare Recovery Audit Contractor program to improve RAC performance and reduce unintended pressures on admission decisions.

In the long term, the report suggests creating modifiers for diagnosis-related group (DRG) payments to assign to patients needing lower-acuity services, as well as crafting a list of DRGs to assign to patients needing short periods of inpatient care.

"The policy overall is very frustrating," Dr. Sheehy adds. "We hope that any rule change that comes out will address the core problems of observation so that patients can get the care they need with fair and appropriate insurance coverage." TH

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