Last week, the Centers for Medicare and Medicaid Services (CMS) released the 2016 outpatient prospective payment (OPPS) proposed rule, CMS-1633-P. The OPPS rule is where we usually find new payment rates, additions and deletions to the inpatient-only list, and new ambulatory payment classification (APC) categories.

As discussed in the 2016 inpatient prospective payment rule (IPPS), CMS also proposed changes to the two-midnight rule, which was first introduced in the 2014 IPPS rule and implemented on October 1, 2013. Now, in the 2016 OPPS rule, CMS is proposing to modify the two-midnight rule. Confused with the IPPS and OPPS? You are not alone, and this is not the first time CMS has done this to us; it used the 2015 OPPS rule to modify the requirements of certification that were adopted in the 2014 IPPS rule. When asked why it was modifying an IPPS rule in the OPPS rule, CMS said there was no real reason other than convenience.

This year’s proposed changes include three issues that have significance for readers. CMS appears to have been inspired by fiction, as the changes seem to be sequels to famous novels. First up is the proposed modification to the two-midnight rule.

The Time Traveler’s Patient

In Audrey Niffenegger’s debut best-selling novel, The Time Traveler’s Wife, Henry, the main character, travels backward and forward in time without any control and (spoiler alert) eventually succumbs when he time-travels into a dangerous situation and is killed. (Personal aside: Audrey Niffenegger is also a talented artist and is represented by my uncle’s gallery, Printworks, in Chicago.) CMS is proposing a similar time-leaping situation for physicians by reintroducing the concept of risk into the decision to admit a patient as an inpatient or treat them as an outpatient with observation services.

As is currently stands, the decision to admit as inpatient is based solely on the physician’s expectation of the length of stay in the hospital (beyond the few exceptions specified in the rule), with patients needing fewer than two midnights appropriate for outpatient care and those needing more than two midnights appropriate for inpatient care. As written, a physician’s expectation should be reasonable and supported by their documentation. There are provisions for incorrect forecasting; if a patient recovered faster than expected, inpatient billing was still appropriate, and if a patient was expected to need fewer than two midnights but ended up needing more time, admission with a full DRG payment was appropriate at any point until discharge. CMS emphasized repeatedly that there are not two levels of hospital care—inpatient and outpatient—and the distinction is solely time-based.

But its proposed change is to jump back to the past and once again allow physicians to use risk as a deciding factor. CMS is now proposing “to modify our existing ‘rare and unusual’ exceptions policy to allow for Medicare Part A payment on a case-by-case basis for inpatient admissions that do not satisfy the two-midnight benchmark, if the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care despite an expected length of stay that is less than two midnights. “ In making this decision, CMS says the physician should consider the severity of the signs and symptoms exhibited by the patient, the medical predictability of something adverse happening to the patient, and the need for diagnostic studies that appropriately are outpatient services.

In other words, CMS is stating that physicians should travel back in time to pre-October 2013, when there were two levels of hospital care, inpatient and outpatient, and decide if a patient warrants inpatient admission based on the intensity of service and severity of illness, irrespective of the expected length of stay, and then travel back to the present and decide if the patient warrants inpatient admission solely on the expected length of stay, and then somehow rectify any discrepancy in these determinations and choose an admission status. The physician, and case management professionals guiding the physician through their time travel, must also try to decide how the Quality Improvement Organization (QIO) will make this determination, since CMS has also decided to take review of short inpatient admissions away from the Medicare Administrative Contractors (MACs) and give the duties to the QIOs.

This proposed change seems to be in response to the overwhelming number of comments criticizing the two-midnight rule for taking away physician judgment in the admission decision. Of course, those comments were groundless; CMS never took away a physician’s judgment to hospitalize a patient. CMS made it abundantly clear that there was one level of hospital care and the differentiation was merely a payment difference, but the commenters hid their complaints about inadequate reimbursement for outpatient care and observation services behind that veil of physician judgment. 

In the proposed rule CMS gave no examples of a patient with an expected length of stay of under two midnights that would warrant inpatient admission. Is it thinking about the patient with diabetic ketoacidosis that is going to the intensive care unit but expected to go home the next day? Or perhaps the uncomplicated non-ST elevation myocardial infarction patient who goes to the cath lab, gets a stent, and is expected to go home the next day? We commonly refer to “the medical predictability of something adverse happening” as risk; it can be assumed that CMS is allowing physicians to use their judgment and admit as inpatient a patient who is at high risk.

But how high a risk is warranted for inpatient admission? A patient presenting with a transient ischemic attack (TIA) and an ABCD2 score of the maximal 7 points is considered high risk and requires hospital care for 24 hours for testing and monitoring. But that score translates to an 8 percent chance of having a stroke within the next 48 hours. Is 8 percent a high enough risk to justify inpatient admission? And how will CMS educate the QIOs and ensure they are interpreting the rule properly? There are two QIOs who will be doing these reviews, KePRO and Livanta, and we know their track record with new projects is less than stellar, as described in this article from

To add further ambiguity, as noted, CMS states that this is a modification to “our existing ‘rare and unusual’ exceptions policy.” Does that mean that these instances of admitting based on risk should be rare and unusual, and if so, how does CMS define rare and unusual? Myocardial infarctions and high-risk chest pain and TIA patients are not rare; so does that disqualify them from inpatient admission for a less-than-two-midnight stay?

Time travel did not work well for Henry in The Time Traveler’s Wife; it is unclear how our physicians will fare when we once again tell them to travel back to 2013 and start reconsidering risk when evaluating their patient. Without more guidance, the outcome may be the same.

Now let’s move on to the next novel, which relates to the never-ending saga of reimbursement for observation.

Observation Payment Twist

Inspired by Charles Dickens’ second novel, Oliver Twist, CMS has given in to the constant request from hospitals asking, “Please CMS, may we have some more (money)?” by once again changing the ambulatory payment classification (APC) for observation services. Observation services are currently paid under APC 8009 and valued at $1,234.70. This payment includes payment for the emergency department visit and eight or more hours of observation. Any other services provided to the patient can also be billed, such as imaging and diagnostic testing. Because the beneficiary is responsible for a yearly part B deductible and a copayment of 20 percent of all allowable charges, an observation stay can result in several copayments, creating confusion.

So rather than responding as did Fagin, by swatting hospitals with a ladle, CMS added observation to the list of comprehensive APCs.

First introduced in 2014, comprehensive APCs create one payment for all services provided to a patient during an outpatient hospital stay instead of individual APC payments for each service. When CMS adopted these, it emphasized the effects on the beneficiary who presented to the hospital “to have their gallbladder out” and ended up with multiple copayments. Now, it is proposing to expand that to observation, with the patient who came to the hospital “because of chest pain” being responsible for only one copayment.

Analyzing almost 1.2 million past claims, CMS set the fee for APC 8011 at $2,111. It should be noted that in 2012, the Office of the Inspector General reported that the average observation approved charge was $1,741, so this potentially could be viewed as an increase in hospital reimbursement. On the other hand, not all observation stays are the same; a patient with mild heart failure who requires oxygen and IV diuresis requires far fewer services than a patient with a TIA who needs several advanced imaging tests. A review of CMS’ own data supports this: Its files on the geometric mean length of stay (GMLOS) with diagnosis related groups (DRG) finds many short-stay DRGs with similar GMLOS and drastically different weights. This inability to bill for each service will make efficiency in providing care to patients who are “in observation” even more important than it has been.

Now hospitals must decide if this extra bit of gruel is sufficient or whether they should again “ask for more.” Remember that hospitals are still bitter about the 0.2 percent reduction in DRG payments that accompanied the initial introduction of the two-midnight rule.

The last major proposal in the 2016 OPPS proposed rule addresses changes to the inpatient-only list.

Treasure Operating Room

Inspired by Robert Lewis Stevenson’s Treasure Island, a tale of buccaneers and buried gold, this year CMS has proposed removing seven surgeries from the inpatient-only list; placement of a vagal nerve blocking device (HCPCS 0312T), four spine procedures (20936-8, 22552), and removal and replacement of penile prosthesis (54411, 54417). Notably absent, and hence the reference to Treasure Island, are total joint replacements. Readers may recall that several years ago CMS proposed removing total knee replacement from the inpatient-only list. This removal was supported by the buccaneers, the ambulatory surgery centers (ASCs) and orthopedists who were anxious to steal away patients and start doing this procedure in their ASCs (many of which are jointly owned with the surgeons themselves) and claim the pot of gold. Many had started doing joint replacements in low-risk patients with commercial insurance and having great success, and were looking forward to being able to do the surgery on low-risk patients with Medicare.

But for many hospitals, joint replacement represents one of the few procedures where they maintain an overall positive margin and the prospect of losing low-risk patients to the ASCs, and having surgeons bring only high-risk, more costly patients to the hospital for their surgery, would lead to significant financial harm. Fortunately, CMS realized there was insufficient data to demonstrate the safety of joint replacement in Medicare beneficiaries in an ASC, which are limited to overnight outpatient recovery, and did not remove the surgery in the final rule that year.

And fortunately for hospitals, CMS did not propose to remove them this year, allowing hospitals to maintain, at least for one more year, ownership of the orthopedic Treasure Operating Room and its small pot of gold. But for how much longer? Only time will tell.

And as with many novels, remember that this is not the end. These are all proposed changes and CMS will be reviewing the many comments that are sure to be submitted.

Perhaps in early November we will find out if the story ends with hospitals and CMS working together happily ever after.

About the Author

Ronald Hirsch, MD, FACP, CHCQM is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices and is a published author on the topic. He is a member of the American Case Management Association and a Fellow of the American College of Physicians. 

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