This decision applies only to those whose stay was changed to observation after inpatient admission.

In a decision released on March 24, a judge of the U.S. District Court for the District of Connecticut released a memorandum of decision in the case of Alexander v. Azar, creating new appeal rights for Medicare beneficiaries. Specifically, the judge found that when a hospital utilization management (UM) committee changed a patient’s admission status from inpatient to observation (Condition Code 44), as a matter of law and fact, the beneficiary could indeed appeal the determination. The beneficiary has no procedural pathway to object or look behind the curtain of how a Condition Code 44 determination is made.

For those who have read the memorandum, it is clear that the ramifications are significant. For those who have not, I recommend taking the time now (see the link below). 

Could this cement the two-midnight rule as a matter of law? Is there now a legal pathway to force changes in the three-midnight rule to access skilled nursing facility (SNF) benefits? Is there legal peril for hospital UM committees that make considerable use of Condition Code 44? What is clear is that we should all eliminate “didn’t meet criteria” from our lexicons. Certainly, the Medicare contractors have been put on notice to cease the practice.

For context, the legal theory of “property interest” is the basis for the court’s finding that new appeal rights exist. This legal theory also creates the right of providers to appeal adverse Medicare Advantage plan coverage determinations. In a nutshell, Medicare and its contractors have developed internal processes that deprive Medicare beneficiaries of entitlement benefits – in this case, Part A benefits – without a procedural mechanism to address decisions financially harmful to the beneficiary.          

Arguably the official Medicare handbook, Medicare & You, establishes a binding contractual basis for any granted appeal rights: take it or leave it. That defense fails, according to this decision’s expansive historical and contextual analysis, when CMS introduces other parties in coverage determinations, specifically the layers of Medicare contractors and their reliance on standards of medical necessity outside the totality of the medical record. 

My first thought, halfway through the judge’s ruling, was that hospitals could be found to have caused harm by allowing Condition Code 44 situations to arise, at least if there is a pattern and higher volume. Instead, the court held that hospitals were essentially forced to apply national standards by the Medicare contractors: Recovery Audit Contractors (RACs), Medicare Administrative Contractors (MACs), and Quality Improvement Organizations (QIOs). MCG and InterQual are specifically named. These standards are not part of the agreement Medicare made with beneficiaries. Reliance on MCG or InterQual by Medicare contractors in making coverage determinations betrays the notion that the decision to formally admit a patient is a complex medical decision. Hospitals are essentially held hostage to apply a set of standards forced upon them; providers are not complicit in causing a beneficiary harm.

The court states what those involved in Medicare appeals at the administrative law judge (ALJ) level already know very well: the entirety of the medical record is the only relevant evidence of medical necessity for inpatient hospitalization, and not any named standard. 

Does this mean that the place of national standards MCG and InterQual is in peril? If I were either, I’d be concerned. Both were named in the decision, at worst implying complicity, at best, irrelevance.

As I’ve written before, these national standards have become less tools to aid in length-of-stay and clinical practice guides, and more of a way for insurers to avoid paying claims. Initially, these provided evidence-based guides to optimal recovery: critical pathways. Then, the evidence began to be based on limited, often invalidated, and sometimes anecdotal studies. MCG in particular has allowed payers to make changes to their disease-specific guidelines while maintaining the MCG name in coverage decisions. 

National standards, formulated by profit-driven companies with something to sell, do not carry the day when a denial is appealed, as the court’s decision makes clear. Reliance on national standards alone is unacceptable as a means of making admission status determinations. 

This decision applies only to those whose stay was changed to observation after inpatient admission. Overreliance on national standards – MCG and InterQual – by hospital UM departments and physician advisors, I fear, will eventually expose hospitals to liability in the same way Medicare contractors are called to task in this ruling. Patients cannot appeal a decision made by a hospital’s UM committee; there is only a notification without appeal. Either way, should this ruling stand, the regulations must be rewritten. Condition Code 44 situations will create an additional administrative burden on hospitals.

The Program Integrity Manual is clear: the entirety of the record and the reasonable expectation of the physician at time of admission are the only true determinants of medical necessity. Hospital UM departments and their physician advisors would be wise to keep this in mind, when tempted to make decisions based only on the national standards entrenched in our thoughts and processes.

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