The adage also seems to suggest that fine details could have a detrimental affect on a bigger picture. Hmmmm………….. I have been working in healthcare, as a nurse originally, and now in the compliance, medical coding, reimbursement and legal arena, for more than 30 years. Details in healthcare always have mattered, however with recent increased emphasis on medical necessity for clinical and payment purposes and on specificity for coding, billing and payment accuracy purposes, the devil is TRULY in the details.


Let’s start with the place ALL healthcare services start, with a patient and a physician. It is crucial to understand that hospital and all other traditional healthcare services commence with the interaction between these two entities. For any service to be considered, delivered, coded and billed, it will be ordered by the physician. Hospitals’ ambulatory/outpatient services (et al) cannot be delivered without a physician ORDER. These healthcare entities support the physicians’ decisions with the provision of services, and are dependant upon the patient/physician interaction to get involved in the requisite services.


Why You Need to Keep Reading


OK, does that sound so basic that you might think, “why waste time reading the rest of this article?” If it does, you missed the point and likely will encounter the devil in the details I discuss below, which under the RACs (and other reviewers) might  place your organization in a negative and potentially divisive relationship with your physician community.


Defining Some Terms


Throughout this article, when we use the term “hospital,” we mean all different kinds of facilities (hospitals, SNFs, HHAs, etc.);  the term “physician” or “physician community” here is used to reference practitioners who write/place orders for healthcare services.  Elsewhere, the term “provider” or “healthcare provider” often references both “hospitals” (facilities) and “physicians” (those who write orders for services). As you will see below, some sources, such as the ICD-9 Guidelines, use the term “provider” (a term used throughout the text) to mean “a physician or any qualified health care practitioner who are legally accountable for establishing the patient’s diagnosis.”


CMS’ RACs, Medical Necessity and Status Designations

Any discussion of the RACs these days likely will include the topic of medical necessity and/or status designation, i.e. inpatient, outpatient, and observation. However, is observation really a “status,” or is it a “service” performed under outpatient status?


CMS defines it as … well, decide for yourself:


  • Inpatient (CMS Medicare Benefit Policy Manual, Chapter 1, §10):

An inpatient is a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. Generally, a patient is considered an inpatient if formally admitted as inpatient with the expectation that he or she will remain at least overnight and occupy a bed even though it later develops that the patient can be discharged or transferred to another hospital and not actually use a hospital bed overnight.”

  • Observation Status: Observation services are those services furnished by a hospital on the hospital’s premises, including use of a bed and at least periodic monitoring by a hospital’s nursing or other staff which are reasonable and necessary to evaluate an outpatient’s condition or determine the need for a possible admission to the hospital as an inpatient. (For information on outpatient observation status, refer to section 20.6 of this chapter and to the Medicare Claims Processing Manual, Pub.100-04, chapter 4, section 290, “Outpatient Observation Services.”)

  • Outpatient: A hospital outpatient is a person who has not been admitted by the hospital as an inpatient but is registered on the hospital records as an outpatient and receives services (rather than supplies alone) from the hospital or CAH. Where the hospital uses the category “day patient,” i.e., an individual who receives hospital services during the day and is not expected to be lodged in the hospital at midnight, the individual is considered an outpatient.


Hmmm – seems clear as mud perhaps, hence the “devilish” details? How can healthcare providers look to their physician communities and expect (require?) them to provide the details to support downstream services provided when oversight regulatory agencies such as CMS or RACs use such vague language?


Who, Then, Is Responsible?


My point in this article is to re-alert hospitals and all other healthcare providers of what long has been our reality:


Ultimately the responsibility to assure claim payment accuracy for rendered services belongs with the provider who files the claim!


Accountability for documentation to support medical necessity for payment purposes belongs to the provider who files for reimbursement, and looking to your physician community to know the rules and follow the rules is not only appropriate, but crucial. There is no escaping this!

Clarity from CMS


Providers of all types, but particularly facilities, are going to be held responsible – CMS recently made THAT part very clear in recent RAC Outreach Sessions and conference calls held around the country. And I’ve heard from some who say that they’ve heard this same message even as long as a year ago.


Below is a question we heard has been asked repeatedly, evidently so much that CMS posted a clarification answer on its Web site:


June 2009 – Question recently posed to CMS: “If a hospital claim (or other healthcare provider claim) is denied due to it failing to meet medical necessity, will physician-ordered service(s) related to these denied services be taken back as well under the RAC program?


Answer clarified on June 26, 2009 by CMS, as reported by AHA and this publication:CMS is often asked about other claim types that may be affected by a full inpatient denial and if the RACs will deny other claim types associated with the inpatient stay, such as physician evaluation and management services. At this time the RAC will not automatically deny claims that are associated with a full inpatient denial. However, these claims may be reviewed individually and there may be a need to fully/partially adjust the claim based on the documentation submitted.”


Did You Get That?


Did you see the “devil” in the above details/answer?  You need to ask yourself two questions: first, are you sure you understand the answer? And second, is that the answer you expected?


Where else might we look for assistance with the devilish details? Below are just a few of many authoritative sources that SHOULD provide clear direction:


RAC Statement of Work: Effective Date August 1, 2008


“B. Policy: FIs and MACs will now perform medical review for Acute IPPS hospital and LTCH claims (which, for the purposes of this instruction, also includes claims from any hospital that would be subject to the IPPS or LTCH PPS had it not been granted a waiver), to ensure CMS only pays for covered, correctly coded, and medically necessary services.”


ICD-9-CM Official Guidelines for Coding and Reporting


“These guidelines have been approved by the four organizations that make up the Cooperating Parties for the ICD-9-CM: the American Hospital Association (AHA), the American Health Information Management Association (AHIMA), CMS, and NCHS.


“In the context of these guidelines, the term provider is used throughout the guidelines to mean physician or any qualified health care practitioner who is legally accountable for establishing the patient’s diagnosis.”


Medicare Claims Processing Manual – chapter 29: Appeals of Claims Decision. Section 200 (extrapolated):


(11) The medical necessity of services, or the reasonableness or appropriateness of placement of an individual at an acute level of patient care made by the Quality Improvement Organization (QIO) on behalf of the contractor in accordance with 42 CFR §476.86(c)(1)”;


HHS Office of Inspector General Work Plan 2007 (extrapolated)


“Payments for Observation Services Versus Inpatient Admission for Dialysis Services – We will determine whether payments were made for inpatient admissions for dialysis services when the physicians’ orders stated the level of care as admission to observation status……..CMS Intermediary Manual Part 3, Chapter II, section 3112.8, requires the physician’s order to clearly state the level of care the patient requires, e.g., “admission to inpatient status” or “admission to observation status. Observation services are outpatient services that are paid on an hourly basis and can last up to 48 hours. Inpatient services are paid under a diagnosis-related group (DRG) at a much higher rate.”


Actually, those statements do make something clear: CMS is very concerned about paying for services based on WHERE they are delivered.


If only the real reimbursement world were really that simple.


Reality Check


Many in healthcare have looked to the new national RAC program as a real opportunity finally to align physicians and hospitals in accordance with documentation, compliance and regulatory expectations. However, the language vagaries as noted above likely will find hospitals (and others) in the unenviable position of continuing to seek physician support in improving the documentation details required to keep reimbursements previously paid.

The world of Medicare reimbursement has changed over time (as all things do), becoming increasingly more complex, and covers ever more individuals. CMS receives about 4.5 million claims every day, and, according to the agency itself, it is impossible to review every claim for accuracy; hence, all the programs and focus to insure “integrity” and correct payments.


The RACs are only the latest in a series of initiatives and they should not be considered a fad or a passing fancy. They are here to stay, and even if you don’t believe that yet, learning to deal with them will help you deal with all those OTHER entities such as the MACs (Medicare Administrative Contractors) and MICs (Medicaid Integrity Contractors).


Providers, and particularly hospitals and other facilities that must rely on physicians to write orders for services, must take stock of where they are and what they can do to improve their situation – and such improvements may require new tactics.


New Ideas Are Needed


New avenues hospitals might consider could include re-negotiating with physicians and including contractual language holding physicians responsible for documentation integrity, where if records and claims are denied due to medical necessity or some other documentation failure, the physician would be liable for some portion of the hospital’s reimbursement loss.


Or perhaps Quality Measures are a better, more palatable method of measurement that evidently shows real promise. There are some facilities around the country that seem to have fashioned working systems like this, and actually have shown improvements in both quality of care and cost management. For some examples you might want to read articles by and about Dr. Atul Gawande, a physician from Harvard Medical School whose articles recently garnered the attention of President Obama and were said to have “changed his thinking” about how to reform healthcare.


I also highly recommend these articles:


The Cost Conundrum, What a Texas town can teach us about health care

Health Care Spending Disparities Stir a Fight

Doctors and the Cost of Care


Working Together


Incentives to “get it right” are available to everyone participating across the healthcare continuum on behalf of the patients we seek to serve. Physicians begin the revenue/reimbursement cycle for both themselves and all other healthcare providers. Facilities depend upon physician documentation, so we would be wise to support the physicians in that role.


We must seek opportunities to work together, with each practitioner/provider type held accountable for achieving payment accuracy. As the new RAC program rolls forward, none of us can afford to be a spectator, nor should we expect others to do the work for us.


The devil is in the details, for certain, but redemption comes with collaboration and mutual accountability!


About the Author


Patricia Dear has more than 30 years of experience in the healthcare industry, working

within corporate healthcare entities, for-profit and non-profit hospital systems, legal

defense and plaintiff counsel. She is a recognized national speaker on reimbursement

and compliance. She is the president and CEO of eduTrax®.

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