As was widely reported in the media, and celebrated by hospitals around the country, the Centers for Medicare and Medicaid Services (CMS) has backed off its 0.2 percent cut to all inpatient admission payments and is putting in place a one-year 0.6 percent increase to “reimburse” the 0.2 percent collected in fiscal years 2013 to 2015.

This cut was instituted because the CMS actuaries determined that the Two-Midnight Rule would result in more inpatient admissions. They thought the rule would almost eliminate the long observation stays of two or more days because the rule clearly states that any patient in a necessary hospital stay should be admitted as an inpatient prior to the second midnight. But CMS had its actuaries look at the data, and they found they were wrong. In fact, in 2015 there were 40,000 more observation stays of two or more days as in 2012. In 2015, more than 675,000 patients stayed in observation beyond the mandated two midnights.

So why were the actuaries so wrong? The first reason is that many hospitals did not understand the rule. They kept patients for observation because the patients did not pass inpatient criteria, as determined by the use of commercial criteria sets, or because the patient was going home the next morning, so they thought admission was inappropriate. But the other important reason is that many patients stay beyond that second midnight without medical necessity and therefore cannot compliantly be admitted as inpatient. If a hospital does not do stress tests or MRIs on weekends, the patients needing those tests will stay beyond a second midnight, but it is a convenience to the hospital that such tests are not done on weekends. The specialist does not want to see the patient or read the test in the late afternoon, so they stay another day, not for medically necessary reasons but for physician convenience. The patient does not drive in the dark or can’t get a ride, so they stay another day for the patient’s own convenience. But most commonly it is an elderly patient with no medical necessity for hospital care, but with no family, or an uncooperative family. In these cases, there is no safe discharge plan so they stay several days, weeks, or months until arrangements can be made.

CMS has introduced the Medicare Outpatient Observation Notice (MOON) to notify patients receiving observation services that they are not inpatient. The MOON states that observation usually is less than 48 hours. But because many patients remain as observation beyond 48 hours without medical necessity, I have proposed that CMS develop and require the use of the Hospital Outpatient Time Ending Liability Notice, affectionately called the HOTEL Notice. This will formally notify patients that they will continue to receive care in the hospital but that they are staying as a convenience to themselves, the doctor, or the hospital, and that the hospital will not be expecting payment from Medicare or from the patient for their care for these additional hours or days. The hospital will be instructed to bill the hours as observation hours without medical necessity by using the GZ modifier, as they should be doing now, so that CMS can see how prevalent this is and can better forecast payment rates in the future. CMS may even want to consider an additional modifier to differentiate patient convenience from hospital convenience, since a hospital that does not do stress tests on weekends should not get any special consideration, but caring for a patient for a month to get guardianship and develop a safe discharge plan should be acknowledged.

Now, I suspect that CMS will look upon this as they look upon Dr. Meyerson’s excellent one-midnight proposal, but it can’t hurt to try. Thinking outside the MOON is often how problems are resolved.


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 he is a published author on the topic. He is a member of the Advisory Board of the American Case Management Association and a Fellow of the American College of Physicians.

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