Federal watchdog agency joins chorus for observation stay reform, reports on scope of the problem

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 Federal watchdog agency joins chorus for observation stay reform, reports on scope of the problem
Federal watchdog agency joins chorus for observation stay reform, reports on scope of the problem

Observation status prevented hundreds of thousands of people from qualifying for Medicare coverage of skilled nursing services last year, showing the pressing need for reform, according to a government report released yesterday.

An analysis of 2012 Medicare claims revealed more than 600,000 hospital stays that lasted at least three nights, but did not include at least three inpatient nights, according to the report from the Health and Human Services Office of the Inspector General. These stays included patients admitted as outpatients but then moved to inpatient status, as well as patients coded under observation or other outpatient status.

Observation stays do not count toward the three-day minimum inpatient stay needed to qualify for subsequent SNF services.

Long-term care provider groups cheered the report, which said the Centers for Medicare & Medicaid Services should make access to skilled nursing care independent of the decisions of hospital providers. Hospitals assign observation status inconsistently, the report found.

“The OIG report is just one more argument in favor of changing these arcane laws and speeding care to thousands of seniors trapped in this no man's land of health care,” stated Mark Parkinson, president and CEO of the American Health Care Association/National Center for Assisted Living, the nation's largest provider advocacy group.

However, the route to resolving the observation stay crisis is not clear. CMS proposed a rule change in April that would automatically qualify hospital stays of two nights or longer as inpatient stays. However, this rule might not decrease observation stays, in part because time spent in an outpatient area of the hospital would not count toward this “two-night presumption,” the OIG report cautions.

Another option is to allow nights spent in the hospital as an outpatient to count toward the three-night minimum needed for SNF coverage, but CMS may need “additional statutory authority” to do this, according to the report. Legislation has been introduced that would make this change.

Providers' positive response to the report may be dampened by OIG's finding that Medicare inappropriately reimbursed skilled operators $255 million last year, for beneficiaries who had not met the three-night requirement. The OIG will send CMS a separate memorandum naming the facilities involved, so that the agency can “look into recoupment,” the report states.

Click here to access the complete report.

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