Court green-lights charges that a healthcare network underused observation stays

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A whistleblower can continue to pursue charges that a Nevada healthcare network routinely admitted people as hospital inpatients when they should have been placed in observation status, a federal appeals court recently ruled.

Long-term care providers have been watching observation stay legal cases closely. Medicare beneficiaries only qualify for post-acute skilled care if they first spend three full days as a hospital inpatient, and observation stays do not count toward this threshold.

Many hospitals have been increasing the use of observation status. Medicare auditors often challenge decisions to admit people as inpatients, hospitals have said, and the auditor activity has contributed to a huge backlog of appeals. Regulators are eager to control inpatient stays largely because they are reimbursed at a higher level than outpatient stays. In this case, the whistleblower charges that Reno-based Renown Health inappropriately classified people as inpatients to get the higher reimbursements.

Renown asked the court to dismiss the case under the public disclosure bar, which prohibits whistleblower charges based on publicly available information. The judge ruled that the relator, Cecilia Guardiola, had independent knowledge through her former roles as director of clinical documentation and director of compliance. She resigned from Renown in 2012, according to court documents.

Renown also shared the results of Recovery Audit Contractor investigations with doctors, but this did not amount to a public disclosure because the physicians were not “outsiders,” Judge Larry R. Hicks ruled in his Oct. 13 decision.

Guardiola's complaint includes nearly 580 alleged instances of people admitted as inpatients but discharged on the same day, and nearly 70 instances of inpatients discharged within 24 hours.

Renown is a not-for-profit network that includes three acute care hospitals and a skilled nursing facility, among other facilities, according to its website.