MedPAC considers eliminating observation stays

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People increasingly are spending days in the hospital as observation patients.
People increasingly are spending days in the hospital as observation patients.

Observation status is not working as a way of classifying hospital patients and should be eliminated, members of the Medicare Payment Advisory Commission proposed at a Nov. 6 meeting.

The increasing prevalence of hospital observation stays has been of sharp concern to post-acute providers. Under current rules, Medicare only will cover skilled nursing services after a beneficiary spends three days as a hospital inpatient, and time spent in observation is not counted toward this threshold. About 11,000 hospital stays ended with a non-covered discharge to a skilled nursing facility in 2012, staffers told MedPAC members during a presentation last Thursday.

Eliminating observation stays would resolve such systemic problems, said commission member Craig Samitt, M.D., MBA, chief executive officer of medical group HealthCare Partners. The idea also was put forward by Cori Uccello of the American Academy of Actuaries, and it won limited support from outgoing chairman Glenn Hackbarth, Bloomberg BNA reported.

However, other commissioners said making observation stays into inpatient stays could wreak havoc with billing procedures and increase costs for beneficiaries, according to BNA.

Other potential remedies for the surge in observation stays were suggested. One was to have Recovery Audit Contractors focus their oversight more strictly on hospitals that have a high percentage of one-day inpatient stays. RACs have been very aggressive in challenging inpatient determinations, which could be leading hospitals to put more people in the observation category.

Changing the three-day requirement for skilled nursing coverage also came up, BNA reported. In the past, Hackbarth has come out in support of this, calling the current rule “archaic.”

Eliminating the three-day rule could increase Medicare spending by widening post-acute coverage. To offset this spending, Medicare might have to reduce SNF payments, the MedPAC staffers noted. Offsets also could come from penalties on facilities that inappropriately re-certify long-term residents.

A full transcript of the meeting is forthcoming.