The federal government may be overpaying hospitals an estimated $5 billion as a result of the 18-month moratorium on enforcing a controversial rule that tells hospitals when patients should be admitted, an independent Medicare auditing company told a congressional panel Tuesday.
Last September, Medicare officials announced that patients whose doctors expect them to stay in the hospital through two midnights or longer should be admitted, while those expected to stay for less time should be kept for observation.
But then Medicare announced a moratorium on penalizing hospitals that violate the rules. Congress has extended the moratorium through March 2015.
Dr. Ellen Evans, medical director for the auditing company, Health Data Insights, told the panel that postponing enforcement means that hospital claims for short patient visits during this time period 鈥渨ill never be subject to review.鈥�
The American Hospital Association later claimed that the $5 billion figure was inflated.
The hearing before the House Committee on Ways and Means Subcommittee on Health was the first congressional inquiry examining the consequences of the two-midnight rule.
The rule followed strong criticism from seniors and hospitals that Medicare regulations were leading to increasing numbers of seniors being classified as observation patients. Many seniors in a regular hospital room don鈥檛 know they鈥檙e in observation care because hospitals aren鈥檛 required to tell them.
Yet, the distinction between observation care and being admitted is important for seniors. If they have not been admitted to the hospital for at least three consecutive days, they are not eligible for follow-up nursing home coverage and may have higher out-of-pocket expenses while in the hospital.
Hospitals, meanwhile, complained that the two-midnight rule was confusing since observation and admitted patients often receive similar treatment for similar health problems. Yet hospitals are paid more by Medicare for admitted patients. If Medicare auditors later decide a hospital should have billed Medicare for observation care, not for an admission, the hospital can end up with no payment at all.
鈥淗ospitals are not doing anything wrong,鈥� said Rep. Kevin Brady, R-Texas, the subcommittee鈥檚 chairman. 鈥淣o matter if a service is inpatient or outpatient, a hospital still uses the same equipment and the same medical staff to deliver care.鈥�
Sean Cavanaugh, a newly appointed deputy administrator at the Centers for Medicare & Medicaid Services, defended the two-midnight rule, telling the committee that the agency intended to balance several principles: the need for clear admissions criteria that 鈥渁re consistent with sound clinical practice, reflect the beneficiaries鈥� medical needs, respect a physician鈥檚 judgment, and are consistent with the efficient delivery of care to protect鈥� Medicare鈥檚 fiscal health.
Cavanaugh said that the agency is seeking public input on how to define short hospital stays and how to design a more appropriate payment.
As the federal government continues to grapple with the problem, the number of Medicare observation patients has shot up 88 percent over the past six years, to 1.8 million in 2012, according to the Medicare Payment Advisory Commission, an independent agency.
Asked by Rep. Bill Pascrell, D-N.J.,聽to explain the sharp increase, Cavanaugh said he has heard anecdotal reports from hospital associations and individual hospitals that patients have been placed in observation, as a precaution, to minimize the hospitals鈥� risk of losing their Medicare payments if they are audited.
Pascrell also asked Cavanaugh if anything can be done to remove聽 Medicare鈥檚 three-day hospitalization requirement for nursing home coverage.聽 Cavanaugh said the Affordable Care Act allows the agency to waive it, which it has done in some experimental payment programs. 鈥淲e will evaluate the results closely,鈥� Cavanaugh said.
Instead of reducing the number of observation patients as Medicare officials hoped, the rule has had the opposite effect, Amy Deutschendorf, senior director of clinical resource management at the Johns Hopkins Medical System in Baltimore, told the committee.
鈥淪ince Oct. 1, 2013, we have seen a three-fold increase in the number of patients our physicians cautiously predicted would only stay only one midnight, and thus began as outpatients, but later had to admit for longer stays, demonstrating the complexity of anticipating length of stay based on a patient鈥檚 initial presenting symptoms,鈥� she said.
And if patients improve after receiving extensive treatment for less than two midnights, she said they are considered observation patients, and hospitals are penalized for doing a good job by earning a lower payment from Medicare than for admitted patients.
鈥淲e call it the Cinderella rule,鈥� Deutschendorf said after the hearing. 鈥淚t鈥檚 confusing to hospitals as well as patients, who haven鈥檛 been informed that their Medicare Part A hospital benefit doesn鈥檛 cover stays less than two-midnights.鈥�
Contact Susan Jaffe at Jaffe.KHN@gmail.com