ACPA Response to CMS Request for Comment
Inpatient Prospective Payment System Proposed Rule, FY 2018
June 12, 2017
In the 2017 Inpatient Prospective Payment System (IPPS) proposed rule (CMS-1655-P) the Centers for Medicare and Medicaid Services (CMS) requested input on ideas that would make regulations less burdensome and more transparent. We appreciate this effort. Our “all inpatient” proposal is aligned with these goals.
We are proposing a change in Medicare hospital admission regulations that would eliminate outpatient observation and treat as inpatients all patients who require hospital level care.
The two-midnight rule, which was implemented on October 1, 2013, was supposed to create a “bright line” between inpatient and outpatient status. It has failed to do this, as evidenced by the high level of denials for one-midnight admissions in the MAC “probe and educate “program and the subsequent one-midnight reviews by the QIOs - despite hospitals having expending immense resources in their attempt to determine patient status accurately. The high levels of denials and recoupments with subsequent appeals have caused such a severe overload that the appeals system has experienced a massive backlog: Some 700,000 cases remain in the queue with a 500+ day wait for adjudication by administrative law judges that is supposed to be limited to 90 days by statute. A federal court has instructed CMS to clean up the mess.
The basic problem with the current approach to determining inpatient admission is that the decision to admit is based on a physician’s expectation of medically necessary length of stay and the physician’s documentation that backs up that expectation. This is a subjective decision – not one that physicians are comfortable making nor one they are used to documenting as expected.
Hospitals are paid under Part B for observation (because it is an outpatient service) and Part A for inpatient care. It is illogical that for the same diagnosis the reimbursement is much higher for inpatients than for those in observation even though CMS has made it clear that inpatients and observation patients may receive identical services.
Observation care is reimbursed at a flat rate under comprehensive ambulatory payment classification (C-APC) 8011 at a rate of approximately $2,275 regardless of the diagnosis, length of stay, or intensity of services provided. Thus, for example, a hospital would receive this amount for patients with syncope, transient ischemic attack (TIA), and chronic obstructive pulmonary disease (COPD) when they are placed in observation, but if these same patients were admitted, the hospital would receive approximately $4,785 under DRG 312 for patients with syncope, $4,260 for DRG 69 for TIA patients, and $6,110 for DRGs 190-192 for those with COPD exacerbation. CMS reported that in 2016, there were 137,313 one-day stays with an average payment of $5,550, i.e., $3,275 more per case than if these patients were under observation.
Our proposed “all inpatient” rule would classify as inpatients (paid by Part A) all Medicare patients who require care in a hospital bed following an ED evaluation or who require extended hospitalization for complications following outpatient surgery, thus removing the need for physicians to estimate and document the basis for an expected length of stay that includes two midnights.
Short inpatient stays would replace outpatient observation. This would eliminate much of the confusion around when admission is warranted and leave little room for gaming because the standard for admission would be precisely the same as the current standard for observation, i.e., the need for short term care in a hospital. The payment would be based on principal diagnosis, so the hospital would be at risk for extend length of stay unless the patient’s condition warranted additional care based on higher acuity, thus qualifying for greater payment based on a higher-level DRG.
CMS publishes a list of the top 10 diagnoses associated with one-night stays. Our proposal could be implemented in a revenue neutral manner by setting the DRG payment for those diagnoses generally associated with one-night stays equal to the current rate paid for observation.
Since all hospital services provided to patients receiving observation care are now bundled into a comprehensive APC, transition to a bundled DRG based on principal diagnosis would be relatively seamless.
Beneficiaries who are admitted pay the Part A deductible ($1,316 in 2017) while those in observation are responsible for the Part B annual deductible ($183) plus a copayment of 20% of the observation payment ($455) for each stay. Since short inpatient stays would replace observation, out of concern for the fair treatment of beneficiaries we further propose that under the “all inpatient” approach, beneficiaries should be held harmless from the higher Part A deductible by creating a Part A deductible equal to the copayment for observation for those diagnoses CMS has determined to be responsible for frequent one-night inpatient admissions.
We believe that our “all inpatient” rule will benefit providers, beneficiaries, and the Medicare Trust Funds. By simplifying the process, there will be a reduced need for audits, fewer denials, and a drastic reduction in appeals. Hospitals could redirect resources from administrative oversight of billing to providing patient care. It would be a win for all.
Thank you for considering our proposal.
ACPA Board of Directors