News to Note – July 2026

  • An advisory opinion from the Office of the Inspector General (OIG) may soon lead to a difficult situation involving what happens after a non-Food and Drug Administration (FDA) screening test indicates possibility of cancer. 
    • Screening for colon cancer now includes two tests that use a sample of blood to detect tumor DNA. Because they are FDA approved, if the test is abnormal, insurers including Medicare will cover a colonoscopy as a diagnostic test. 
    • The latest company to release such a test with FDA approval is proposing to use that same blood sample to look for DNA markers for other cancers, including bladder, breast, esophageal, gastric, liver, lung, ovarian, pancreatic, and prostate.
    • However, those tests aren’t FDA approved or approved by the US Preventive Service Task Force as a screening test, and there’s no data on their accuracy. So, what to do with an abnormal result? If it indicates the patient may have pancreatic cancer, the patient would need either a CT scan or MRI as further work-up. That said, without a diagnosis of pancreatic cancer, a palpable mass, or symptoms, no insurer is going to pay for imaging. Who will be tasked with informing the patient of this financial responsibility? 
  • The Centers for Medicare and Medicaid Services (CMS) recently issued an Interim Final Rule with Comment (CMS-2454-IFC) implementing the Medicaid Community Engagement Requirement established under Public Law 119-21, referred to by CMS as the Working Families Tax Cut (WFTC) legislation. 
    • Beginning no later than Jan. 1, 2027, non-pregnant adults between the ages of 19 and 64 who are not entitled to Medicare and receive coverage through Medicaid expansion populations or certain Section 1115 demonstrations will be required to complete at least 80 hours per month of qualifying activities—including employment, education, job training, or community service— as a condition of Medicaid eligibility.
    • In addition to qualifying activities, beneficiaries may demonstrate compliance through earnings of at least 80 times the federal minimum wage, equivalent to approximately $580 per month in 2026. 
    • Congress excluded several populations from the requirement, including pregnant and postpartum individuals, indigenous peoples, certain caregivers, individuals already satisfying the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF) requirements, and persons considered medically frail. States may also grant temporary hardship exceptions for individuals receiving inpatient hospital services, traveling for specialized medical care, residing in areas experiencing nationally declared disasters, or living in counties with high unemployment.
    • The Interim Final Rule requires states to use all available reliable information, including adjudicated claims and encounter data from the previous 12 months, before requesting additional information from beneficiaries. States must verify not only that a diagnosis exists, but also that the condition significantly impairs the individual’s ability to comply with the community engagement requirement. Beginning Jan. 1, 2028, self-attestation for medical frailty may generally be used only once, when claims data are unavailable. Subsequent determinations may require additional documentation. This distinction is critical.
      • According to the ruling, possessing a diagnosis does not automatically establish medical frailty. The rule requires evidence that the condition meaningfully limits the person’s ability to meet the requirement. 
      • Physicians and other clinicians may increasingly be asked to certify the functional consequences associated with conditions such as cancer, chronic pain, depression, substance use disorders, or cognitive impairment. This would likely be similar to disability determinations and Family and Medical Leave Act (FMLA) certifications, wherein providers may find themselves completing forms, supplying medical records, and responding to requests from state agencies.
      • Providers may be asked to certify medical frailty or functional limitations, verify temporary inability to work following hospitalization, respond to state requests for information, and/or participate in appeals processes when eligibility is denied. These responsibilities are unlikely to generate reimbursement and may disproportionately affect safety-net hospitals, rural providers, and organizations serving large Medicaid populations.
    • Although CMS has committed approximately $200 million in grants and announced more than $600 million in private-sector technology support to assist implementation, this is going to be a significant lift to operationalize. Perhaps the greatest concern associated with work requirements is not whether beneficiaries are employed, but whether otherwise eligible individuals may lose coverage because of administrative complexity.
      • Individuals with behavioral health conditions, unstable housing, low health literacy, transportation challenges, or limited access to technology may encounter difficulties complying with complex documentation requirements, even when they qualify for exemptions.
      • Coverage interruptions may result in delayed care, medication nonadherence, increased emergency department utilization, avoidable hospitalizations, and rising rates of uncompensated care for providers.
  • Many hospitals’ budgets—which include Inpatient volume and revenue—are falling below projections. Analysis often reveals that this is primarily due to aggressive auditing and denials of Inpatient hospitalizations by Medicare Advantage (MA) plans. Your hospital might have a great utilization review program with an initial review by a nurse using the plan’s preferred commercial criteria, followed by secondary review by a physician advisor for Medicare and MA cases that do not pass inpatient criteria to determine whether the Two-Midnight Rule was met. But even then, MA plans may deny a significant number of Inpatient hospitalizations, usually after discharge because most inpatient stays last only two or three days. Those that are not overturned through peer-to-peer or formal appeal may then be rebilled, as with Medicare fee-for-service, leaving the hospital with only minimal payment months after the care was rendered. Should hospitals be more conservative with MA patients and, unless it’s a slam dunk two-midnight case, place them in Outpatient status with Observation services? 
    • On one hand, compliance officers say, “always do the right thing- follow the Two-Midnight Rule and the money falls where it does.” On the other hand, finance says, “we have bills to pay; let’s get paid fast – make a bit more patients Observation and avoid all that added effort and delay.” 
    • First, get the numbers. Many assume that Inpatient care pays more than Outpatient care with Observation, but what is in the contracts? If the difference is small, getting a little less payment sooner may be preferable to fighting for months to try to get the full amount. Perhaps Observation services are paid per hour, and a long observation stay pays the same as or more than an Inpatient hospitalization. Also, determine whether denied claims can be rebilled for Observation hours. If you can rebill for observation even without an order, that changes the calculation. 
    • Next, look at each payer separately. The decision should be different for an MA plan that never seems to approve Inpatient admissions compared to one that frequently has denials overturned. Adjust your approach to match payer behavior.
    • Finally, let someone else make the final decision. Present the information to your executives and let them guide you. The balance between following the rules compliantly and fighting until the end must be weighed against the cost of those fights and the need to maintain enough cash flow to keep the hospital operating.
  • It appears that Congress isn’t happy with CMS’ program to pay AI companies to use their tools to review prior authorizations for a select list of services and has added an amendment to the budget bill that would eliminate all funding for the program. To quote a letter from members of Congress to the House Appropriations Committee: “It is also troubling that WISeR contractors, those actually doing the prior authorization, are compensated via a percentage of the dollar value of the services they deny. This payment mechanism clearly creates a perverse incentive to deny care, putting traditional Medicare beneficiaries at greater risk of not receiving needed care. Prior authorization has long been abused. It is bad for patients and providers.”
  • Last week, the OIG released two reports focused on prior authorization denials by MA plans for care at skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), and long-term acute care hospitals (LTACHs). Unsurprisingly, MA plans denied many SNF requests. 
    • In June 2024, 12% of all requests were denied. If the denial was appealed, it was overturned 95% of the time, including a 99.7% overturn rate for UHC’s 1,025 SNF denials. 
    • Furthermore, 65% of LTACH requests and 54% of IRF requests were denied. Appeals were also commonly overturned, with 36% of LTACH denials overturned and 43% of IRF denials overturned. 
    • For all three types of denials, it took an average of five days for an appeal to be reviewed, with CMS noting that, “Unnecessary or avoidable days spent in a hospital can mean a significant financial cost to hospitals that is not separately reimbursable. Delayed discharges can also negatively affect patients’ psychological and social well-being and contribute to feelings of uncertainty and stress about their recovery and prognosis.”
  • Another report involved Lehigh Valley Hospital in Pennsylvania, with the OIG zeroing-in on short Inpatient hospitalizations. They found an error rate of 42% and, while it would be extremely helpful for the OIG to give us worthwhile information on the denied cases so we can better understand their interpretation of the Two-Midnight Rule, they did not. 
    • The OIG gave details of one denied Inpatient hospitalization involving a patient hospitalized for left hip and lower back pain with impaired ambulation. The enrollee was treated and evaluated by a physician, then was discharged after assessment by an occupational therapist. While we have no other case details, it seems like this was a weak Inpatient hospitalization.
    • However, the cases that Lehigh Valley presented in its rebuttal letter (found as an official appendix attached to the back of the OIG’s full report) as Inpatient hospitalizations that should have been approved seem to meet the case-by-case exception. This again calls into question the ability of the OIG contractor to properly interpret the rule and apply the exception. 
    • Physician advisors and other utilization review specialists should continue to advocate for physicians to include an explicit statement that the patient’s high risk, severity of illness, or complexity warrants Inpatient hospitalization, rather than simply listing the risk or severity factors.
  • Yet another OIG audit was released last month, this time involving Jefferson Regional Medical Center in Arkansas. The example case the OIG presented suggests that their auditor has some serious quality issues.
    • The OIG describes the case by stating, “One enrollee, who had been taking medication for hypertension, presented to the Hospital with acute high blood pressure. The enrollee’s blood pressure responded to oral medications administered in the Hospital. Cardiac enzymes were negative, and the electrocardiogram was unremarkable. The enrollee was admitted for medication adjustment, and the admitting physician expected the enrollee could be discharged within 24 to 48 hours.” However, the hospital provided additional details. The patient not only had elevated blood pressure but also had a headache and congested cough. They were found to have an acute exacerbation of heart failure in addition to the elevated blood pressure and were treated in the intensive care unit with careful monitoring “to lower blood pressure in a controlled fashion without compromising cerebral, coronary or renal perfusion.” Although we do not have the full clinical picture, that certainly does not sound like a patient admitted simply for medication adjustment.
    • Furthermore, the OIG’s auditor clearly does not realize that a patient who, at the time of Inpatient admission, has an expected hospital stay of 48 hours would necessarily span two midnights and therefore warrant Inpatient admission; it is the Two-Midnight Rule, not the 48-Hour Rule. 
    • Also, the OIG noted that for these cases, the hospital did not apply the correct discharge status code. This code indicates whether the patient was discharged home, to a SNF, to another facility, died, or left against medical advice. For discharges to a SNF or transfers to another hospital, depending on the length of stay, there may be an adjustment to the hospital’s payment. The OIG reported that due to those three errors, the hospital was overpaid a total of $78 ($26 per hospitalization). However, this calculation makes no sense, as there is no DRG for which the per diem rate under a transfer DRG adjustment would be $26. The math just does not add up. Yet, that is what the report states, and those amounts are added to the total overpayment, contributing to the extrapolated overpayment. 
  • As a reminder, the Program for Evaluation of Payment Patterns Electronic Report (PEPPER) contains many areas relevant to clinical documentation integrity (CDI) teams: How your facility compares to others in the percentage of medical or surgical admissions that have a CC or MCC; What percentage of strokes are billed to the highest specificity DRGs; The number of sepsis patients compared to other facilities in your area.
    • Of the 24 measures on the PEPPER, eight are directly related to CDI. Although the readmission measures are not directly under the purview of CDI, a hospital with a high readmission rate absolutely needs to ensure that all codable diagnoses are captured because the CMS Hospital Readmission Reduction Program penalty calculations are all risk-adjusted. That means that a higher readmission rate reported in the PEPPER may not result in a penalty if the risk of readmission is properly captured in the documentation.
    • Additionally, there are two new PEPPER updates to be aware of:
      • Both critical access hospitals and hospice facilities now have access to their fiscal year 2025 PEPPERs. SNFs and hospice facilities only get their data once a year. 
      • The Quarter 1 2026 PEPPERs for acute care hospitals, which include claims for services in October to December 2025, were just released. Get ready to present the data to your hospital’s Utilization Review Committee and make sure to include your CDI leadership!
  • Fraud involving hospice services has recently been making news.
    • A Department of Justice (DOJ) $6.5 billion fraud takedown included a funeral home employee who sold information about recently deceased people to a fraudster, who then submitted claims for hospice services that were never provided. 
    • The OIG also released an audit of hospice claims finding that Medicare paid more than $255 million for patients deemed ineligible for hospice. The audit focused on patients who had not had an Inpatient hospitalization or Emergency Department visit within the 18 months prior to starting hospice, an unusual audit population given that patients can develop life-limiting conditions without ever requiring hospitalization. 
      • The OIG reports that its auditor reviewed patients’ medical records to determine whether they had a terminal illness, but the report does not provide a single example.
      • Also, over half of the improper claims were actually due to deficient paperwork and not ineligibility for hospice care.
      • Doctors are not clairvoyant. We cannot look at a patient and know the course of their cancer or other disease. Data from the recent hospice PEPPER supports this uncertainty: nationally, about 15 to 20% of patients are discharged from hospice because they are no longer considered terminally ill.