News to Note – October 2025

  • In August, Aetna announced a new “Level of Severity Inpatient Payment Policy” involving paying for Inpatient hospitalizations at the observation rate if MCG inpatient criteria are not met.  Many have taken action to stop the implementation of this policy, including state and federal organizations. The effective date is November 15th so there’s still time for you to add your hospital’s voice in demanding Aetna rescind the policy.
  • A case manager recently questioned the process their hospital put into place involving noticed of non-coverage and patient financial liability.  Staff was instructed to give the form to all patients remaining hospitalized once determined to be medically stable for discharge which might seem reasonable, but there are a few problems to be aware of and investigate if your hospital has a similar process:
    • Medicare has its own forms for beneficiaries, and a hospital-created notice is not allowed.
    • Shifting liability for charges to the patient is not uniformly allowed across payors, including Medicare and Medicaid.
    • While providing a notice like this would be warranted in the case of a patient who doesn’t want to go home because they’d be more comfortable staying the weekend, not so for a patient who remains hospitalized because cardiac stress tests aren’t performed on weekends.  
  • Last month, the Centers for Medicare and Medicaid Services (CMS) added a new prior authorization program for ambulatory surgery centers (ASCs).  Only 10 states are involved: Arizona, California, Florida, Georgia, Maryland, New York, Ohio, Pennsylvania, Tennessee, and Texas.  Procedures involved include: blepharoplasty, Botulinum toxin injections, panniculectomy, and vein ablation procedures.  This program goes into effect December 15 so make sure your ASCs are prepared.
  • A memorandum released by CMS providing survey guidelines about Medicare Outpatient Observation Notice (MOON) delivery unfortunately utilizes misleading terminology.  It states, “This guidance describes the requirements for providing notification to all Medicare beneficiaries that they are outpatients when receiving observation services.”  This isn’t correct because the notice isn’t mandated for “all.”  
    • The Notice of Observation Treatment and Implementation for Care Eligibility (NOTICE) Act only requires delivery of the MOON for Medicare and Medicare Advantage (MA) patients who receive 24 or more hours of Observation services.  Yes, it can be delivered to every patient in Outpatient status with Observation services, but it’s not required until Observation services have been provided for 24 hours. 
    • A compliance officer may read the new CMS memo, review hospital policy, and determine there is a compliance issue.  Changing policy requiring MOON delivery to every patient in Outpatient status with Observation services will needlessly increase the workload for those delivering patient notices.
    • Don’t let CMS’ poor choice of words result in a change at your facility. Review the actual regulations which still clearly state the MOON is required only if the patient receives at least 24 hours of observation services.  
  • Can a patient in Inpatient status, waiting transfer to a skilled nursing facility (SNF), be discharged then re-registered as an Outpatient? 
    • There is a Z code – Z75.1 – which indicates a patient remains hospitalized waiting for admission to an adequate care facility elsewhere. 
    • Additionally, inpatient days for Medicare patients waiting for SNF transfer can be certified as medically necessary days and billed to Medicare. 
    • Further direction from CMS includes patients can’t be discharged from Inpatient status and then registered as Outpatient while waiting for SNF transfer.  Patients are discharged when they physically discharge from the hospital, die, or transfer to another facility.  One exception involves hospitals with swing beds in rural or critical access hospitals.  In this case, a patient can be discharged and re-registered to a swing bed without leaving their hospital room.  But, that’s the only caveat.  
    • We often refer to nursing homes as SNFs but that’s not technically correct.  Most nursing facilities provide varying levels of care.  There are skilled beds that are approved to provide skilled care, paid for under Medicare Part A, MA plans, or other insurance.  They have beds for people who consider the facility their home, sometimes called “long-term care”.  These patients are still eligible to get services covered under Medicare Part B or other insurance but their room and board is not paid for by Medicare or their other insurance.  As such, a nursing facility can be both a SNF and a long-term care facility. 
  • Back to the original question about the patient awaiting transfer to a SNF.  Consider if the patient truly needs the SNF or does the need involve long-term custodial care?
    • Many patients who discharge from hospitals have no skilled needs but can no longer manage at home so intrepid case managers work very hard to find placement.  While the search goes on, if the patient’s need for hospital care ends, they remain as Inpatient but those days cannot be certified as Inpatient days awaiting skilled care in a nursing facility. 
    • How do we differentiate between these two options?  Z75.1 applies to both circumstances so while it should be used as a diagnosis, it won’t separate necessary from custodial days. What will differentiate them is the proper use of occurrence span codes (OSCs) on the claim. OSC 74 indicates dates during an Inpatient hospitalization where the care provided while waiting for transfer for long-term care whereas OSC 75 is used for days waiting for transfer to a facility for skilled care. 
    • Be sure your documentation uses the right terminology to indicate the type of post-acute care patients need so the claim is coded correctly for all those cost, quality and efficiency measures that come from that one form.
  • Everyone has heard from finance that the hospital needs to capture a higher case mix index (CMI).  We want to capture all applicable comorbidities and complications so the hospitalization is assigned to the proper diagnosis-related group (DRG) and the DRG weight is as high as compliantly possible.  As a result, the CMI will accurately reflect the patient’s overall acuity.  But at the same time, those folks in finance also want you to identify as many Inpatient hospitalizations as possible. Patients hospitalized as Outpatient with or without Observation services almost seem to not count.
    • While the clinical documentation integrity (CDI) team works with doctors on their documentation of complications or comorbidities (CCs) and major complications or comorbidities (MCCs), utilization review teams double down on their efforts, reviewing Outpatients with Observation services to change them to Inpatient as soon as it’s evident the they will require a second midnight of hospitalization. You work hard with your doctors, getting them to document that medical necessity for ongoing hospital care.  Instead of sitting at a computer reviewing cases and arguing with payer medical directors, physician advisors round on the units, talking to doctors, educating on the rules and documentation best practices.  They also participate in multi-disciplinary rounds ensuring medical necessity, helping with problem discharges, and providing moral support for the case and utilization managers. 
    • As a result of all this hard work, your hospital’s Observation rate declines and Inpatient rate increases.  Your finance team should be delighted!  But, they aren’t.  Why?  Because your CMI dropped.  Why?  Because all those Observation to Inpatient conversions involved medical, not surgical patients who weren’t that ill or complex.  This means they end up with lower weighted DRGs, usually without a CC or MCC.  For example, COPD without a CC or MCC has a weight of 0.65 which is really low.  As a result, these low case mix encounters drive down the hospital’s average CMI.
    • This situation should be beneficial because each converted patient could represent a difference in payment to the hospital from $2,648 for Observation services to a DRG payment of $6,000 or $8,000.  What it really reflects is that CMI is not a good key performance measure. If your finance team wants a higher CMI, they should consider hiring more surgeons or starting a transplant program so the hospital can get new patients with Inpatient hospitalizations involving higher weights.  As an example, a patient receiving a heart transplant with an MCC – and you should be able to find an MCC on that patient type – has a weight of 28.  
    • As such, if you are asked to work harder at raising the CMI, ask your finance team if they prefer higher CMI or more revenue.