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 Observation Stays Bill Reintroduced in Congress, Seeks to Protect Medicare Beneficiaries

Bipartisan legislation reintroduced in the House and Senate on March 12 would protect Medicare beneficiaries’ access to the program’s skilled nursing facility (SNF) benefit by reclassifying an increasingly popular practice by acute-care hospitals to place patients in “observation” status, an outpatient designation, rather than admitting them as inpatients.
The Improving Access to Medicare Coverage Act of 2019 (H.R. 1682/S. 753) was reintroduced by Reps. Joe Courtney (D-Conn.) and Glenn Thompson (R-Pa.) on the House side and Sens. Sherrod Brown (D-Ohio), Susan Collins (R-Maine), Sheldon Whitehouse (D-R.I.), and Shelley Moore Capito (R-West Va.) in the Senate.
The legislation has garnered support from dozens of stakeholders including the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), AARP, The National Consumer Voice for Quality Long-Term Care, and Special Needs Alliance.
In commending the actions by the various lawmakers, AHCA/NCAL President and Chief Executive Officer Mark Parkinson noted the need to change the law in order to benefit Medicare beneficiaries.
“This bipartisan bill will help fix an outdated policy that continues to leave millions of Medicare beneficiaries surprised by thousands of dollars in medical bills and hanging with uncertainty regarding their access to the Medicare coverage they deserve,” he said. “The members of Congress that reintroduced this important legislation are advocates for our nation’s seniors and individuals who need skilled nursing care. We applaud their efforts and support.”
The stakeholder coalition, of which AHCA/NCAL is a member of, backed the legislation and said under Medicare law, patients must have an inpatient stay in a short-term acute care hospital spanning at least three consecutive days (not counting the day of discharge) in order for Medicare to pay for a subsequent stay in a SNF.
“However, acute care hospitals are increasingly identifying patients as in ‘observation,’ an outpatient designation, rather than admitting them as inpatients,” a coalition fact sheet said.
This in turn means that outpatients can stay for multiple days and nights in hospital beds and receive medical and nursing care, diagnostic tests, treatments, medications, and food, just as inpatients do.
“However, although the care received by patients in observation status can often be similar to the medically necessary care received by inpatients, outpatients who need follow-up care do not qualify for Medicare coverage in a SNF,” the coalition said.
Because of this practice, the Medicare beneficiary has to pay for the SNF stay, placing an unfair burden on the beneficiary, the group added.
To correct the problem, the new legislation would apply the observation status to the Medicare benefit, a “common-sense policy that does not affect hospital care but does protect the ability of beneficiaries to receive needed post-acute nursing home care,” the coalition said.
To bolster its claims on how hospitals are using observation status designations, the group cited a 2013 report by the Department of Health and Human Services Office of Inspector General (OIG) that found that in 2012, beneficiaries had 617,702 hospital stays that lasted at least three days, but that did not include three inpatient days.
“The pattern continued. In December 2016, the Inspector General reported that 748,337 long hospital stays were called outpatient, including 633,148 outpatient stays of three or more days, in Fiscal Year [FY] 2014,” the coalition said. “Between FYs 2013 and 2014, outpatient stays increased by 8.1 percent, despite implementation of the two-midnight rule that was expected to decrease outpatient stays.”
Per the two-midnight rule, in October 2013, the Centers for Medicare & Medicaid Services (CMS) adopted the rule in order to establish time-based criteria for physicians to use when deciding to admit a patient as an inpatient or keep them under outpatient observation.
The rule states that for patients expected to require hospital services for at least two midnights, inpatient admission will be presumed appropriate for payment. Likewise, for patients expected not to require hospital services for at least two midnights, outpatient observation is presumed appropriate.
The rule was intended to give admitting physicians additional assurance that their decision to admit would not be questioned by auditors, thereby reducing the incidence of long outpatient stays. CMS intended the two-midnight rule to decrease the number of long outpatient stays, and decrease the number of short inpatient admissions.
But in the December 2016 report, the OIG discovered that since implementation of the two-midnight rule, total outpatient stays have increased and total inpatient stays have decreased, which is a flip-flop of agency expectations. The coalition fact sheet notes that it is clear that while CMS intended to fix the problem through implementation of the two-midnight rule, it has inadvertently worsened the situation for thousands of beneficiaries who are unable to access needed post-acute care.
The OIG report recommends that CMS analyze the potential impacts of counting time spent as an outpatient toward meeting the SNF three-day requirement so that beneficiaries receiving similar hospital care have similar access to post-acute care services.
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