Recovery Audit Contractor audits and appeals at three academic medical centers.

BACKGROUND: Outpatient (observation) and inpatient status determinations for hospitalized Medicare beneficiaries have generated increasing concern for hospitals and patients. Recovery Audit Contractor (RAC) activity alleging improper status, however, has received little attention, and there are conflicting federal and hospital reports of RAC activity and hospital appeals success. OBJECTIVE: To detail complex Medicare Part A RAC activity. DESIGN, SETTING AND PATIENTS: Retrospective descriptive study of complex Medicare Part A audits at 3 academic hospitals from 2010 to 2013. MEASUREMENTS: Complex Part A audits, outcome of audits, and hospital workforce required to manage this process. RESULTS: Of 101,862 inpatient Medicare encounters, RACs audited 8110 (8.0%) encounters, alleged overpayment in 31.3% (2536/8110), and hospitals disputed 91.0% (2309/2536). There was a nearly 3-fold increase in RAC overpayment determinations in 2 years, although the hospitals contested and won a larger percent of cases each year. One-third (645/1935, 33.3%) of settled claims were decided in the discussion period, which are favorable decisions for the hospitals not reported in federal appeals data. Almost half (951/1935, 49.1%) of settled contested cases were withdrawn by the hospitals and rebilled under Medicare Part B to avoid the lengthy (mean 555 [SD 255] days) appeals process. These original inpatient claims are considered improper payments recovered by the RAC. The hospitals also lost appeals (0.9%) by missing a filing deadline, yet there was no reciprocal case concession when the appeals process missed a deadline. No overpayment determinations contested the need for care delivered, rather that care should have been delivered under outpatient, not inpatient, status. The institutions employed an average 5.1 full-time staff in the audits process. CONCLUSIONS: These findings suggest a need for RAC reform, including improved transparency in data reporting.

Observation and inpatient status: clinical impact of the 2-midnight rule.

BACKGROUND: In response to growing concern over frequency and duration of observation encounters, the Centers for Medicare and Medicaid Services enacted a rules change on October 1, 2013, classifying most hospital encounters of <2 midnights as observation, and those ≥2 midnights as inpatient. However, limited data exist to predict the impact of the new rule. OBJECTIVE: To answer the following: (1) Will the rule reduce observation encounter frequency? (2) Are short-stay (<2 midnights) inpatient encounters often misclassified observation encounters? (3) Do 2 midnights separate distinct clinical populations, making this rule logical? (4) Do nonclinical factors such as time of day of admission impact classification under the rule? DESIGN, SETTING AND PATIENTS: Retrospective descriptive study of all observation and inpatient encounters initiated between January 1, 2012 and February 28, 2013 at a Midwestern academic medical center. MEASUREMENTS: Demographics, insurance type, and characteristics of hospitalization were abstracted for each encounter. RESULTS: Of 36,193 encounters, 4,769 (13.2%) were observation. Applying the new rules predicted a net loss of 14.9% inpatient stays; for Medicare only, a loss of 7.4%. Less than 2-midnight inpatient and observation stays were different, sharing only 1 of 5 top International Classification of Diseases, 9th Revision (ICD-9) codes, but for encounters classified as observation, 4 of 5 top ICD-9 codes were the same across the length of stay. Observation encounters starting before 8:00 am less commonly spanned 2 midnights (13.6%) than later encounters (31.2%). CONCLUSIONS: The 2-midnight rule adds new challenges to observation and inpatient policy. These findings suggest a need for rules modification.

Hospitalized but not admitted: characteristics of patients with "observation status" at an academic medical center.

IMPORTANCE: The Centers for Medicare & Medicaid Services (CMS) defines observation status for hospitalized patients as a "well-defined set of specific, clinically appropriate services," usually lasting less than 24 hours, and that in "only rare and exceptional cases" should last more than 48 hours. Although an increasing proportion of observation care occurs on hospital wards, studies of patients with observation status have focused on the efficiency of dedicated units. OBJECTIVE: To describe inpatient and observation care. DESIGN AND SETTING: Descriptive study of all inpatient and observation stays between July 1, 2010, and December 31, 2011, at the University of Wisconsin Hospital and Clinics, a 566-bed tertiary academic medical center. PARTICIPANTS: All patients with observation or inpatient stays during the study period. MAIN OUTCOMES AND MEASURES: Patient demographics, length of stay, difference between cost and reimbursement per stay, and percentage of patients discharged to skilled nursing facilities. RESULTS: Of 43,853 stays, 4578 (10.4%) were for observation, with 1141 distinct diagnosis codes. Mean observation length of stay was 33.3 hours, with 44.4% of stay durations less than 24 hours and 16.5% more than 48 hours. Observation care had a negative margin per stay (-$331); the inpatient margin per stay was positive (+$2163). Adult general medicine patients accounted for 2404 (52.5%) of all observation stays; 25.4% of the 9453 adult general medicine stays were for observation. The mean length of stay for general medicine observation patients was 41.1 hours, with 32.6% of stay durations less than 24 hours and 26.4% more than 48 hours. Compared with observation patients on other clinical services, adult general medicine had the highest percentage of patients older than 65 years (40.9%), highest percentage female patients (57.9%), highest percentage of patients discharged to skilled nursing facilities (11.6%), and the most negative margin per stay (-$1378). CONCLUSIONS AND RELEVANCE: In an academic medical center, observation status for hospitalized patients differed markedly from the CMS definition. Patients had a wide variety of diagnoses; lengths of stay were typically more than 24 hours and often more than 48 hours. The hospital lost money, primarily because reimbursement for general medicine patients was inadequate to cover the costs. It is uncertain what role, if any, observation status for hospitalized patients should have in the era of health care reform.