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  • Washington Highlights

    Senate Special Aging Committee Hearing On Observation Status

    Len Marquez, Senior Director, Government Relations

    The Senate Special Committee on Aging May 20 held a hearing titled, “Challenging the Status Quo: Solutions to the Hospital Observation Stay Crisis,” focused on the Centers for Medicare and Medicaid Services’ (CMS) “two-midnight” rule, which determines how short hospital inpatient stays are paid under Medicare. The committee held a similar hearing in August 2014.

    CMS Administrator and Director Sean Cavanaugh and Medicare Payment Advisory Commission (MedPAC) Executive Director Mark Miller, Ph.D., testified on the first panel.

    In his testimony, Cavanaugh called the determination of inpatient admission “a complex medical judgment” and stated that CMS seeks to balance principles that are “clear, are consistent with sound clinical practice, reflect the beneficiaries’ medical needs, respect a physician’s judgment, and are consistent with the efficient delivery of care to protect the Trust Funds.”

    Cavanaugh noted that CMS is currently reviewing stakeholder feedback, as well as recent MedPAC recommendations, related to the two-midnight rule, and expects to include further dialogue in the upcoming 2016 Hospital Outpatient Prospective Payment System proposed rule.

    Dr. Miller echoed similar themes and added, “Hospitals have noted concerns about the two-midnight rule because it conflicts with existing admission criteria deferential to physician judgment, increases the burden associated with physician documentation of inpatient admissions, and may result in revenue gains or losses caused by stays shifting between inpatient and outpatient status.”

    Chair Susan Collins (R-Maine) encouraged CMS and MedPAC to continue efforts to clarify elements of the policy and further investigate members’ concerns, including that once patients are alerted of their status, they “may leave the hospital prematurely because they are going to be very worried about the financial implications of staying.”

    Sen. Elizabeth Warren (D-Mass.) urged CMS to use its regulatory authority to quickly address issues with the two-midnight rule, rather than waiting on Congress to pass legislation stating, “We need to address this observations status problem. Seniors need to be notified of their admissions status and CMS needs to implement an auditing system that is less disruptive, more effective, and far more targeted.”

    Testifying on a second panel, SSM Health System Medical Director for Informatics and Physician Compliance Jeetu Nanda, M.D., stated, “Hospitals seek to deliver the right care at the right time in the right setting. While a complex issue, observation services ultimately reflect high standards of care and quality regulations to which hospitals adhere. It is important to note that the distinction between inpatient and observation services is a payment distinction, set forth by CMS, not a clinical distinction.”

    Dr. Nanda added, “Hospitals are doing their best, both to comply with Medicare payment policies and to address the confusing and difficult patient status with patients and their families. Medicare audit contractors continuously second guess physician judgment, sometimes years after a patient was seen and often with additional retrospective information on the patient’s condition, undermining the physician’s medical judgment at the time.”