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Financial Stakes Are High in Dispute Over Definition of Hospital Admissions

NJ Hospital Association seeks to block new federal “two-midnight rule” for determining rate of payments

Jon Dolan, president and CEO of the Healthcare Association of New Jersey.

Deciding when a visit to the hospital officially counts as an inpatient admission has always been important – the inpatient payment rate is higher than the outpatient rate.

But the stakes have become increasingly high in the last four years, as provisions of the 2010 Affordable Care Act penalize hospitals that readmit patients within 30 days of an inpatient admission.

That’s why hospitals have been increasing the number of patients listed as under “observation” status – which means they don’t count as inpatient admissions -- just in case they are sent home and then return to the emergency room.

A federal regulation implemented by the Centers for Medicare & Medicaid Services (CMS) in August aimed to clarify the issue by requiring hospitals to consider patients whose doctors expect them to be in the hospital for two consecutive midnights to be inpatient admissions, while maintaining outpatient status for those whose doctors expect them to be in the hospital for less than two midnights.

This rule has prompted a backlash from hospital officials, who see it as overruling the clinical judgment of doctors.

On Monday, the New Jersey Hospital Association joined a federal lawsuit filed by the American Hospital Association that seeks to block the regulation.

New Jersey Hospital Association general counsel Sarah Lechner.

“We had a lot of member outcry about the arbitrariness of the rule,” as well as the speed with which it was implemented, said Sarah Lechner, NJHA general counsel. “It’s basically taking away the physician’s judgment” about the patient’s status.

A patient must be admitted to the hospital for three days to be eligible for the post-hospital nursing home benefit under Medicare. If a patient spends multiple days under observation status, and fewer than three days as an inpatient admission, the patient isn’t eligible for Medicare and could face a nursing-home bill of more than $10,000.

Representatives of the national and state nursing-facility trade groups haven’t taken a position on the two-midnight rule, calling it is a hospital issue.

But they do feel strongly that patients should be informed of their in-patient or observation status immediately, so that they know what the implications are for their Medicare nursing home benefit.

The lawsuit was filed in the U.S. District Court for the District of Columbia by the NJHA, the American Hospital Association, hospital associations for New York and Pennsylvania, and four hospital systems.

The plaintiffs claim that CMS would refuse to pay for an inpatient admission, regardless of the level of care the patient receives and even when a doctors wants to admit the patient, if the patient’s stay is expected to last less than two midnights.

The two-midnight rule “has deprived and will deprive hospitals of Medicare reimbursement for reasonable, medically necessary care they provide to patients. And the rule is arbitrary and capricious: It undoes decades of Medicare policy. It unwisely permits the government to supplant treating physicians’ judgment. And most important, it defies common sense.”

The lawsuit also seeks to block two related rules. One would have the effect of preventing hospitals from receiving outpatient payments if an auditor finds that a patient stay was incorrectly categorized by the hospital as an inpatient admission. The other rule requires that a doctor write an order for each inpatient admission, which the hospitals say violates longstanding Medicare laws.

Lechner said that doctors should make decisions based on clinical factors, not on how long patients are going to be “physically present in the hospital.”

Lechner that attempting to resolve questions about inpatient status through the two-midnight rule is “a bit extreme in terms of a solution.” She suggested that steps could be taken to improve the notice given to patients to make them aware of their observation or inpatient status. Lechner said she hopes that a federal judge invalidates the two-midnight rule and that federal regulators work with hospitals to develop a “more reasonable, common-sense regulation.”

Lechner added that the increased regulations faced by hospitals are posing a challenge. Hospitals are particularly critical of the auditors who review whether Medicare overpaid or underpaid hospitals for the services the hospitals provided patients. This Recovery Audit Contractor program, which was created by a 2006 federal law, pays auditors based on the amount of money their audits recoup.

“There’s a lot of incentive for them to nitpick,” Lechner said.

Jon Dolan, president and CEO of the Healthcare Association of New Jersey, said the two-midnight rule is a hospital issue. But the broader issue of clarifying the observation or inpatient status of patients is vital, he said.

“The people have the right to know their status,” he said.

Dolan expressed an interest in enacting a new state law that requires hospitals to inform patients of their observation or inpatient status. New York currently is the only state that requires hospitals to inform patients about their status.

“It takes nothing to describe to them what status they’re in and what that means to their benefits,” said Dolan, adding that patients are as entitled to know this information as they much as they have a right to know their insurance status, who has access to their records and what medications they’re receiving.

Lechner said that the responsibility for informing patients of their status should fall on insurers, since they already communicate with patients about payments. She said the hospitals should be able to focus on providing healthcare.

The Medicare skilled nursing facility benefit is significant. In New Jersey, the benefit is worth roughly $570 per day, intended to pay for the care that patients require immediately after a stay in the hospital. For the first 20 days of the benefit, Medicare pays the entire amount, for days 21 to 100, patients are responsible for a $152 daily coinsurance payment, which can be offset by the Medicaid program. After 100 days, most people who still need long-term nursing care rely on Medicaid, which pays an average benefit of $206 per day, according to Dolan, who joined the New Jersey association in February after having served as the leader of its Missouri counterpart.

Dolan said he was sympathetic about the regulatory burden and audits that hospitals face. He holds federal officials responsible for the continued uncertainty over patients’ hospital status.

“I support our hospital friends – I want grandma and grandpa to not have to pay,” Dolan said.

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