Is Medicare Paying Too Much For Inpatient Procedures?

Lilo H. Stainton | December 20, 2016 | Health Care
Meanwhile, are patients overburdened by outpatient costs that add up?

While a recent policy change appears to be having positive results, a new report shows hospitals continued to be flexible with their definition of “inpatient” status in ways that enabled them to collect rates up to five times what Medicare would have paid for the same care delivered on an outpatient basis.

The U.S. Health and Human Services Department’s Office of the Inspector General released a report Wednesday that showed the number of questionable short-term hospital stays decreased and outpatient treatment has become more common since the government’s 2013 rule change. But it also suggests that Medicare paid almost $2.9 billion that year for inpatient stays that lasted less than two nights — charges that might be inappropriate under the revised policy.

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The inspector general also noted that, while outpatient procedures are less expensive for the federal government, this option can become more costly for patients themselves. Medicare requires patients to cover a single deductible charge for inpatient care, but they are responsible for 20 percent of outpatient treatments, which can add up quickly.

The findings reflect the complex nature of the program itself and the challenges in keeping up with regulatory changes, including the “2-midnight” policy issued three years ago by the Centers for Medicare and Medicaid Services to clarify inpatient status and reduce what the government felt was improper billing of Medicare. While there are exceptions allowed, the rule notes that hospital visits that extend past two midnight hours are generally inpatient; shorter stays are usually considered outpatient.

The national CMS review involved sample claims from 2013 and 2014 but did not include individual records or state, or hospital, level analysis. The New Jersey Hospital Association has worked with Garden State facilities to help them understand the 2013 protocol, but evolving guidance from federal regulators has required ongoing education for hospital officials, including a webinar NJHA ran last month with partners.

“Since finalizing the 2-Midnight rule, CMS has had a few stops and starts in terms of implementation, as it has refined its guidance to its contractors in terms of overseeing the policy,” explained Theresa Edelstein, an NJHA vice president who has worked on the project. “The learning curve for providers has been punctuated by these changes in implementation guidance.”

In a formal response included in the inspector general’s report, CMS agreed with the monitor’s recommendations and pledged to continue to fine-tune the regulations and study their impact. “CMS recognizes the importance of continuing to provide Medicare beneficiaries with access to essential services and, at the same time, working to improve appropriate billing and payment,” wrote Andrew Slavitt, acing CMS administrator.

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Nationwide, Medicare, the federal health insurance program for America’s elderly, spent more than $646 billion to cover some 55.5 million seniors in 2015, according to the Centers for Medicare and Medicaid Services. From 1991 through 2009, New Jersey’s nearly 1.5 million beneficiaries cost the system an average of $11,900, more per person than anywhere else in the nation. Montana was the lowest at nearly $7,600 per person.

In reviewing expenditures in recent years, CMS realized there were major variations on how hospitals were following these billing policies and, as a result, Medicare was paying vastly different rates for what was often the same care in different settings.

For example, some of the same clinical issues — like chest pain and digestive disorders — were among the most common reasons for both inpatient and outpatient visits. But CMS found treatment costs were much higher for inpatient stays.

Figures from 2012 and 2013 suggest that hospitals may have improperly charged Medicare more than $10 billion for inpatient treatment that could have been provided on an outpatient basis. The average rates still varied greatly in 2014: Medicare paid $13,269 for a coronary stent inpatient operation but only $8,364 for the outpatient procedure; hospitals billed Medicare $4,578 for inpatient treatment of a fainting spell but only $1,309 for outpatient treatment; digestive disorders cost the government $4,572 for inpatient treatment but $789 for outpatient care – one-fifth the cost.

[related]Federal regulators have also been concerned about the financial impact of long outpatient treatment on patients themselves, since they are responsible for a percentage of each treatment as opposed to the flat fee as they would owe as an inpatient. While some outpatient treatments are inexpensive and can save patients — and the government — money, others actually cost beneficiaries more out of pocket. Data from 2014 shows coronary stents cost seniors just over $1,000 as an inpatient procedure, but ran them nearly $1,700 as outpatients.

The policy change sought to address these concerns, among other things. And the OIG report shows it did have some impact: between 2013 and 2014, after the new rule was implemented, inpatient visits decreased by 2.8 percent and outpatient care rose 8.1 percent. In all, there were more than 9 million inpatient visits and nearly 3.5 million outpatient cases.

But the data also prompted additional questions. Short inpatient stays — or those that don’t include two overnights, and might be better handled on an out-patient basis — dropped nearly 10 percent and long inpatient stays, which last three or more nights, decreased less than 2 percent. Short outpatient stays, involving less than two nights of care, jumped nearly 12 percent. However, long outpatient visits — situations in which patient care involved more than two nights in a hospital, but was still billed as outpatient — also declined, by less than 3 percent.

“Despite the changes in hospital billing, vulnerabilities still exist,” inspector general Daniel Levinson wrote.

The report recommended routine analysis of hospital billing and targeted review of those that continue to stray from the recommendations, further policy changes to ensure patients have access to skilled nursing facilities as needed, and efforts to further protect seniors from excessive outpatient charges. CMS largely concurred with these recommendations.