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Medical Coding News Archives

Observation Part 1: Office of the Inspector General Reviews Observation

 
August 30, 2013:

Regina Magnani, RHIT, Clinical/Technical Editor

In July, the Office of Inspector General released its analysis of an issue that has been a continuing concern of the Centers for Medicare and Medicaid Services (CMS), patients, and stakeholders: hospital observation stays versus short inpatient stays.

Patients may pay more as outpatients than as inpatients, and patients who are not admitted as inpatients may not qualify under Medicare for skilled nursing facility (SNF) services following discharge from the hospital. CMS is also concerned about improper payments for short inpatient stays when the patients should have been treated as outpatients. The agency recently finalized a policy change that affects how hospitals bill for these stays. (See the article “Observation Part 2: Presumed Medical Necessity.”)

OIG found that in 2012, Medicare patients had 1.5 million observation stays, commonly staying one night or more in the hospital. Patients had an additional 1.4 million long outpatient stays, some of which may have been but were not coded as observation stays. Patients also had 1.1 million short inpatient stays. The top three reasons for each type of service are:

Observation
Chest pain
Digestive disorders
Fainting

Short Inpatient Stays
Digestive disorders
Chest pain
Coronary stent insertion

Long Outpatient Stays
Chest pain
Coronary stent insertion
Irregular heartbeat

In its report, the OIG notes that some hospitals were more likely to use short inpatient stays, whereas others were more likely to use observation or long outpatient stays. Beneficiaries had over 600,000 hospital stays that lasted three nights or more but did not qualify them for SNF services. The OIG states that its analysis indicates that the newly finalized two-midnights presumption would significantly reduce the number of short inpatient stays. However, the number of observation and long outpatient stays may not be reduced if outpatient nights are not counted towards the two-night presumption. The OIG projects that some hospitals would likely continue to bill these as outpatient stays and others would admit the patients as inpatients as soon as possible to meet the two-night presumption.

In 2012, Medicare paid $5.9 billion for short inpatient stays, an average of $5,142 per stay, as opposed to $2.6 billion for observation stays, an average of $1,741 per stay. For each of the most common reasons for the stays, the average payment was always higher for short inpatient stays than for observation stays. Patients also paid more for short inpatient stays than for observation stays—a total of $831 million for short inpatient stays, an average of $725 per stay, versus a total of $606 million for observation stays, an average of $401 per stay.

One of the conditions for coverage of SNF care is that the patient must have been a hospital inpatient for a medically necessary stay of at least three consecutive days, termed a qualifying stay. The OIG found that patients had over 600,000 hospital stays that lasted three nights or more but did not qualify the patient for SNF services because the stay was for observation or was a long outpatient stay.

 

 
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