Observation care stirs ire

JAMA study says CMS policy hurts hospitals’ bottom lines

Sending seriously ill emergency room patients to outpatient observation— already under fire for the financial pain it inflicts on Medicare patients—obviously hurts hospitals’ bottom lines, since they don’t collect the higher inpatient fees.

A new study from the University of Wisconsin and published last week in the Journal of the American Medical Association documents many of the patients under observation should have been admitted to the hospital because their stays exceeded the CMS criteria for shortstay observation. “Lengths of stay were typically more than 24 hours and often more than 48 hours,” the study authors found. “The hospital lost money, primarily because reimbursement for general medicine patients was inadequate to cover the costs.”

Observation is a middle ground for hospital patients who are too sick to send home, but not sick enough to admit as full-fledged inpatients. The CMS originally intended the use of outpatient observation care to be relatively rare and short, but in recent years its use has accelerated—so much that some hospitals are establishing dedicated observation units for those patients.

On average, the UW Hospital and Clinics posted a net financial loss of $331 for each observation patient, because their care is paid through Medicare’s physician benefit, known as Part B, according to the study. In contrast, patients who were admitted and reimbursed through the Part A hospitalization program resulted in a net

profit of $2,163.

The increasing use of observation stays for Medicare patients has come under fire from patient advocacy groups because Part B does not cover expensive rehabilitation that typically follows a hospital visit, while Part A does. That difference leaves patients responsible for thousands of dollars of rehab care out of pocket, plus prescription costs and Part B’s 20% copayment.

And since observation care is often delivered in a normal hospital bed, many patients are not even aware of their status until well into their hospital stay. Some patients learn of it at discharge.

A group of Medicare patients is suing the CMS in U.S. District Court in Connecticut to overturn Medicare’s observation policy and compensate beneficiaries who have paid costs to which lawyers say they shouldn’t have been subjected. The judge has not yet ruled on the CMS’ motion to dismiss the case and plaintiffs’ request to certify it as a classaction lawsuit.

“No one is arguing that these patients don’t belong in the hospital. They are too sick to go home. But labeling them as outpatients is completely arbitrary and is contrary to the Medicare law that Congress set up,” said Ali Bers, one of the attorneys for the plaintiffs at the Center for Medicare Advocacy.

Bers said the JAMA study supports the main contentions of the lawsuit, particularly the finding that the CMS’ own policies on who should be seen in observation is contradicted by the electronic tool that the CMS auditors use to examine that same question—a program called the InterQual criteria.

For example, the CMS policy on observation care says it should typically last no more than 24 hours, and only rarely should it extend beyond 48. Yet the UW study found that less than half — 44% — of the “obs” patients left in less than a day, while 17% stayed more than two days. All of the UW patients were classified using InterQual, said Dr. Ann Sheehy, lead author of the study.

“We found that to be very ironic,” said Sheehy, a hospitalist with University of Wisconsin Hospital and Clinics, whose patient population in 2010 and 2011 provided the population for the analysis. “These two policies just completely contradict each other.”

CMS officials declined to comment on the study.