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MedPAC official: Fix the Medicare skilled nursing benefits observation-stay trap

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An advisory panel thinks Congress should consider having Medicare count some days in hospital outpatient observation status when deciding whether patients qualify for skilled nursing facility benefits.

Mark Miller, executive director of the Medicare Payment Advisory Commission (MedPAC), made that case Wednesday at a hearing on hospital “observation stays” organized by the Senate Aging Committee.

Traditionally, hospitals have kept some patients in the hospital “for observation” without formally admitting those patients as inpatients.

Since 2003, Congress and the Centers for Medicare & Medicaid Services (CMS) have been expanding use of a Medicare recovery audit contractor (RAC) program to detect Medicare fraud and abuse. When RACs successfully detect fraud or abuse, they get a share of the Medicare program’s savings.

Some RACs have focused on identifying cases in which hospitals provided care that could have been provided through outpatient clinics on an inpatient basis.

Witnesses testified that hospitals have been keeping more patients in outpatient observation status, to reduce uncertainty about whether they had to admit the patient.

Much of the testimony at the hearing came from health care providers who were blasting the recovery auditors, and from the recovery auditors, who defended their work.

Miller talked about the interaction between the increased use of observation stays and the eligibility rules for Medicare skilled nursing care coverage.

The benefit is supposed to help patients recover from severe health problems, rather than to pay for long-term care (LTC). In an effort to meet that objective, Medicare managers limit access to skilled nursing benefits to patients who have spent three or more consecutive days in the hospital.

See also: Lawmaker: “Outpatient Observation” Label Derails Care Transitions

MedPAC estimates 12,000 patients were unable to qualify for Medicare skilled nursing benefits in 2012 because they were kept in hospitals in outpatient observation status, rather than as inpatients. Those patients ended up with an average of about $10,500 in unreimbursed skilled nursing care bills each, Miller said, according to a written version of his testimony posted on the Senate Aging website.

Congress could ease that problem by letting patients count up to two outpatient observation days toward the skilled nursing care eligibility requirement, Miller said.

Congress also should require hospitals to warn Medicare patients that staying in the hospital in observation status could affect their skilled nursing care bills, Miller said.

See also: Underwriting, frailty and older age applicants