June 01, 2015

The “Hospital Observation Stay Crisis”: A Senate Special Committee on Aging Hearing

Hillary Anderson

(The pdf for the issue in which this article appears is available for download: (Bifocal, Vol. 36, Issue 5).)

 

On May 21, the U.S. Senate Special Committee on Aging held a hearing on the “Hospital Observation Stay Crisis.” As a summer law intern with the ABA Commission on Law and Aging, I had an opportunity to attend. Here is my “up close” report.

The Committee heard from two different panels of witnesses on issues regarding the current issue of Medicare patients who are in hospitals on “observation” status rather than being formally admitted to the facilities. For Medicare patients, the practical difference between being admitted and being kept under observation appears virtually non-existent – the patient experience is the same. In fact, during the hearing several witnesses and the Senators concurred that, absent some affirmative act of notification on the hospital’s part, any given patient has no way of knowing on what basis he or she is in the hospital.

While the care is the same, however, the financial impact for those in the hospital under observation status can be enormous. Medicare coverage for observation status patients is far more limited, as the patient is not considered an inpatient under Medicare Part A. Moreover, in order for Medicare to cover a beneficiary in the context of a skilled nursing facility (SNF) after a hospital stay, that beneficiary must have been officially admitted to the hospital for a minimum of three days.

The hearing’s first focus was on the Centers for Medicare and Medicaid Services (CMS) and on the Recovery Audit Contractors (RACs) that seek to identify improper Medicare payments. The witnesses suggested that Congress pass legislation requiring that, for patients who have been in the hospital for over twenty-four hours, hospitals provide affirmative notification of admission status and the potential financial ramifications. Ranking Member Claire McCaskill strongly expressed her preference that patients be unequivocally notified of their stay statuses upfront and be sufficiently educated on the financial consequences.

Senator Susan Collins was also concerned with communication of stay status to hospital patients. She remarked about the length of time it can take new legislation to pass and encouraged CMS to use the agency’s implicit regulatory power to implement the changes administratively rather than waiting for the legislation. While legislation has passed through the House requiring stay status notification to patients who have been in the hospital over twenty-four hours, Senator Collins is concerned there will be a delay in the legislation’s becoming law and would like CMS to step in now. She also stated that she had some concerns that notifying a patient of observation status may result in that patient’s prematurely leaving the hospital despite being in need of care, but she nonetheless advocated for notification. Additionally, Senator Collins also encouraged CMS to use the agency’s audit procedures to identify providers who need further education about this issue.

Senator Elizabeth Warren called for a study on the impact of the “two-midnight rule,” which provides guidelines for when a patient should be given inpatient status. Under the rule, if a doctor expects the patient will need to stay in the hospital over at least two midnights and admits the patient based on that expectation, the patient’s stay should be covered by Medicare Part A benefits. Senator Warren would like to see data on the impact the rule has had on beneficiaries and noted that Congress needs those numbers before the legislators can move forward in the law-making process. She expressed willingness to work with her colleagues to achieve legislative reform, but said, “CMS needs to step up here with its regulatory authority.”

The second panel was more focused on the role of skilled nursing facilities in this status dichotomy. Current law states that, in order to receive Medicare coverage for a stay at a skilled nursing facility, a patient must first have stayed at a hospital with inpatient status for a minimum of seventy-two hours (three days). A doctor on the panel set forth the premise that the only difference between observation and inpatient status is financial. Ms. Tori Gaetani of Beacon Health in Maine testified about a pilot program Beacon Health has conducted for the past year through which the group issues waivers of the three-day minimum hospital stay rule for Medicare patients seeking skilled nursing care.

Ranking Member Claire McCaskill noted the immense complexity of this area of the law given the “arbitrary” rules and acronyms. In her frustration she asked, “Shouldn’t we, like, make this a little simpler?” Senator McCaskill asked the panelists who, exactly, decides whether to admit a patient or to keep him or her only for observation. The panelists responded that a utilization manager, who has access to the patient’s financial information and knows whether the patient is covered by Medicare, makes the ultimate decision.

Senator Susan Collins focused on the positive results Ms. Gaetani has found with the pilot program in Maine. The program gives waivers to the three-day minimum stay rule and has produced better patient outcomes and great savings for Maine’s healthcare system. Senator Collins and Ms. Gaetani noted that Beacon Health maintains some basic medical requirements for its program so the use of the waivers is not an “opening of the floodgates.” Senator Collins commended the program and noted she would like to see the revocation of the three-day minimum stay rule in national Medicare legislation.

Senator Sheldon Whitehouse asked the panel whether doctors are sufficiently aware of the three-day minimum stay rule such that they will keep patients in the hospital longer than necessary so as to open access for those patients to skilled nursing facility care. The panelists said that the practice has been known to happen. Senator Whitehouse shook his head and turned to Ms. Gaetani to commend her work with the waivers, then told the others, “[The waiver program] seems like the right way to go.” Senator Whitehouse encouraged other states to implement similar programs.

As Senator Collins said during the hearing, legislation in this area has been and will continue to be slow-going. The Senators, however, seemed to agree that patient notification should be at the forefront of reform and that the two-midnight and three-day minimum rules most likely should be reformed in kind. While Congress strives to achieve a more efficient healthcare system for Medicare beneficiaries, regulatory agencies and state healthcare systems are urged to take action within their spheres of authority.

Interested in Learning More?

Take a look at the Commission's policy on Medicare Observation Status Legislation (February 2014, 110). It urges Congress to enact the Improving Access to Medicare Coverage Act of 2013, (HR 1179) (S 569), or similar legislation that deems an individual receiving outpatient observation care services in a hospital to be an inpatient with respect to satisfying the three-day inpatient hospital stay requirement for Medicare coverage of a post-hospitalization stay in a skilled nursing facility. ■

Hillary Anderson

Hillary Anderson is a rising 2nd year law student at Syracuse University College of Law in Syracuse, NY. In 2014, Ms. Anderson graduated with honors from Ursinus College in Collegeville, PA, where she received a B.A. in Business and Economics. Ms. Anderson is a Summer 2015 intern with the ABA Commission on Law and Aging.