Observation Status, “2-Midnight Rule”-Just Rationing.

Observation Status, the “2-Midnight Rule”-Just another form of rationing.

If you get less of something that you have had so that others get more, does it make you feel good? Do you experience a warm fuzzy feeling and sleep better at night? It probably depends on whether you chose to “pay it forward” or were forced to do it. When it comes to healthcare, the philosophy of providing coverage for those who have not had it, by forcing you to either pay more, or by providing you less, that would-be warm fuzzy feeling is replaced by a sense of loss and anger because you have in fact been shortchanged. The Affordable Care Act, also referred to as “Obamacare”, was promoted as a way to expand the affordability, quality, and availability of private and public health insurance through consumer protections, regulations, subsidies, taxes, insurance exchanges, and other reforms. However, with a national initiative to shrink healthcare expenditures, what must necessarily result is healthcare rationing.

Health insurance companies, Medicare and Medicaid (CMS), are always looking for ways to save money. Observation status was originally promoted by CMS as a period of assessment to allow physicians to assess patient before determining that they needed to be admitted to the hospital. CMS promoted observation status as:

“A well-defined set of specific, clinically appropriate services, which include treatment,

assessment, and reassessment before a decision can be made regarding whether patients will

require further treatment as hospital inpatients or if they are able to be discharged from the

hospital … and in the majority of cases the decision … can be made in less than 48 hours,

usually in less than 24 hours. In only rare and exceptional cases do outpatient observation

services span more than 48 hours.”[1]

The impact of observation status on hospitals is that they are paid less. This is because observation status is paid under Medicare part B rather than part A. Medicare part A, which pays for inpatient hospital services, pays a higher rate than the same services render as observation payments under Medicare part B. Not only are hospitals paid less but patients pay more. This is because patients must pay 20% of the Medicare-approved amount for observation services after paying the Part B deductible. Furthermore, Medicare will only cover care at a skilled nursing facility (SNF) if a patient first qualifies as an inpatient during a hospital stay. A qualifying inpatient hospital stay means that a patient must have been admitted to the hospital for at least 3 days in a row (counting the day of admission, but not counting the day of your discharge). So, a patient being evaluated for observation status on day one, might be characterized as an admitted patient on day two, and the discharged on day three, resulting in a two day hospital admission. If that patient is sent to a SNF for rehabilitation, Medicare does not cover services what would otherwise have been covered if the patient had been admitted for three days. This puts physicians in a position that they are perceived as the party to blame for not having “admitted” the patient beforehand. However, it is CMS that has imposed these rules on physicians and patients and CMS, and not the physician, who has set the criteria for what diagnoses and level of care fulfills observation v. admission criteria.

On October 1, 2014, the “2-Midnight Rule” will be implemented. . Under the Inpatient Prospective Payment System (IPPS) final rule for fiscal year (FY) 2014, a hospital admission is assumed to be appropriate for Medicare Part A payment if the physician expects a patient's treatment to require a two-night hospital stay and admits the patient to the hospital under that assumption. A hospital stay less than two nights is presumed to qualify for payment under Medicare Part B. Therefore, the physician is expected to determine in advance, based on the patient’s clinical presentation, whether the patient should be classified as an admission or an observation by criteria established by CMS. Auditors (RAC reviewers) will be reviewing admission to determine whether they feel physicians classified the hospital stay appropriately. If the admission is found not to meet CMS criteria, once again the patient and the hospital take the financial hit. CMS reportedly implemented the 2-Midnight Rule to ensure that short inpatient admissions were medically necessary. However, hospitals are not happy with this regulation and have filed suit against CMS arguing the rule is "arbitrary" and "capricious." There suits are not likely to change the regulation.

What physicians need to know:

1-The 2-Midnight Rule goes into effect on October 1, 2014

2-Physicians will be reimbursed at same for hospital services as they have always been and they will not experience payment reduction as a result of the 2-Midnight Rule.

3-Hospitals and patients will take the financial blow caused by the 2-Midnight Rule.

4-Hospitals will be putting a great deal of pressure on physicians to document in detail, justifying the reason that the patient was classified as an admission rather than merely as one of observation status.

5-While physicians are not financially impacted by the 2-Midnight Rule, future regulations unrelated to the 2-Midnight Rule (yet to be implemented), will result in payment reduction or complete denials to physicians.

6-Physicians, in particular specialists, will increasingly give up their hospital privileges. Ophthalmologist, dermatologists, rheumatologists, ENT, endocrinologists, will lead the exodus with others sure to follow.

Leslie Tar, Esq., LLM*

*Florida Health Law Attorneys, Florida Medical Board Defense Attorneys, Florida Medical License Defense Attorneys.

* Office location in Port Charlotte, Florida with service to Sarasota, Ft Myers, Naples, Tampa, Orlando, Vero Beach, West Palm Beach, Boca Raton, Ft Lauderdale, Miami, Gainesville, Tallahassee, Pensacola and throughout Florida and nationally.

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[1] Centers for Medicare & Medicaid Services. Medicare Benefit Policy Manual. Chapter 6: Hospital Services Covered under Part B. CMS Publication 100-02. Rev. 182. March 21, 2014. http://www.cms.gov/Regulations-and Guidance/Guidance/Manuals/Downloads/bp102c06.pdf.