Medicare and Short Hospital Stays

The regulators at CMS are constantly changing reimbursement systems to address allegedly abusive provider behavior and providers adapt by changing behavior to maximize payments under the new reimbursement formula.  One area of current interest is the use of hospital observational stays and a report from the HHS Office of Inspector General reflects the complexities of Medicare reimbursement.   (OIG Report)   In addition, the activities of OIG itself and various audit contractors can influence provider behavior.  Many patients come to a hospital and there is medical uncertainty about whether they need to be admitted.  Physicians are anxious, for good patient care, malpractice and other reasons, about sending people home when there is a risk of untoward consequences.  So according to OIG’s figures, in 2012 there were 1.5 million observation stays, which means the beneficiary ended up spending at least one night in the hospital; 1.4 million long outpatient stays; and 1.1 million short inpatient stays.  Reimbursement to the hospital from Medicare varies for each category and the beneficiary out-of-pocket also varies.  In addition, whether the beneficiary qualifies for skilled nursing facility care may also be affected.  In each of the three categories of stay, there were similar reasons for the stay–in all, chest pain was the top reason with digestive disorders also highly ranked.  In addition, most of each of the type of stays began in the emergency room.  There was substantial variation across hospitals in their use of observational stays versus long outpatient stays versus short inpatient stays.  Some of this undoubtedly reflects the complexities of understanding CMS’ policies and rules regarding the classification and coding of these services, but some also likely reflects reimbursement maximizing behavior.  Short inpatient stays on average cost CMS’ the most of all three stay types, and are also likely to lead to the highest beneficiary out-of-pocket.  CMS has proposed changes to its policies that would create presumptions about observation and outpatient versus inpatient stays.  OIG notes that under the proposed changes, hospitals might be incented to create more inpatient stays, resulting in greater costs to CMS and patients.