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Senate Committee Examines Issues Surrounding Hospital Observation Status

The U.S. Senate Special Committee on Aging recently held a hearing to examine the financial implications of hospital observation status on Medicare beneficiaries, the relationship between Medicare Recovery Audit Contractor (RAC) behavior and the spike in hospital observation stays, and legislative and administrative efforts to address problems associated with these issues. 

Committee members on both sides of the aisle agreed that misaligned incentives within the RAC program and excessive auditing by RACs have been driving the increase in observation stays.  Observation status can have financial implications for Medicare beneficiaries such as higher cost-sharing, and hospitals also risk burdensome audits and loss of reimbursement when they admit patients for short, medically necessary services. 

Dr. Jeetu Nanda, System Medical Director for Informatics and Physician Compliance at SSM Health, who testified at the Challenging the Status Quo: Solutions to the Hospital Observation Stay Crisis hearing on behalf of the American Hospital Association (AHA), explained that hospitals are placed in an “untenable position” as they provide the best possible care to patients while striving to comply with complex Medicare payment policies.  Dr. Nanda encouraged policymakers to support key improvements to the RAC program such as those contained in the Medicare Audit Improvement Act of 2015 (H.R. 2156), legislation that would make the audit and appeals system more practicable for both providers and patients.

In his testimony before the Committee, Centers for Medicare and Medicaid Services (CMS) Deputy Administrator and Director Sean Cavanaugh acknowledged the need to fix issues related to the short hospital stay payment policy, including CMS’ “two-midnight” rule, and said the agency expects to continue the discussion in the proposed 2016 Hospital Outpatient Prospective Payment System rule that will be released this summer.  HANYS continues to work with CMS to address these issues and with AHA and others to build support in Congress for the Medicare Audit Improvement Act of 2015.    Contact: Elyse Oveson

Published June 1, 2015