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Senate Bill Aims to Close Observation Stay Loophole

Senators Charles Schumer (D- NY) and Sherrod Brown (D – OH) are co-sponsors of the “Improving Access to Medicare Coverage Act of 2013 bill that would count observation stays toward the three-day minimum required for Medicare to cover the costs of follow up care after a serious hospitalization.

In recent years, the Centers for Medicare & Medicaid Services (CMS) has expanded its auditing programs in order to control the cost of Medicare and to prevent fraud and abuse. The auditing program scrutinizes claims for care that was not medically necessary and reasonable. If a Medicare contractor concludes that a beneficiary was allegedly improperly admitted as an inpatient, the contractor will request that the hospital return the identified overpayment. Although hospitals may appeal to challenge a Medicare contractor’s conclusion that an inpatient admission was not medically necessary and reasonable, it is evident that the audits have affected hospitals’ inpatient admission rates. Specifically, the unfortunate consequence of Medicare audit contractors’ aggressiveness is some hospitals may be motivated to place patients in observation status to avoid auditors’ scrutiny and potential financial penalties. An indication that this consequence is being realized is that the number and length of observation stays have skyrocketed. A study by Brown University reports a 34% increase in observation stays from 2007-2009. Currently, in order to receive rehabilitation or in home nursing care after a hospital stay, a Medicare patient must have a three-day inpatient hospital stay. However, hundreds of thousands of seniors are being denied Medicare coverage for therapy each year because they are admitted to the hospital under observation status instead of inpatient status.

Senator Schumer claims that correcting this “observation stay loophole” will save seniors money and will allow hospitals to provide better care for patients. CMS would have to cover the additional cost of follow up services for patients who have had a three-day stay in observation status. In the midst of the national budget debate, it will be interesting to see if the Improving Access to Medicare Coverage Act of 2013 will get any traction in Congress. In 2011 a similar act was introduced in both houses of Congress, but did not go anywhere.

If you need assistance in preparing for, or defending against RAC audits, or implementing a compliance program geared toward identifying and correcting potential risk areas related to RAC audits, please contact an experienced health care attorney at Wachler & Associates attorney at 248-544-0888.