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HCFA Clarifies Medicare Outpatient
Observation Policy
BY DAN RODE, FHFMA, CMPA, CMCP
Most providers by now should have received long-awaited Medicare instructions for outpatient observation services. The instructions, which took HCFA several years to compile, were released in September 1996 and took effect October 7, 1996.
The need for observation instructions became apparent several years ago when HCFA began receiving Medicare claims with multiple days of observation room charges for a single encounter; some claims contained several weeks' worth of observation charges. Suspicion arose within HCFA that hospitals were attempting to circumvent Medicare prospective payment regulations or were treating patients as outpatients rather than as inpatients because inpatient stays might not be approved for inpatient reimbursement by a professional review organization panel.
HCFA argued, and most institutional providers agreed, that observation should not exceed 48 hours. If a patient required further observation, his or her condition warranted admission as an inpatient.
What troubled many providers, however, was HCFAs desire to automatically change the admission status to inpatient even though treatments provided were administered on an outpatient basis. Several provider groups noted that HCFA required that stays be changed to inpatient status, only to have a peer review organization rule that such stays did not warrant inpatient status. Providers were concerned that reimbursement rules were affecting clinical decisions over which they had no control. The instructions released in September recognize these provider concerns and should serve to clarify patient status. The new instructions:
· Define observation services rendered beyond 48 hours.
· Limit covered observation services to a maximum of 48 hours.
· Deny coverage for any observation services beyond 48 hours and require that providers notify beneficiaries in writing that any observation services in excess of 48 hours will not be covered. This approach keeps the patient's outpatient status clear and avoids potential status disputes between HCFA and the provider.
· Allow for an appeal of "rare" and "exceptional" circumstances, where observation is continued beyond 48 hours, and provide instructions as to how such cases are to be handled.
HCFA has instructed fiscal intermediaries to suspend the rare and exceptional claim, request complete medical documentation, and "use careful judgment in evaluation of the medical documentation" and approval. Fiscal intermediaries are required to report all exceptions to HCFA to "ensure national consistency among intermediaries." In addition, the instructions:
· Define observation services as "those services furnished by a hospital on the hospital's premises, including use of a bed and periodic monitoring by a hospital's nursing or other staff, which are reasonable and necessary to evaluate an outpatient's condition or determine the need for a possible admission to the hospital as an inpatient."
· Define services that Medicare will not cover as outpatient observation, including:
Services that are not "reasonable or necessary for the diagnosis or treatment of the patient or that are provided for... [the patient's] convenience.. .";
Services that should be covered as "medically appropriate inpatient admission" services; other Part B services, "such as post operative monitoring during a standard recovery"; or services "billed concurrently with therapeutic services, such as chemotherapy";
Standing orders for observation following outpatient surgery or observation with a variety of cardiac services "for which an overnight stay is anticipated"; and
- "Services which were ordered as inpatient services by the admitting physician, but billed as outpatient by the billing office," or "claims for inpatient care, such as complex surgery clearly requiring an overnight stay and billed as outpatient."
HCFA provides several examples to help providers and fiscal intermediaries understand these observation instructions. Providers should find the specific requirements in the HCFA notification helpful for creating internal policies and procedures and for explaining to HCFA why observation services must be kept under 48 hours.
While exceptions to the 48hour rule do exist, and while HCFA has not given a dear indication of when exceptions will be granted, hospitals must take steps to address uncovered services if they cannot keep their observation services within the new limits.
Dan Rode, FHFMA, CMPA, CMCP, is director, HFMA Knowledge Network, Washington, D.C.
Reprinted, by permission, from Healthcare Financial Management, January 1997, pp. 80. Copyright 1997 by the HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION.
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