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Updated: The Changing Face of Regulatory Compliance

 |  By: Andrew McDonald, FACHE, Shareholder, Practice Leader Physician Business Solutions, LLC and Healthcare Consulting


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Two-Midnight, RAC audits and Meaningful Use are changing the landscape of regulatory compliance.

When CMS introduced the Two-Midnight Rule in 2013, they set the expectation that inpatient admission is generally appropriate if care is anticipated to cross two midnights. CMS simultaneously cut reimbursement by .2 percent for all hospitals to offset an anticipated increase in expenditures resulting from implementation of the rule. Though introduced in 2013, Two-Midnight has been subject to partial enforcement delays, and now proposed changes to the rule [made by CMS in July] have been issued with expectations of being finalized in November. Bass, Berry & Sims member Claire Miley has updated the changes ... and lack thereof ... that were recently handed down by CMS.

Proposed Changes to Two-Midnight

Editor's Note: Since this was originally published, CMS has decided to stand firm on its controversial program despite calls from outside parties to reevaluate the program and key stakeholders presenting a number of alternatives during the comment period. See the end of this section for updates from Claire Miley. 

“The main thrust of the proposed changes is that CMS would provide additional flexibility as a standard for when hospital admissions can be appropriately considered an inpatient admission,” said Miley, a senior healthcare regulatory and transactional attorney. “CMS has said that they’re keeping Two-Midnight but want to provide greater exceptions to accommodate the clinical judgment of physicians.”

Originally, the rule was considered a well-intentioned bright-line rule, meant to provide clearer guidelines for physicians and hospitals. Instead, hospitals said it handcuffed admitting physicians in their judgment of patient conditions. It also discounted co-morbidities and acuity that might warrant inpatient admission even when a physician doesn’t anticipate a two-midnight stay. Now CMS is expected to add another category of exception to the rule to allow physicians greater discretion.

“I think CMS will say that they were never trying to bright-line it so that you absolutely couldn’t have an inpatient admission unless it’s greater than two midnights,” Miley said. “They were looking for a time-based way to evaluate admissions.”

A time-based standard provides clearer guidelines for auditors in the post-payment review process, allowing for a more focused medical review. Essentially, patients who stay less than two midnights are more likely to be flagged for medical appropriateness. If adopted as proposed, the new changes could be a win for hospitals because of flexibility, as CMS defers to clinical judgment.

Doug Wolfe, LBMC’s senior manager of reimbursement consulting, cautions clients to err on the safe side and to bill as outpatient when unsure. Outpatient services are considered lower acuity and consequently receive less reimbursement. “We’re going to see a large increase in outpatient billing, but there are situations where a patient is critical and staff should be looking at a physician’s treatment record, as well as the patient’s signs and severity,” he said. “That’s where ambiguity often arises.”

Wolfe urged extensive system-wide training since the appeals process can last for years. “If you bill as inpatient and the record says it should be outpatient, the appeal can drag out to where you can’t re-bill,” he cautioned. “You have the opportunity to re-bill; but after that one-year window, you can lose out completely.”

Another change that could spell good news for hospitals is CMS’ proposal to forego RAC auditors as first-line auditors for inpatient status reviews. The job would instead go to quality improvement organizations, with cases only reaching RAC when QIO auditors find a pattern of incorrect billing under Two-Midnight.

“While it’s unknown how exactly QIO might act in this role, hospitals who are leery of RACs may be betting that QIOs will be better, specifically for Two-Midnight,” Miley said. “They’re more immersed in quality improvement, and their programs are aligned with HHS’s National Quality Strategy objectives.”

From Claire Miley: On October 30, CMS finalized changes to the two-midnight rule, which is the policy dating from 2013 to the effect that an inpatient admission is generally appropriate if a physician expects a patient’s hospital care to cross two midnights.

The final changes track the proposed rule, in that CMS has kept in place the two-midnight rule but has added an exception to accommodate the clinical judgment of physicians. Specifically, with respect to hospital stays for which the physician expects the patient to need less than two midnights of hospital care but nevertheless believes that an inpatient admission is warranted, the inpatient admission will be payable on a case-by-case basis under Medicare Part A if the medical record supports the necessity of the admission. CMS has cautioned, however, that it would be rare and unusual for a Medicare beneficiary to require inpatient admission if the stay does not at least last overnight.

CMS has also finalized the proposal to switch the responsibility for initial patient status audits from RACs to quality improvement organizations.

Additional Resource: Two-Midnight Rule Updated Fact Sheet (updated 10/30/2015)

RAC Audits

CMS launched The Recovery Audit Program in 2006 in an effort to identify and correct improper payments on claims of services provided to Medicare beneficiaries, and to identify underpayments to providers.

“The biggest change to the RAC process is that they’ve tweaked it by slimming it down and dividing the country into four sections,” said LBMC’s Andrew McDonald, FACHE, the partner-in-charge of Healthcare Consulting and LBMC’s Physician Business Solutions.

RAC auditors, which retain nine to 12 percent of overpaid claims, can pull provider claims up to three years old, though providers can only re-file for up to one year. It’s a catch-22 that has most hospitals spending six figures on their overall RAC audit process. Throw in the transition to ICD-10 and the possibility of older audits that include both versions, and you’ve got what McDonald calls “a wonderfully confusing situation.”

He said it’s essential for today’s hospitals to maintain a RAC taskforce and recommends routine external coding audits. “Medicare says the provider can be close as long as ICD-10 coding is in the approximate area,” McDonald said of the one-year physician grace period. “A RAC auditor will say it’s wrong. There’s a new coding system for America so it’s a good place to be as a RAC auditor.”

Meaningful Use Stage 3… and What’s a MIP?

Meaningful Use met meaningful critique Oct. 6, when CMS issued a highly anticipated final stage 3 ruling that also impacted stages 1 and 2. The ruling came after much outcry among the healthcare community over MU’s timeframe expectations. In September, the Medical Group Management Association called on CMS to extend the 2015 MU reporting period, and on Oct. 1 Senate Health Committee Chairman Lamar Alexander (R-Tenn.) asked administration officials to take more time before making final the stage 3 rule.

“It’s a pretty significant rule, not only because it establishes what providers have to do in stage 3 but consolidates stages 1 and 2 to one single set of standards called ‘modified stage 2,’” said Miley. “The idea is to streamline standards for reporting and achieving Meaningful Use prior to getting to that end game of stage 3.”

The rule served up a lot of new information for providers to digest – 750 pages in the pre-publication version. It’s left providers scrambling to understand the ins and outs of such a large rule, while CMS has attempted to soften the impact by delaying Stage 3 implementation till 2018. But for those providers still struggling to meet Stages 1 and 2, that’s not enough time.

“For 2015, CMS has given providers a 90-day reporting period so people can react to some of these changes and make sure they meet these standards by the end of the calendar year,” Miley said. Providers also can use 2014’s electronic health record technology till 2018.

“Another thing the rule does is say, ‘We understand MU has kind of been an evolving landscape, and providers have been wanting to catch up with each of these stages,’” Miley said. The new rule also allows CMS to grant hardship exemptions on a case-by-case basis for those unable to adapt in 2015 and provides exceptions recognizing the significance of changes and core measures.

“There are a lot of measures you go through and say, ‘This is really different than what they had a month ago,’ but then CMS will frequently put in an alternate objective and measure that looks like a previous standard that can be a stop gap for 2015,” Miley said. “In 2016 we won’t be able to use stop gaps, but they’re trying to offer flexibility.”

Miley’s advice to providers is to pay close attention to how CMS has restructured stage 1 and 2 objectives. “Obviously everyone needs to prepare for the end game of stage 3, but don’t be lulled into thinking of this as just a stage 3 rule,” she warned. “It significantly alters stages 1 and 2, which is where most clients are right now.”

And while MU might seem like a never-ending road, Miley said it’s ultimately a bridge expected to end in 2018 with the transition to a merit-based incentive pay system (MIPS), introduced by Congress in April. MIPS annually measures Medicare Part B providers in four performance categories to derive a "MIPS score" (0 to 100), which could significantly change a provider's Medicare reimbursement in each payment year. “Providers will continually have to retool,” Miley said. “As soon as they’re MU experts, they’ll need to become MIPs experts. That’s the condition of doing business.”

Originally printed in Nashville Medical News

Tagged with: Healthcare Consulting