MedPAC Considers Possible Changes To Hospital Short-Term Stay Policies

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By Michael D. Williamson

Nov. 6 — MedPAC commissioners Nov. 6 discussed ways to alter several hospital short-term stay policies, which may affect how Recovery Audit Contractors operate.

Medicare Payment Advisory Commission (MedPAC) staff said during a presentation that some types of short-term stay policies, such as inpatient admission criteria, “are ambiguous and open to interpretation.” In addition, the staff presentation said one-day inpatient stays “are common and paid more than similar outpatient stays.”

The staff presentation also said RACs “have focused their audits on [the] appropriateness of 1-day inpatient stays.” Because of this, it said, “hospitals have increased use of outpatient observation.”

RACs, according to the Centers for Medicare & Medicaid Services website, work to detect overpayment in the Medicare program. RACs have drawn the ire of hospital trade associations, which want the program reformed.

MedPAC commissioners Sept. 12 said changes to the RAC program are necessary.

Eliminate Observation Status

One idea several commissioners proposed was to eliminate observation status at hospitals and, instead, classify such stays as inpatient status. The idea, suggested by commissioners Cori Uccello of the American Academy of Actuariesin Washington and Craig Samitt, a health-care executive based in Arizona, received limited praise from MedPAC Chairman Glenn Hackbarth, an Oregon-based consultant.

According to Samitt, combining observation status into inpatient status would eliminate several downstream problems and could get rid of RAC audits entirely.

Other commissioners, however, said they feared the consequences of not having observation status for hospital stays. For example, Kathy Buto, a public health expert from Arlington, Va., said merging observation status into inpatient status could undermine the diagnosis-related groups (DRGs), which form the cornerstone of hospital billing procedures.

Buto, along with Commissioner Jack Hoadley, a doctor with the Health Policy Institute at Georgetown University, said such a change could also lead to higher beneficiary cost sharing.

RAC and SNF Changes

To reduce the burden of RACs on hospitals and the Medicare system, commissioners weighed whether to suggest modifying RAC auditing processes so they are more targeted.

Primarily, commissioners discussed a point made in the staff presentation about “more targeted [RAC] reviews of inpatient appropriateness on hospitals with the highest rate of short stay admissions,” instead of the current, less-targeted system used today.

Staff said in their presentation that more targeted reviews “would likely result in lower aggregate recoveries” and increase Medicare spending.

Commissioners also considered changing the three-day rule that governs how Medicare pays for admission to skilled nursing facilities (SNFs). The rule states that hospitals must classify a patient's stay as inpatient for at least three days, as opposed to observation, before Medicare will pay for SNF coverage.

The commission didn't reach a consensus on any of the policy options discussed. Discussion from the meeting will inform future MedPAC staff research into possible changes to hospital short-stay policies.

An earlier MedPAC session focused on beneficiary access to hospital care and how service volume affects hospital costs.

To contact the reporter on this story: Michael D. Williamson in Washington at

To contact the editor responsible for this story: Ward Pimley at


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