What constitutes “observation status” in hospitals has become a bit of a Rubik’s Cube. Just as institutions seem to have aligned all the same-colored “blocks” –physicians, admitting, coding and case management staff all educated and in agreement on the conditions that constitute an observation status – the Center for Medicare & Medicaid Services (CMS) has twisted the cube once more.  The agency recently announced a new set of requirements and qualifications tied to healthcare reform  that are scheduled to take effect as early as October 1, 2013, and have a major impact on when patients should be admitted, how patients are covered by payers, and how hospitals are reimbursed.

Today, healthcare institutions are grappling with a quagmire of reimbursement issues, so this change is akin to adding additional sides, rows, colors and shapes to the Rubik’s cube.  In a nutshell, the enforcement of a “2-midnight rule” means not only do physicians need to reasonably estimate that a patient will require two days as an inpatient (in order for certain services to be paid), but also their clinical documentation in the medical record must support the “medical necessity” of the stay.

Faced with readmission penalties and patient-satisfaction scores, both of which impact payment under the value-based purchasing rules, hospitals are scrambling to digest these changes, re-educate their staff and patients, assess the impact to bed capacity and update processes, re-evaluate staffing resources and calculate the potential impact this will have on their bottom-line.  All of this, of course, is in addition to juggling ICD-10 transition plans, new reporting and quality measures, as well as HITECH privacy and security changes.

Now, it seems, the Rubik’s cube has morphed into a 12-sided Megaminx.  Healthcare policy guidelines are becoming increasingly complex and the stakes are high.  If a health system is found to have billed government health programs for inpatient claims that do not meet CMS’ new “observation status” definition, the ramifications can be costly.

So, what should hospitals be doing to prepare for these upcoming changes? Here are some suggestions:

  • Use available analytics tools to collate all observation cases over the last 18 months, and categorize by Medicare or private insurer.  Then, identify trends making note of: Days of the week, admitting diagnoses, admitting physicians, inpatient census, length of stay and readmission (both as observation and inpatient status).
  • Identify and investigate payment denials.  Previous activity will unlock clues as to where you need to invest resources.  Remember, vulnerabilities do not always lie where you suspect they do. Determine if you will use CMS guidelines for all cases.  Establishing an institutional policy and related procedures early on to help keep physicians and staff informed and prepare them for the different cases that will undoubtedly arise.
  • Consider adding around-the-clock case management or utilization review staff to your Emergency Department.  These professionals can perform case-by-case analysis to assist with final and compliant disposition.
  • Update internal and external education materials. Keeping your hospital staff up-to-date on CMS rules and your institution’s policy on observation and inpatient classifications will reduce both employee and patient confusion and stress.
  • Review and implement readmission reduction strategies.  Evaluate your current approach: What has worked? What hasn’t?  Where have you had successes and failures?  Focus your efforts on the key diagnoses where CMS has laser-focus.

While the twists and turns in healthcare policy cannot be avoided, you can control how your hospital responds.  Clearly, adhering to these changes is no simple feat but with a strategic approach, a clear communications plan and the right technology, you can solve the Rubik’s cube white cross and get your team aligned and moving in the right direction.

Cathy Gorman-Klug

About Cathy Gorman-Klug

Cathy has over 30 years of experience in healthcare. She has extensive experience in project design, implementation, and management. In her current role as Product Manager, she is responsible for product strategy and product marketing for Nuance’s quality products. Previously, as a Corporate Director of Privacy and Data Security, she was responsible for compliance with requirements imposed by HIPAA, and other regulatory and accreditation standards for an integrated health system with over 7,000 employees. She holds a Master’s of Science in Nursing Administration from Seton Hall University.