Earlier this month, members of the Medicare Payment Advisory Commission (MedPac) recommended that observation status be eliminated as a way for hospitals to classify patients. This is important for skilled nursing facilities (SNFs) because Medicare Part A will only reimburse beneficiaries who are discharged from a hospital to a SNF if they spent at least three days as an inpatient at the hospital before being discharged to the facility.
However, some hospitals that keep patients for more than three days place them in an “observation” status instead of classifying them as inpatient. Consequently, these patients cannot be reimbursed for SNF charges by Medicare Part A after they leave the hospital and continue receiving care at a skilled nursing facility. If MedPac’s proposal is approved, then more hospital residents will be classified as inpatients and will be more open to going to a SNF after leaving the hospital because Medicare Part A will reimburse them for their care expenses while they are there. These additional residents would increase revenue for SNFs around the country, and should increase their net operating income as well, making it easier for them to obtain capital from successful financing firms like Chicago-based Cambridge Realty Capital.
Efforts to Change Medicare’s Three-Day Rule
Last year, Republican Congressman Jim McDermott introduced a bill in the House of Representatives that would make Medicare beneficiaries eligible for Part A coverage of SNF care without a three-day inpatient stay at a hospital. Although Congressman McDermott’s bill never became law, it was still supported by a number of different groups, including the American Healthcare Association/National Center for Assisted Living and the Congressional Commission on Long-Term Care.
Now, MedPac is building on this momentum by recommending the elimination of the observation stay classification. The elimination of this classification would have the same effect as Mr. McDermott’s bill by making it easier for beneficiaries to qualify for Medicare Part A reimbursements for SNF care. The number of SNF residents that are discharged from a hospital to a SNF but are not classified as inpatients is a growing concern to skilled nursing facilities. For example, in 2012, some 11,000 hospital stays ended with a discharge to a SNF that were not covered by Medicare Part A because the resident did not meet the three-day overnight stay inpatient classification rule. MedPac feels that some of these residents were probably classified wrong, and that in order to prevent future misclassifications, eliminate ambiguity and confusion, and make things easier on hospital staff, it would be best to simply eliminate the observation status category. Furthermore, Recovery Audit Contractors who are responsible for auditing Medicare claims often challenge inpatient status claims very aggressively, and this could be one reason why hospitals place some people in observation status when they should really be classified as inpatients.
Implementing MedPac’s recommendation would result in more SNF residents receiving reimbursements for their care under Medicare Part A, which would benefit both them and the skilled nursing facility in which they are staying. For these reasons, SNFs should continue to monitor the progress of MedPac’s recommendation so that they can plan accordingly if it is implemented.
