Physician Advisors Crucial to Navigating Reimbursement Rules

Unraveling observation, inpatient status complexities

Determining if a patient qualifies for observation in the outpatient setting or an inpatient stay is key to maximizing hospital revenue.

“In almost every instance with private payers, if the patient is appropriate for inpatient, meaning they need intensive services for what they're being treated for, that’s a higher reimbursement, whether it’s DRG or per diem,” Ugarte Hopkins explained. “It’s going to be a higher reimbursement than observation.”

Even if two patients have similar reasons for care like digestive disorders or fainting, Medicare pays about three times as much for a short inpatient stay than for a short outpatient stay.

Therefore, failing to transfer a patient who has an observation status to an inpatient designation could drastically decrease the reimbursement for care provided.

Equally as important is ensuring that clinical documentation and order entries support observation status when patients truly need those services.

“Observation is actually outpatient status with observation services,” Ugarte Hopkins elaborated. “Those observation services are billed hourly. We also want to make sure it’s not just about inpatient conversion, but making sure that we are capturing those observation hours correctly when they're appropriate to be started.”

Having an observation order present in the medical record is critical to ensuring that the hospital captures those observation hours.

“If you have a patient who comes in from the ED [emergency department], then they are placed in an unit and it’s five hours until you get that observation order in, even though we've been caring for that patient for five hours, not including the ED time, you can’t bill for that because you don't have that order.”

“It’s little things like that, making sure that the doctors understand it’s as important as my diet order, my code order, my activity, or ordering the medications,” she continued. “Status can’t just be an ‘Oh, I forgot to put a status order in’ moment 12 hours later. It has to be one of the first orders that you put in.”

While verifying that patients truly qualify for a status and orders are properly entered may seem like a simple task, performing administrative and billing tasks can be overshadowed as patient conditions worsen.

Providers must be on top of observation order entries or inpatient conversions while a patient who came in for a scheduled procedure all of a sudden needs services beyond routine care. They must also keep administrative and billing responsibilities in mind if a patient who should be off intravenous fluids (IVF) doesn’t respond well and physicians escalate the case by reordering an IVF and starting a IV antiemetic.

In these cases, additional care is necessary. But a lack of observation status order could stop payers from reimbursing the hospital for taking care of their patients.

To maximize revenue and combat potential claim denials over status, providers must also understand the myriad of payer regulations that dictate what qualifies as observation and inpatient status for claims reimbursement.

“One of the challenges is the fact that there’s not just one rule,” Ugarte Hopkins stated. “When you talk about the difference between inpatient billing and observation service billing, there’s not just one pathway for looking at a patient and determining whether or not one fits or the other fits.”

“It depends primarily on the payer, whether it’s Medicare or Medicaid, which is state by state,” she continued. “So, working in a state right now that borders Illinois, we have to look at both of those in theory if they come through. Then, each of the private payers, commercial and managed Medicaid, all of them have different ways in which status is applied.”

Providers oftentimes misapplied status for patients under different coverage plans because of the long list of differing payer rules. At ProHealth Care, providers also tended to apply Medicare’s Two-Midnight Rule to all cases.

The Two-Midnight Rule, established in 2013, created a time-based criterion for inpatient stays for Medicare patients. CMS would reimburse providers at the higher inpatient rate only if the stay is expected to span at least two midnights.

Clinical documentation must also demonstrate that a provider anticipated the inpatient stay to meet the time-based criterion.

However, physicians at ProHealth Care did not understand that this time-based rule for status only applied to Medicare patients. Fortunately, as a physician advisor, it was Ugarte Hopkins’ duty to understand complex regulations across payers.

“I realized that we were applying the Two-Midnight Rule in case management and utilization to every single patient and that’s not necessarily appropriate when it comes to managed care plans and commercial plans,” she said. “You could potentially have a patient who is appropriate for inpatient status without passing that second midnight. That’s a Medicare rule.”

“That was a first hurdle, making sure they understand there are other rules which they didn’t need to know all the ins and outs of, but that they need to at least have an understanding that there are other rules and that there are these people called case managers who are going to be contacting you to discuss the consult changes in status,” she continued.

She set out to educate providers and other staff about different payer rules.

Physician advisors improve status determination through education, case management

Ugarte Hopkins created a foundation for status and medical necessity improvement through education. With that base, she started to look into ways to help providers manage status on their own.

“We started that process looking at what do our contracts say when it comes to inpatient versus observation and we started working with our contracting office very closely,” she elaborated. “It’s something that hadn’t been done before, so that took some time to get them to understand what information in the contracts we were looking for and how we wanted to collaborate.” 

When Ugarte Hopkins started to analyze payer contracts, she observed some common definitions of observation and inpatient status, particularly pertaining to timeframes, like in the Two-Midnight Rule.

“We attempted to apply that to our status determination,” she said. “For example, we had a specific payer that in our contracts or elsewhere said if a patient who has been in the hospital for 48 hours and they still require hospital care, then they're appropriate for change to inpatient. We created a grid and tried to use those specific rules in order to guide our status determinations.”

However, simply relying on a chart to guide providers on status resulted in lost revenue.

“Using the timeframes that were listed in our contracts, we were still short-changing ourselves because there were instances where maybe a patient didn't meet that 48-hour mark, but during the 40 hours that they were with us they were significantly ill requiring profound services, maybe including ICU care, and, at the end of the day, they really weren't appropriate for observation,” she stated.

Ugarte Hopkins and her team had missed the medical necessity caveat that also defined status.

“That’s when we turned around completely and said that now we need to have a physician look at these from an eye of medical necessity, not just following timeframe,” she said. “That was the next iteration of how we've been looking at status.”

With her experience as a clinician, Ugarte Hopkins took on case management and utilization review to determine status.

“At the end of the day we're talking about medical necessity, which we are recently finding is something that, in many instances, cases require a physician advisor of some sort to make the final determination,” she stated. “While you would like to be able to have a situation where your case managers can be given enough information to work off say a grid in order to determine if a patient is appropriate for inpatient or observation based on what’s happening and that they also have criteria as to when to escalate it, it turns out there’s really a lot more scenarios that they probably need to escalate.”

“You need to have a physician who’s looking at it with that eye of case management and utilization, which is not something that all practicing physicians have, nor should they because their focus should be on the medicine,” she added.

Using both educational initiatives and a physician advisor to review medical necessity, ProHealth Care has seen more patients being transferred from observation to inpatient status.

While time will tell if payers will push back by denying claims based on status, Ugarte Hopkins stated that she has observed improvement.

“I believe when it came to denials, we saw an improvement when we took a look at our contracts and were able to apply some of that information,” she said.

While the physician advisor role is not yet a staple within healthcare organizations, Ugarte Hopkins pointed out that the position is continuing to evolve. As administrative and regulatory demands make providing care more difficult, having an expert available to guide staff and create physician-friendly solutions will be critical to navigating an increasingly complicated industry.