Utilization Review FAQ

FAQ 1.  I understand that many hospitals have concerns about short inpatient hospital stays (i.e., a few days or less inpatient admissions) and sometimes receive Medicare payment denials for them. What are the issues and concerns?

Medicare's inpatient prospective reimbursement system uses hospital submitted ICD-9 diagnosis codes to determine the Diagnosis Related Group (DRG), which ultimately determines payment for the inpatient admission. Each DRG has a known mean length of stay (LOS) (Of note: the mean length of stay is considered in the determination of the DRGs relative weight and thus payment). With short inpatient hospital stays (less than the average LOS) Medicare is concerned about overpayment and appropriateness of the admission. As a result, Medicare and a state's Quality Improvement Organization (QIO) monitor hospital discharge data and specifically target short hospital stays.

If a hospital is found to have a high frequency of short inpatient hospital stays Medicare will investigate and if inappropriate admissions are found the sanctions can be severe. As a result, hospital health information management (HIM) and utilization management (UM) staff closely monitor the medical necessity of inpatient hospital admissions and short inpatient hospital stays. Their efforts can put pressure on emergency department physicians to make sure that each inpatient admission from the ED is medically necessary and will pass fiscal intermediary or Medicare Area Contractor (MAC) scrutiny.

These decisions generally revolve around patients IS (Intensity of Service) and SI (Severity of Illness). These are listed in the various medical necessity screening tools.

In some cases the use of observation status might be an alternative to an immediate inpatient admission.

FAQ 2.  What are the software scoring programs and criteria used by hospitals to determine which patients meet criteria for inpatient vs. Observation admission?   

There are several medical necessity screening tools that Medicare or its contractors may choose from to determine if a hospital admission is medically necessary. These include Interqual, Milliman, or other proprietary systems. Different jurisdictions may use different tools.  Hospitals in that jurisdiction can then use the same selected tool for self-monitoring. A hospital's case managers or Utilization Management staff will review the patient's record, possibly prospectively in the ED, but usually during the first 24 hours of admission, to determine if the screening tool's criteria are met. The main criteria relate to intensity of service and severity of illness. While ultimately, from both the hospital's and payer's perspective, presently it is the admitting physician's decision whether or not to admit the patient, if a hospital is not being totally or adequately paid for such inpatient admissions, hospitals will strenuously attempt to remedy the situation. Increasingly the ED physician is being asked to be aware of these screening criteria and the potential for hospital short stay denials. 

The criteria for inpatient hospital admission vs. observation are not always clear cut and the decision tends to fall to physician judgment. Even so, McKesson's Interqual criteria are used by many hospitals to determine if a patient qualifies for observation or an inpatient admission. The criteria tools can be purchased in electronic or paper formats. In Interqual, the case manager sets up a review by selecting from one of several service types (acute adult, acute peds, rehab, subacute, etc) and levels of service (observation, acute care, critical care or intermediate care). They then compare documentation present in the patient's record to criteria in the screening tool.  Documentation by the treating physician becomes key in determining the intensity of service and the severity of illness. This includes the emergency department record.

Once the admission or observation review is opened there is a tree structure of criteria for both "severity of illness (SI) and "intensity of service (IS)". The criteria are organized by body system: general, cardio/respiratory, CNS, GI, metabolic, obstetrics, and surgery/trauma. The IS criteria includes such things as assessments and monitoring, medications, blood products and IV fluids, and psych crisis intervention. Both SI and IS criteria must be met to support the medical necessity for admission, observation or another service in the system. Many of the criteria are similar for observation and inpatient but the inpatient admission SI and IS criteria indicate higher acuity.

If a patient does not meet inpatient criteria but it is uncertain if they can be safely discharged home it is not automatically assumed that the patient should be placed in observation or treated as an outpatient. There are cases when inpatient criteria are not met but the patient clinically requires an inpatient admission. In these situations physicians and case managers look at the total picture of the patient to determine the need for hospitalization. In addition, there are cases when inpatient screening criteria are met and the payer denies payment because the documentation, in their view, did not support the necessity for inpatient care.  Hospital appeal of payment denials is always an option, but requires additional time and expense.

The observation vs. inpatient admission decision is an important one because there are significant consequences for getting it wrong. An inpatient admission that should have been observation can result in payment errors and compliance concerns, and carries the risk of payment denial for the entire admission and lost revenue for the hospital. An observation that should have been an inpatient admission might decrease the revenue that the hospital should have received.

While it is beyond the scope of the average emergency physician to know and utilize these criteria it is important for emergency physicians to have a general understanding of these criteria. Better documentation can sometimes help with the decisions regarding medical necessity.

FAQ 3.  What are the software scoring programs and criteria used by payers, fiscal intermediaries, MACs, or other auditors to determine which patients meet criteria for inpatient payment vs. Observation payment?

In addition to hospital use, many payers, third party consultants and Medicare quality contractors use McKesson Interqual criteria. Others use Milliman or other systems. Technically, Medicare does not specify or require Interqual or any other medical necessity screening criteria.

National Government Services, the Medicare Administrative Contractor for CT, IL, NY, and WI, recently posted their perspective for making clinical and payment decisions regarding observation. First, the treating practitioner should determine if the patient can be discharged from the ED to home.  Second, if it is determined discharge is not appropriate, the practitioner "understands the patient will need ongoing inpatient services with a high degree of certitude or assesses the likelihood that care may be safely rendered within a 48-hour timeframe."

When a reviewed record fails initial admit screening criteria most hospitals, payers and others apply a second tier review called medical review. In this process a nurse or physician reviews the record for clinical documentation to support the hospital admission and/or payment.  Good documentation can be helpful to substantiate medical necessity.

FAQ 4.  What are common clinical scenarios that lead to denials for short inpatient hospital stays?

Some of the most frequent diagnoses, conditions and procedures that result in short inpatient stays and the ones that are monitored by Medicare include: chest pain, back pain, CHF, gastroenteritis, cardiac arrhythmias, COPD, circulatory disorders except AMI, percutaneous cardiovascular procedures, cardiac defibrillator implants, and pacemakers.

FAQ 5.  Can an inpatient admission be changed to Observation if, on review, inpatient medical necessity criteria are not met?

Inpatient status can be changed to observation, but only if very strict criteria are met. Medicare expects this to occur infrequently and has established specific rules for making the status change when an inpatient does not meet the hospital's inpatient criteria. Importantly, the status change must be made prior to the patient's discharge.

Below are some additional requirements:

  •  The hospital has not already submitted the inpatient claim to Medicare
  •  The Utilization Committee makes the decision and the physician concurs
  •  The physician's concurrence with the UR committee is documented in the patient's record.
  •  The UB04 outpatient bill is submitted with condition code 44-"inpatient admission changed to outpatient" in one of the Form Locators 18-28.

A CMS FAQ directly on point can be found at:  https://questions.cms.gov/faq.php?id=5005&faqId=2723

An observation status patient may be admitted to an inpatient status at any time for medically necessary continued care but the patient can never be retroactively changed from observation to inpatient (replacing the observation as if it never occurred). If a patient is admitted to the hospital from observation, inpatient medical necessity screening criteria must be met at the time of the hospital inpatient admit (the criteria cannot be carried over from the time the patient was placed in observation).

FAQ 6.  What can I do to be a good partner with my hospital in these situations?

First and foremost, a physician's addressing of the admission decision must be based primarily upon the patient's medical condition. It is important that emergency physicians have an awareness of the hospital's concerns regarding short inpatient hospital stays, have information about the hospital's medical necessity criteria for inpatient admissions, and consistently use good documentation practices. While technically it is the admitting physician's responsibility to assure compliance in these circumstances, nevertheless, in the real world hospitals will often look to the emergency department for assistance. Some specific things the emergency physician can do:

  • Use observation stays appropriately. CMS identifies failure to do so as one of the major reasons why patients are admitted for medically unnecessary one-day hospital stays.
  • Invite someone from utilization management to talk with the emergency group about medical necessity admission criteria. Have them explain what tools and criteria (with exceptions) the hospital uses to verify medical necessity for observation and inpatient admissions.
  • If there is a problem with admission denials from the ED ask about the feasibility of basing a case manager in the ED to implement an admissions review process prior to patient admissions (this may be only a temporary need).
  • In collaboration with the hospital, consider making decision support software available to assist emergency physicians in determining if an observation or inpatient stay is most appropriate.
  • Document the full clinical picture of patients' severity of illness in the ED. This includes any social conditions, co-morbidities and debilities that affect your decision to admit.
  • Document why the patient is being admitted to the hospital and it is also helpful to document why it is not safe to discharge the patient home; identify the risks.
  • Physician orders to "admit to inpatient" or "place patient in outpatient observation" should be clearly written. Be aware that an order for "admit to observation" can be confused with an inpatient admit. Likewise, an order for "admit to short stay" may be interpreted as admit to observation by some individuals and admit to inpatient by others.
  • Ask for information and feedback on any ED admits that become problematic short inpatient stays.

Most hospitals have a Utilization Review Committee; it is a wise idea to have an emergency physician on that committee.  The emergency physician can help the committee understand the day to day realities of an emergency department.  It can also be a good venue to advocate for case managers in the ED.

FAQ 7.  What is Medicare's Hospital Payment Monitoring Program (HPMP)?

This program was instituted by CMS to measure, monitor, and reduce payment errors for short and long term acute care hospitals that are reimbursed through an inpatient prospective payment system (paid under DRGs). The program's efforts are directed toward protecting the Medicare trust fund by making sure that it pays only for those services that are reasonable and necessary. To accomplish this goal Medicare analysis claims, performs audits, and implements changes to increase payment accuracy. HPMP efforts are led by the 53 Medicare Quality Improvement Organizations (QIOs) contracted by CMS to provide data analysis and education.

Each month 62 hospital discharges are audited per state and Puerto Rico (only 42 for Alaska). The Clinical Data Abstraction Center audits the accuracy of documentation and ICD-9 coding and evaluates the appropriateness of admission using Interqual criteria. If a problem is found the record is referred to the state's QIO for review.

The HPMP also performs focused audits on potential problem areas and provides information to hospitals in a report called the Program for Evaluating Payment Patterns Electronic Report or the PEPPER report.

FAQ 8.  What is the Medicare denial report called PEPPER?

The PEPPER report contains hospital specific Medicare data for 13 target areas that often have payment errors-under or overcoding. These areas include one-day inpatient hospital stays (listing the hospital's top 10 one-day stay admissions), seven day readmits, three day nursing home qualifying stays, coding of complications and co-morbidities (used to optimize to a higher paying DRG) and a focus on nine problematic primary diagnoses/DRGs (heart failure and shock, chest pain one day stays, gastroenteritis and other digestive disorders one day stays, nutritional and metabolic disorders one-day stays, intracranial hemorrhage and stroke with infarct, simple pneumonia, complex pneumonia, back problems and septicemia). The source of the data is Medicare's own inpatient hospital discharge data.

The PEPPER report is compiled quarterly and provided to hospitals by their Medicare Quality Improvement Organization (QIO). Hospitals use this data to focus their monitoring and auditing efforts and track improvement over time and to compare their performance with other hospitals in their state and nationwide.

Last Updated 04/2014

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