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OIG Reviews Hospitals’ Use of Observation Stays and SNF Coverage

On July 29, an OIG memorandum report, “Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries” (OEI-02-12-00040) was released, providing insight into this topic that’s been causing some issues with payment coverage. The report points out that RAC auditors and other CMS contractors have been trying to recoup improper payments related to short inpatient stays, and this has encouraged hospitals to start using more “extended observation stays” in lieu of the short inpatient stays. While the report looks overall at how hospitals use observation stays versus inpatient stays, it looks at the impact that this has on Medicare beneficiaries who are not admitted as inpatients and the potential for not qualifying for Medicare coverage if skilled nursing services are required.

According to the OIG report, in 2012, beneficiaries had 617,702 hospital stays that were three nights or more and did not qualify them for skilled nursing services. To qualify for SNF services, the beneficiary must have had an inpatient hospital stay for at least three nights, and usually within thirty days of being admitted to the skilled nursing facility. For these stays, the nights were not considered inpatient nights, precluding the beneficiaries from qualifying for SNF services.

While many beneficiaries who stayed three nights did not qualify for SNF services, there were also many cases where Medicare inappropriately paid for SNF services that beneficiaries did not qualify for, totaling $255 million.

The OIG notes that the results of its study has caused concern about how SNF services are being covered for Medicare beneficiaries. It notes that CMS should think about how they can ensure more access to SNF services and cost-sharing for these services.