Medicare to Delay Enforcement of New Hospital Observation Rule

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Medicare officials announced September 26 that they will delay enforcement of controversial new rules that define when hospital patients should receive observation care, rather than being admitted, a distinction that makes beneficiaries ineligible for follow-up nursing home coverage.

The new rules took effect October 1, but officials said they will not be enforced until at least January 1. During that time, Medicare auditors will review a small sample of hospital admission records to insure that hospitals are working to properly implement the new standards but will not penalize mistakes.

The rules require hospitals to admit a patient who is expected to stay through at least two midnights. Those whose stays are expected to be shorter will be classified as observation patients, who generally pay higher out-of-pocket costs than inpatients. Also, because Medicare requires a three-day inpatient hospital stay before it covers nursing home expenses, observation patients do not receive this benefit.

The new rules have been criticized by the hospital industry, which claims they were confusing, and by patient advocates, who said the changes don’t protect seniors. Both groups are pressing Medicare to end the three-day requirement for nursing home coverage.

On October 1, 109 members of the House of Representatives called for a six-month delay so that Medicare officials could “address flaws” in the new rules.

In a conference call with hospital representatives from across the country, Medicare Deputy Administrator Jonathan Blum said the new requirements were developed in a response to the “tremendous beneficiary concern” regarding the growth and duration of observation stays, as well as the high rates of hospital admissions that Medicare auditors later determine should be classified as observation. In those cases, hospitals have to refund their Medicare payment for an inpatient stay. The new rules allow hospitals to rebill Medicare for the payment of an observation patient.

“We understand that some feel we didn’t get it quite right, and we also understand this is a new regulatory framework that requires some flexibility to put in place,” Blum said.

About 1.6 million beneficiaries were put in observation care in 2011, the last year for which data is available, a nearly 69 percent increase in the previous five years.

The enforcement delay did not win over critics.

“I still believe a six-month delay would be a more prudent approach,” said Rep. Allyson Schwartz, the Pennsylvania Democrat who initiated the congressional letter. “It would give [the Centers for Medicare and Medicaid Services] more time to engage stakeholders and address several unanswered questions.”

The American Hospital Association, which filed a lawsuit to force Medicare to eliminate the observation classification, was also disappointed. President Rich Umbdenstock said in a statement that the agency’s strategy for a transition period “only raises new questions and lacks clarity.”




Are We Becoming Ethical In Spite of Ourselves?

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Radical shifts in technology are leading to greater transparency in our daily lives. Any time we use an electronic device, we leave a record that can be searched, cross-referenced, duplicated and potentially shared. This knowledge of transparency often leads to increased ethical behavior.

A change in the legal environment is also causing an evolution in our moral and ethical conduct. Moral decisions are moving from thoughtful calculations to natural, instinctive behaviors.  Our moral code of ethics is self-correcting, based on external constraints imposed on us. Transparency increases these external constraints.

A recent scenario of a case study on medical malpractice involved an elderly patient who goes to the hospital with the families’ expectation of him dying. However, the patient does not die of natural causes but because of the hospital’s malfeasance. His family, unaware of any misconduct, quietly buries him. 

Following its best practices protocol for when a fatality occurs, the hospital determines that an overdose of medication was in fact the reason for the patient’s demise. The question for the hospital is, should it now inform the family that he died from the hospital’s actions?

A lively discussion of comments ensued around this case study. One of the participants, a senior claim executive said, “You have no choice but to tell the truth. If more than one person knows the truth, it will surface.  Even if only one person knows, his conscience will eventually demand that the truth be told.”

It is likely more cost-effective in the long run for the hospital to own up to the mistake and inform the family that their loved one did not die of natural causes. By doing the ethical thing, the hospital has imbued within its employees the basic values that promote trustworthiness in the institution. In this era of transparency, serious errors are always exposed. Cover-ups, once revealed, are infinitely more expensive than restitution. 


Another participant, while traveling into Manhattan, used their E-Z Pass to cross the bridge and go through the tunnel. At their destination’s garage, the attendant scanned him in. He then used his MetroCard that is linked to his credit card to enter the subway. He used his debit card to pay for sundries at Walgreens and took some cash back. His mobile phone pinpoints his whereabouts. Not a moment of his day is he off the grid. His life is transparent. 

Technology has radically changed our lives and our expectation of privacy. We are approaching the age of perfect information. Voluminous amounts of data (Big Data) are now being generated by expert systems. More importantly, the algorithms developed to process this data into usable form grant us no quarter and give us no place to hide. Transparency will increase because of technological progress, and progress is inevitable. It cannot be avoided, averred or slowed down.i The information is out there; it is just a matter of it being found. 

Dennis Jay, an executive director for the Coalition Against Insurance Fraud, recently reported that the Wall Street Journal and the Center for Public Integrity filed a lawsuit under the Freedom of Information Act to lift a ban that exempted Medicare data. Jay writes, “If the ban is lifted, journalists would have access to data about physician treatments, tests ordered, and a whole host of medical services. The news media would represent another powerful entity crunching medical data and potentially uncovering fraud and abuse by medical providers.

Technology adds a level of discipline that compels us to be more ethical. 

The other shoe

Over the last several years, whistleblowing statues and employee accountability have caused a major paradigm shift away from keeping secrets within an organization. Janet Morrissey reports in Time Magazine, “In what could give new meaning to the phrase — ‘If you see something, say something’ — a clause within the financial reform legislation is offering big cash rewards to whistleblowers who report fraud and other wrongdoing at U.S.-listed companies and Wall Street banks.

Tips leading to recovery will result in $100,000 minimum payouts under current law. As a result, corporate culture has changed, and that which heretofore was acceptable, is no longer. A compelling force, both moral and financial, is causing employees to become more ethical.

The Great Recession, crime and insurance fraud

Historically, during difficult economic times, we can predict a spike in crime and insurance fraud. If we examine workers compensation losses over the recession period of 2008 to 2011, we would expect to find a significant increase in claims activity. However, this was proven not to be true because of a multitude of external factors. Similarly, in other lines of business, although there were some increases in fraudulent claims activity, there were not the expected spikes.

Frank Scafidi, director of public affairs, National Insurance Crime Bureau says, “…There were dire predictions of rampant crime in general from the recession, and the opposite occurred — crime rates and criminal activity decreased through those years.” Among the reasons why crime is down is that crime is paying less because ethical behavior is paying more.

In conclusion

An evolutionary shift in the legal environment coupled with perfect information has caused people to consciously make decisions that result in an ethical conclusion. Before the days of transparency, people would weigh the variables of a situation to determine their actions. In the age of transparency, all the information is out there, and we are now compelled to make the ethical choice. As the legal environment becomes more vigorous and the information becomes more perfect, doing the ethical or “right” thing will change from weighing the consequences to engaging in instinctive behavior.