New CMS Rules Introduce Bundled Payments for Observation Care

By Christopher Baugh, MD, MBA, FACEP, and Michael Granovsky, MD, FACEP | on March 16, 2016 | 0 Comment

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Table 2. Sample Medicare Fees and Payments for a Typical Hospitalization for Syncope
These calculations are for traditional fee-for-service Medicare without a secondary payer. Part B payments assume the $166 annual deductible has already been paid. Part A payments assume the patient has not paid for any qualifying Part A services in the prior 60 days.
*DRG payment calculated as mean unadjusted 2013 Medicare payment amount.
**Average out-of-pocket medication costs based on 2013 Office of the Inspector General Report.⁵

The best data available on Medicare beneficiary out-of-pocket expenses arise from a 2013 report from the Office of the Inspector General, which shows that the patient expense for an observation stay was less than the expense for a short inpatient stay 94 percent of the time.⁵ Additionally, the percentage of patients caught in the scenario where they were hospitalized for three or more nights but didn’t have three inpatient overnights (ie, start in observation, then transition to inpatient for a couple more days) and needed subsequent skilled nursing facility care that Medicare did not pay for was 0.6 percent of all observation visits.5 In the lay press, stories from this small fraction of visits make for very compelling news, and as a result, the headlines featuring these visits highlight a real but exceedingly rare consequence of observation care.⁶

In conclusion, Medicare’s shift to a bundled facility payment this year creates an incentive to use evidence-based protocols for observation care while also effectively capping the patient out-of-pocket costs for observation facility charges. The new rule still does not address previous patient financial issues, such as shifting the burden of self-administered medications onto patients (or providers) or the lack of time counting toward a skilled nursing facility benefit for nights spent in the hospital while in observation status. However, this new rule helps to clarify and cap the patient expense for an observation visit, a seemingly positive development in observation care.

Dr. Baugh is the medical director of emergency department operations at Brigham and Women’s Hospital in Boston and chairs the ACEP Observation Medicine Section.

Dr. Granovsky is president of LogixHealth, a national ED coding and billing company, as well as chair of the ACEP Reimbursement Committee.