Loony Medicare rules can turn a hospital visit into a costly adventure

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

Today, Phil weighs in on the Medicare rules that make a financial distinction between certain visits to the hospital depending on how doctors characterize them and even the time of day.

Moeller is a research fellow at the Center on Aging & Work at Boston College and co-
author of “How to Live to 100.” He wrote his latest book, “How to Get What’s Yours: The Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. Follow him on Twitter @PhilMoeller or e­mail him at medicarephil@gmail.com.

Welcome to yet another chapter of the loony world of Medicare rules. You will need to pay careful attention here to fully appreciate Medicare’s lack of common sense.

Today’s installment revolves around what is called the “Two Midnight Rule,” which may affect whether your visit to a hospital is considered a formal admission or an observational stay. The distinction is hugely important because Medicare pays a whole lot less for observational hospital stays than admissions. By the way, this is true even if the actual care a person receives in both situations is identical – same doctors, same procedures, same medications, same supplies, same everything.

When Medicare pays less, Medical beneficiaries usually pay more, and occasionally a lot more. This is an “it depends” consequence that hinges on the differential costs of whether the visit is covered by Medicare Part B (as an out-patient) or Medicare Part A (as an in-patient). Being on the hook for steeper out-of-pocket expenses would be something nice for patients to know before they undergo treatment. But there is no requirement for hospitals or doctors to tell patients whether their stay is considered observational or an admission. And in their defense, of course, caregivers may not know at the time the patient enters the hospital for evaluation.

Further, and potentially more serious, in order for Medicare to provide insurance for subsequent short-term stays in skilled nursing facilities, patients are required to have had at least three days of hospital care as admitted patients. When they are treated as observational patients, they can’t qualify for such nursing care, which can be very expensive if not covered by Medicare.

Are the pupils of your eyes dilating yet with incredulity? Read on.

Medicare contracts with private companies as recovery audit contractors (RACs). RACs audit a lot more than whether a patient’s stay is observational or an admission. But their incomes are linked to how much money their audits can recover, and the observational-admission revenue differential has been seen as attractive low-hanging fruit for recovery efforts. If RACs could show that providers inappropriately billed a Medicare patient’s hospital visit as an admission instead of an observational stay, it just might be cork-popping time.

One of the measures used to determine the appropriateness of these admission decisions is the patient’s subsequent health status. This seems logical but the RACs don’t have to make these decisions in real time, as doctors and hospitals do. Instead, they can select observation-admission decisions made as far back as three years, look at subsequent patient outcomes, and then initiate recovery procedures if certain patients with healthy post-hospital outcomes had been admitted rather than treated on an observational basis. Health care providers face the loss of not just their excess billings but all their billings for a patient.

To avoid these potentially costly RAC audits, hospitals and doctors began classifying more and more hospital visits as observational. Between 2006 and 2012, Medicare hospital visits were about flat but observational visits rose nearly 90 percent to 1.8 million, according to the Medicare Payment Advisory Commission (MedPAC), which advises Congress about Medicare.

To counter this trend, Medicare instituted the Two Midnight Rule in 2013. It says that if a patient’s medical condition could reasonably be expected to require staying in the hospital more than two midnights, he or she should be formally admitted and care should be billed accordingly.

I can find no clinical basis for a Two Midnight Rule as opposed to the “Two 8 A.M. Rule” or the “1.9 4 P.M Rule” or the “Whatever Reasonable Time We Say It Is Rule.” Medicare needed a time measure and this was the one it chose.

By giving the RACs a more precise time measure to use in their audits, however, the rule ran into stiff opposition from health care providers, and Medicare has prevented the RACs from auditing hospitals and doctors over its use. This has effectively prevented RACs from auditing hospital admissions longer than two days. RACs say this has permitted some hospitals to abuse the system and boost their Medicare revenues. The hospitals deny this.

The ban on enforcing the Two Midnight Rule was set to expire last month but has been extended until the end of April. It would be extended for six more months under the so-called Medicare “doc fix” bill that recently passed the House and is awaiting Senate action next week when Congress is back in session.

MedPAC commissioners voted late last week to recommend that CMS junk the Two Midnight Rule altogether as part of broader recommendations to improve the RAC program. AARP is readying a study that will include information about the financial impact on Medicare beneficiaries from this mess.

Meanwhile, Medicare also has stepped up its efforts to reduce hospital readmissions, which cost the system a pretty penny. Its thinking is that hospitals’ efforts to discharge Medicare patients prematurely have contributed to this trend, and that socking offenders with financial penalties for high readmission rates will improve care and save money.

One way to avoid readmissions is to never admit the patient in the first place, but classify their visit as observational. Is this a cynical explanation for why some Medicare beneficiaries are not admitted to the hospital?

You bet. And why should this be surprising?

Your Medicare Questions

Medicare rules and private insurance plans can affect people differently depending on where they live. To make sure the answers here are as accurate as possible, Phil is working with the State Health Insurance Assistance Program (SHIP). It is funded by the government but is otherwise independent and trains volunteers to provide consumer Medicare counseling in state and local offices around the country. The nonprofit Medicare Rights Center is also providing on­going help.

Dennia – Mo.: I retired from an employer who partially paid my medical coverage as part of my retirement compensation in 2013. I did not take Medicare B at 65 because I worked for another company until two weeks ago. I am 66 now and am at full retirement age for Social Security. I discovered that although I have retirement medical coverage partially paid by my ex-employer, I have to pay a penalty for Medicare Part B coverage because I refused it when I turned 65 thinking that since I had retirement coverage and paid more than $675 a month for medical benefits, that I did not need to take Medicare B and pay another $208 a month on top of the $675 I already was paying. To add salt to the wound, I found out that I have to wait until June before Medicare Part B becomes effective. Can you help me understand how they can make me wait until June before I can use Medicare Part B and also have to pay a penalty on top of the $208 each month? The bills I am getting already have reached more than $5,000.

Phil Moeller: Wow, Dennia! I thought for sure that the health care advisors at SHIP who help me with these answers would have whistled a foul on Medicare for how you were treated. But, no, it turns out that the regulatory thicket that passes for Medicare’s rules actually produced an outcome that was correct for your situation.

While this explanation may not help you, it is yet another cautionary tale that what you don’t know about Medicare can hurt you. Ignorance of its rules is no excuse, even if those rules are effectively impenetrable to Medicare beneficiaries.

You are correct that the requirement to get Medicare at age 65 is waived if you have group health coverage from an employer (unless the employer has fewer than 20 employees). But the fine print here (which, honestly, I had never stopped to think about until now) is that this group health coverage has to be provided by an employer where you actively work. In your case, you were working for an employer, but your health insurance was not from that employer but from a previous employer.

Medicare has a special enrollment period that allows 65-year-olds with group health coverage from a current employer to defer enrolling in Medicare until they leave their job or cease getting health coverage from this employer. Because this was not your situation, you fall under the program’s general enrollment provisions. And because you missed the time frame for applying under these general rules, you face premium penalties and the related coverage hassles you describe.

It will not come as a surprise that I am not on the list of people that Medicare consults about its rules. I doubt Medicare beneficiaries are, either. But it seems to me that paying a premium penalty is bad enough without also having to go without coverage for months because of what is nearly always an unintentional failure to sign up for Medicare. The purpose of the program is to insure people and encourage healthy behaviors. That’s not happening here.

Dawn – Pa.: I have a Medicare Advantage. I don’t mind the $8 co-pay to see my primary care physician (PCP), but I have a $40 co-pay at each therapy and medical check-up appointment at my community mental health facility. Is this the average with Medicare Advantage plans? Would I possibly be paying less with just a Part D prescription plan? My therapist is licensed to bill Medicare.

Phil Moeller: As with most matters regarding Medicare, Dawn, your answer is “maybe” or “it depends.” Realistically, your best bet is to spend a lot of time around Labor Day reviewing all the Medicare plans available next year in your ZIP code. Then, when 2016 open enrollment begins in early October, you can make an informed choice about the coverage combination that is best for you.

Your choice will be between Medicare Advantage and traditional Medicare, which includes Part A (hospital) and Part B (physician, outpatient and certain equipment) expenses. Also, traditional Medicare saddles you with a 20 percent co-pay with no maximum out-of-pocket ceiling. Many people insure against this exposure by buying a Medicare Supplement plan, also known as Medigap coverage. On the flip side, traditional Medicare lets you choose from among all participating doctors, whereas a Medicare Advantage plan may levy you steep upcharges for going outside its provider network.

Medicare Advantage plans have to cover everything that traditional Medicare covers in Parts A and B of the program. But they can set their own co-pay rates. Some MA plans offer dental and other benefits that traditional Medicare does not. Most MA plans include drug coverage but some do not, permitting you to sign up for a separate Part D drug program. I wouldn’t try to benchmark plans against an average cost. Trying to develop an average is hard and could produce misleading results anyway. Besides, the costs that matter are your costs, not some average.

Step one for most people is to find out what plans their doctors participate in. Next, go to Medicare’s Plan Finder and do a very thorough assessment of the premium, deductible and co-pay costs for each plan. Don’t do this before details for 2016 plans are loaded into Plan Finder. There are enough plan changes from year to year that the best choices in 2015 may not be the best choices next year.

This is particularly true of your prescription drugs. Each insurance plan has its own drug formulary. Pay special attention here to the different levels, or tiers, of a plan’s drug coverage. More expensive drugs are included in the upper tiers of a plan’s formulary, which usually saddle consumers with higher proportions of drug expenses. You can analyze MA drug plans and stand-alone Part D drug plans as part of your comparison.

You will face trade-offs in making your decision, and I’d make a list of plusses and minuses as I went through the various plan choices. Your local SHIP office, at (800) 783-7067, can help guide you through this process.

Editor’s Note: A wrong link was given to readers to submit questions to Ask Phil in an earlier version of this post. The link has been fixed and we regret our error.