At its public meeting last week in Washington, D.C., the Medicare Payment Advisory Commission (MedPAC), a congressional advisory panel on Medicare payment and policy issues, considered a number of final policy recommendations that included revisions to the Recovery Audit Contractor (RAC) program and Medicare’s inpatient status policies.  Sources report that MedPAC voted unanimously to approve all recommendations, which will be included in MedPAC’s June 2015 Report to Congress. 

As previously reported here, MedPAC unanimously approved draft recommendations regarding the RAC program and short hospital stays on March 5, 2015.

The recommended modifications to Medicare’s short stay policies and to the RAC program that MedPAC considered on April 2, 2015 are summarized in a presentation on hospital short stay policy issues as:

1. Changes to the RAC program
   1. Reduce administrative burden
   2. Increase accountability
   3. Align look-back period with rebilling window
   4. Withdraw CMS’[s] two-midnight policy


2. Evaluate hospital short stay payment penalty concept
3. Modify SNF three-day rule
4. Require beneficiary notification of observation status
5. Expand coverage for self-administered drugs

MedPAC’s recommendation to abandon the controversial Two-Midnight Rule adopted by CMS in 2013, which has been widely criticized and has not yet been fully implemented by CMS, is tied to two chief concerns cited in the presentation.  Namely, the meeting materials cite concerns that the rule exempts most two-midnight stays from RAC oversight, and creates an incentive for providers to increase the length of stay to reach two midnights.

Sources report that MedPAC voted to recommend that HHS update the RAC program to target reviews of hospitals with the most short stays.  MedPAC’s meeting materials noted that only a subset of hospitals account for many of the short inpatient stays, yet the administrative burden of RAC reviews falls on a much broader group.  MedPAC also reportedly voted to recommend that HHS modify RACs’ contingency fees based on the rate at which a RAC’s claim denials are overturned.  The meeting materials evidence MedPAC’s concern with the lack of external controls on RAC accuracy and the incentive to deny claims created by the contingency fee structure. 

The meeting materials also include a recommendation that the RAC look-back period be shortened to ensure that hospitals have the opportunity to rebill claims that RACs determine were inappropriate for Part A.  Additionally, MedPAC suggests that HHS evaluate whether to establish a penalty for hospitals with excess rates of short inpatient stays as a full or partial alternative to the RAC program.

Finally, the presentation included recommendations to revise the three-day hospital stay requirement for skilled nursing facilities, to require beneficiary notification of outpatient observation status, and to expand coverage of self-administered drugs to cover those furnished to hospital outpatients under observation.  As noted at the outset, sources report that MedPAC voted unanimously to approve all recommendations.  As of press time, the meeting transcript reflecting the vote has not yet been posted.

To view the meeting materials from MedPAC’s April 2015 meeting, click here.  The presentation on hospital short stay policy issues is available by clicking here.

Reporters,  Isabella Edmundson, Atlanta, GA, + 1 404 572 3527, iedmundson@kslaw.com, and Lauren S. Gennett, Atlanta, + 1 404 572 3592, lgennett@kslaw.com.