On May 20, 2015, the Senate Special Committee on Aging held a hearing entitled “Challenging the Status Quo: Solutions to the Hospital Observation Stay Crisis.”  Chairman Susan Collins (R‑ME) and Ranking Member Claire McCaskill (D‑MO) noted that they frequently hear from beneficiaries as well as providers regarding the impact of CMS hospital observation policies and Recovery Audit Contractor audits.  Senator McCaskill, who served as the Missouri state auditor and chaired this hearing, did not support removing the contingency fee structure from the RAC program as outlined in H.R. 2156, the Medicare Audit Improvement Act of 2015, but she did support mechanisms to penalize RACs for inaccuracy.  She observed that there was a need to realign incentives and for greater CMS oversight of RACs, to ensure that audits were focused on areas that have higher rates of improper payments.

Senators urged CMS to implement its December 2014 RAC program changes now, rather than waiting until the new RAC contracts.  Several Senators indicated concern over recent congressional testimony from Chief Administrative Law Judge Nancy Griswold, who stated that five health systems are responsible for over half of all OMHA’s appeals in 2015.

The following participants testified during the hearing: 

• Sean Cavanaugh, Deputy Administrator And Director, Centers for Medicare and Medicaid Services, recounted CMS efforts to provide greater clarity around the issues of determining whether an inpatient admission is reasonable and necessary and indicated that CMS is considering hospital and physician feedback on the two-midnight rule carefully, as well as the recent recommendations of the Medicare Payment Advisory Commission (MedPAC).  CMS expects to include a further discussion of issues related to short inpatient hospital stays, long outpatient stays with observation services, and the ‑0.2% IPPS payment adjustment in the CY2016 hospital outpatient prospective payment system (OPPS) proposed rule, to be published later this summer.  Mr. Cavanaugh’s testimony can be found here.

• Mark E. Miller, PhD, Executive Director, Medicare Payment Advisory Commission, reported that MedPAC developed recommendations to provide greater protection to beneficiaries, reduce administrative burdens on hospitals, while ensuring Medicare is not overpaying for hospital care.  Dr. Miller’s testimony can be found here. 

• Dr. “Jeetu” Nanda, System Medical Director, Informatics And Physician Compliance, SSM Health, testified on behalf of the American Hospital Association (AHA), noting that RACs frequently second guess the treating physician’s judgment, made at the time the patient is seen, and that Department of Justice attorneys are using the False Claims Act to challenge physicians’ inpatient admission decisions.  He cited AHA statistics that hospitals appeal 78% of denied RAC determinations, as well as HHS OIG data showing that 72% of the hospital appeals that go to the third level are overturned in favor of the hospital, an indication that RACs often deny claims that are appropriate.  Dr. Nanda’s testimony can be found here. 

• Spencer Young, President, Health Data Insights, noted that the moratorium placed on RACs to prevent audits as part of the implementation of the two-midnight rule, and the current program “pause” until finalization of the new contracts, have scaled back the effectiveness of the RAC program, resulting in billions of dollars of improper payments not being recovered and restored to the Trust Fund.    Mr. Young recommended that the Committee pursue appeals reform as documented in the 2012 HHS OIG report, empower MACs to offer provider education on Medicare policies, increase collaboration among stakeholders, and have CMS provide consistent program integrity oversight.  Mr. Young’s testimony can be found here. 

• Tori Gaetani, Director Of Care Coordination, Population Health, Beacon Health, testified about Beacon Health’s experience with the Pioneer ACO waiver of the requirement that Medicare beneficiaries spend three nights in an acute care hospital to access the skilled nursing facility benefit.  Ms. Gaetani’s testimony can be found here. 

The King & Spalding RAC Coalition continues to press for fundamental and lasting RAC reform.  The Coalition is an ad-hoc group of hospital clients created in April 2013 in an effort to communicate jointly to CMS and Congress the need for meaningful and common-sense reforms to the RAC program.

Reporter, Allison Kassir, Washington, D.C., +1 202 626 5600, akassir@kslaw.com.