CM Basics
Need help sorting out observation status?
HCFA, private insurance differ in definitions
If you’ve been frustrated with the many facets of the term "observation," you’re not alone. Hospital case managers and utilization managers report spending hours chasing paperwork for this complicated reimbursement issue. The Health Care Financing Administration (HCFA) defines observation status as "those services furnished by a hospital on the hospital’s premises, including use of a bed and periodic monitoring by a hospital’s nursing or other staff, which are reasonable and necessary to evaluate an outpatient’s condition or determine the need for a possible admission to the hospital as an inpatient.
Such services are covered only when provided by the order of a physician or another individual authorized by state licensure law and hospital staff bylaws to admit patients to the hospital or to order outpatient tests. Most observation services do not exceed one day."1
Examining the definitions
The problem is, HCFA’s definition doesn’t necessarily match the definitions of other insurance and managed care companies, says Onnie Davis, RN, utilization specialist at St. Vincent Hospital in Santa Fe, NM. In cases where the patient develops complications after an outpatient surgery and needs to stay longer than 24 hours, you can run into problems. "We can possibly do patients a disservice if we don’t consider the various rules set up by insurance companies," she points out. "If we change them to inpatient, it really changes the patient’s benefit. Their inpatient benefit might have a different copayment, for instance."
Davis sees confusion on the part of the physicians, as well, she says. The doctor’s office calls ahead to say, "This patient will come in tomorrow and will be observation status," she explains, "but according to HCFA, it’s not appropriate to order observation status before the patient has the procedure." On the other hand, some private insurance companies will approve them, she adds.
Davis’ goal is to know the variations among all the managed care companies. "Every insurance company has its own take on it — its own policy. Some even call and say, We don’t recognize observation.’ It’s rare, but it happens." Most frustrating to Davis is that even representatives from the companies sometimes don’t know their own policies. "I’ve not found it very simple to ask insurance companies; they don’t have a sense of . . . what the benefits are," she says.
Quick fix: Don’t use it
According to Betty Goularte, RN, BSN, CPHQ, director of inpatient and outpatient case management at University Health System in San Antonio, you can make it very simple. "For the most part, I discourage using observation status after traditional outpatient procedures," she says.
"Built into your payment on those, for most people, is a recovery time. So if I’ve got regular recovery, regardless of whether the doctor decides it’s three hours or 10 hours, it’s part and parcel of the procedure. On the other hand, we do tell our physicians [that] post-surgery, when you feel the patient is really not stable, then yes, place them in observation status," Goularte says. "For that I will bill the payer, but I’ve got medical necessity backing it up. If you’re going to keep them over that 24-hour period, you’re going to have to justify it to our case managers."
At Wellstar Health System in Marietta, GA, "Basically we have to individualize each case," explains Claire Housholder, RN, utilization management manager. "In some instances, [the Medicare HMO payer] will go ahead and approve 48 hours, and in other cases, you’ll get a medical necessity denial, and you pursue an appeal if you feel it’s appropriate," she explains.
Housholder points out, of course, that launching an appeal process creates extra work and sometimes frustration for the case manager or utilization manager. "It’s very difficult because the other side of the coin is based on what your contract reads. If you have a capitated contract — part of ours is, because we have physicians in a network, so we accept a flat rate per member, per month, rather than being paid per diem or per procedure performed — so it’s all very complex and tedious," she says.
At Wellstar, case managers determine whether the claim falls under capitation or not, and if not, they weigh the options: to appeal or not to appeal, Housholder says.
Physician reviewers play a role
Housholder says running the appeals process is easier when on-site medical reviewers are available. "We have stressed to our on-site reviewers that they’re to speak with the nurse responsible for the unit where the patient is, and also if there’s a denial, to talk to the coordinator at the facility.
Of course, other managed care plans don’t have an on-site reviewer. "That’s a source where you leave a voice mail message, and at their discretion, they’ll get back to you," Housholder says. "It’s even harder when you deal with companies that don’t even have a voice mail option. Then you have to repeatedly call back and try to get the information."
Davis’ department is working on a policy that will help staff understand the different observation status programs and rules. "It’s a mess; I am really concerned about coming up with a solid policy until we really understand what everybody is looking at and what it will mean in the long run, financially." But establishing a policy is what she would like to do, she says, "because it just leaves room for so much more error if you don’t have one."
[For more information, contact:
• Onnie Davis, RN, Utilization Specialist, St. Vincent Hospital, 455 St. Michael’s Drive, Santa Fe, NM 87505. Telephone: (505) 995-4889.
• Betty Goularte, RN, BSN, CPHQ, Director of Case Management, University Health System, 4502 Medical Drive, Suite 105, San Antonio, TX 78229. Telephone: (210) 358-2095.
• Claire Housholder, RN, Utilization Management Manager, Wellstar Health System, 805 Sandy Plains Road, Marietta, GA 30066. Telephone: (770) 792-5484.]
Reference
1. Department of Health and Human Services, HCFA. Medicare Hospital Manual. Transmittal 761, Section 230.6, Sept. 15, 2000. Web site: www.hcfa.gov/pubforms/.
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