A Post-Mortem on Medical Necessity Criteria – Not So Fast

February 24, 2023

The proposal from the Centers for Medicare & Medicaid Services to codify the requirement that all Medicare Advantage plans use the Two-Midnight Rule for determining admission status of all patients has some talking that the use of commercial criteria will become obsolete. In the proposed rule, CMS says “This means that when an MA organization is making a coverage determination on a Medicare covered item or service, the MA organization cannot deny coverage of the item or service based on internal, proprietary, or external clinical criteria not found in Traditional Medicare coverage policies.” At face value, this suggests exactly that; criteria are prohibited for determining coverage by Medicare for any service. But let’s take a closer look.

Status is payment

First, as I have often discussed, care provided to a patient who is hospitalized as outpatient should almost always be the same as the care provided to a similar patient who is admitted as inpatient. The exception would be a hospital that has an on-campus, within 250 yards of the main facility, outpatient building that is physically separate from the main facility where patient care is provided, such as an outpatient surgery facility. The difference between an inpatient and outpatient is mostly an issue of payment for that care. In fact, in hospitals all over the country, outpatients receive complex, multi-day care, often in the critical care units, simply because the physician forgot to write the three words “admit as inpatient.” To quote Dr. Bart Caponi at University of Wisconsin Health, “you can do a heart transplant under outpatient status.”

Of course, there may be effects on the patient, such as Medicare’s long-obsolete rule from 1965 requiring three consecutive inpatient days to access the part A skilled nursing facility benefit (now waived during the COVID-19 PHE), and the difference in copayments, coinsurance and deductibles. These are important to understand but should never be used to determine the admission status of a patient.

It is more than status

But noting the difference is just payment between inpatient and outpatient is not one that can be taken lightly. In almost all cases, the direct inpatient payment far exceeds the outpatient payment for the exact same care. In addition, the structure of the Medicare payment system provides crucial financial support to hospitals through additional payments made for inpatient days and not outpatient days. For large institutions, that can be millions of dollars, and for smaller facilities the payments would be smaller but no less crucial to the viability of the hospital.

Understanding that I cannot change the whole health care payment structure alone, I, like all of you, must work with what we have. And honestly what we do have, other than an incomprehensible payment structure, is a wide variation in how care is provided across the country. And that is where commercial criteria play a crucial role. Most physicians work in their own microcosm, caring for patients as they have always been doing, providing the best care they can. They are increasing faced with mandates from external organizations, requiring completion of prior authorization forms, abiding by step therapy to prescribe the necessary medication, documenting diagnoses to a specificity that allows the payer to optimize the patient’s risk score, responding to hundreds of requests for medical records from payers and lawyers, providing “back to work” notes for patients they never saw during their illness, and on and on, all while facing significant year-over-year payment cuts. They most likely also recently attended a mandatory “wellness and work-life balance” seminar that has them rethinking the many times they neglected their own health and their family for the sake of their patients and their practice. You can bet that finally tackling that huge stack of unread journals in the corner of their office is not high on the list of things to improve that balance.

Is the care necessary?

And with all that, they may not be able to keep up with the ever-changing medical literature on what is considered best practice for every condition they treat. There are other factors at play such as medical liability risk, patient preference, availability of specialty services at the hospital and in the community, and access to alternative sites of care, as we are seeing now with the staffing issues faced by nursing facilities all over the country. What that means is that in most facilities, there are patients receiving hospital care who do not want to be in the hospital. I spoke recently to a physician advisor who noted that his facility had over 50 patients boarding in various locations around the hospital, including the recovery room and the auditorium, because there were no open beds. The question to ask is: How many of their other patients currently hospitalized, either as inpatient or outpatient, occupying a hospital bed and requiring nursing and physician care, have medical necessity for hospital care?

For a not insignificant number of hospitalized patients, they remain hospitalized but do they truly have medical necessity for ongoing hospital care? Does the patient with cellulitis who is eating well and getting intravenous antibiotics require continuing hospital care “for another day or two” or could they be discharged today? Does the doctor really need to wait until the patient with a COPD exacerbation is completely asymptomatic to discharge them? Did the patient who is hospitalized for chest pain need to be seen by a gastroenterologist to consider an EGD during their stay or could that be done as outpatient? Is the patient in the ED with a resolved transient neurologic deficit of low enough risk to have an ambulatory workup or should they be kept in the hospital?

Payer delays abound

And then there are the payer delays that result in patients remaining hospitalized without medical necessity. Many payers require 48 to 72 hours to approve transfer to an inpatient rehabilitation facility or skilled nursing facility, and it is rare to get approval for transfer to a long-term acute care hospital with the first attempt. And for some payers, they will not even consider the request until the patient is stable to be transferred. That means the patient remains in a hospital bed, perhaps receiving some therapy but certainly not of the intensity or duration they would receive at the IRF, LTACH, or SNF.

ED boarding at breaking point

Each time we ask the question “does this patient continue to need continuing hospital care?” we are also asking “can we open a hospital bed for a patient who is now occupying an ED hallway bed, cared for by a nurse who is caring for way too many patients or boarding in the recovery room under the care of a nurse whose specialty is post-operative care?” In many cases, there is no payment at stake so the payer does not care if the patient stays another few days. But the patient using a bedpan in an ED hallway who has been boarding in the ED for 36 hours cares if the beds upstairs are occupied with patients who do not need to be there and so you should.

Criteria to the rescue

And that is where commercial criteria come in. They can help answer that question – does the patient require hospital care, not based on what the patient wants or what is convenient or what will improve the emergency department throughput time or what is always done for patients like this in our community, but rather what does the medical literature say is medically appropriate for that patient?

Now I acknowledge that the two most used commercial criteria have separate criteria for inpatient and observation, but as I discussed above, it is about needing hospital care. No matter how well these criteria try to separate inpatient and observation, and even if they use Medicare’s Two Midnight Rule as the gold standard, a payer is still going to say, “we have our own rules on status.” To me, their definition of what constitutes observation or inpatient is certainly beneficial for the payers who commit to following those guidelines, and agree to pay hospitals equitably for that care, but it is not a necessity. If a payer wants patients to be classified as observation for 7 days, as long as the direct and indirect payments to the hospital and providers are at least as much as would be paid if the patient was inpatient, and there are no adverse effects on the patient, then that is fine with me. Status is not patient care but need for hospital care is.

Criteria is evidence-based

The developers of these tools have subject matter experts who spend all day searching PubMed for new literature on patient care. When I started in practice in the 1990’s, a patient hospitalized with a COPD exacerbation was switched to prednisone and kept hospitalized for a day or two to ensure they don’t have rebound. But studies then showed that was not necessary. If they met a set of discharge criteria, they could be safely discharged home that day, regardless of how they were receiving corticosteroids. If I continued to practice as I did in 1991, the use of criteria by the hospital utilization review staff, with physician advisor support, would allow me to be updated on current practice and the safety of adjusting my practice patterns. My patients’ hospital length of stay would be shortened without jeopardizing their safety.

Aside from continuing stay, criteria can also be used in the ED to determine which patients require a period of monitoring in the hospital and which can be safely discharged for outpatient management. The criteria provide discreet data points that help separate those two groups. If it is safe for a patient with a resolved or minor symptom to be discharged, why would the patient want to be hospitalized and why would the payer want to pay for that unnecessary care?

The first step, not the last

Of course, the criteria is not perfect. Failing criteria is the first step, not the last step. It is a signal to the case manager or physician or physician advisor to look for extenuating circumstances that require the patient to remain hospitalized. No guideline, no matter how comprehensive, can account for the myriad of patient conditions and comorbidities. Perhaps one day a computer will be able to do that but not today. There are tools that look at data elements and attempt to predict hospital need but most use historic data to make that determination, but just because 85% of patients who presented with a specific constellation of symptoms were hospitalized and stayed two days does not mean that all of them actually needed that care.

Track your avoidable days and delays

Criteria use is also an excellent opportunity to find and track avoidable days and delays and use that data to make substantive changes in process. The patient who passes no criteria for ongoing hospital care but is staying because their insurance has not yet approved the SNF has avoidable days attributed to the payer. The patient who passes no criteria and needs a PICC line to go home safely but there is no staffing for PICC placement on weekends has avoidable days attributed to the hospital. The patient whose medical condition has resolved and passes all discharge screens, but the physician does not round to discharge until 9 pm and orders “discharge in am” has an avoidable day attributed to the physician.

Will criteria be obsolete after the CMS rule is finalized? Absolutely not.

Author Bio: Dr. Ronald Hirsch is Vice President of the Regulations and Education Group at R1 RCM Inc. Dr. Hirsch was a general internist and HIV specialist and practiced at Signature Medical Associates, a multispecialty practice located in Elgin, IL. He was Medical Director of Case Management at Sherman Hospital in Elgin, IL from 2006 to 2012, where he was Chairman of the Medical Records Committee from 1995 to 2012, and also served on the Medical Executive Committee. Dr. Hirsch is certified in Health Care Quality and Management by the American Board of Quality Assurance and Utilization Review Physicians, certified in Revenue Integrity by the National Association of Healthcare Revenue Integrity, and on the Advisory Board of the American College of Physician Advisors. He is on the editorial board of RACmonitor.com. He is the co-author of The Hospital Guide to Contemporary Utilization Review, with the third edition published in 2021.

Subscribe to our email list to get the latest in your inbox