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To properly comply with CMS' rules and regulations for medical necessity compliance, hospitals must have a firm grasp of the many nuances and changes in these regulations in order to help them during the denial appeals processes.
Additionally, a hospital's utilization review (UR) plan is the standard by which the hospital will be judged to be in - or out of - compliance with Medicare conditions of participation (CoPs) governing internal medical necessity review processes. It is imperative that a select group of departments within the hospital, including UR, finance, compliance, case management, legal counsel and medical staff, understand today's compliance rules of engagement, the current regulatory guidance related to medical necessity compliance.
Changing Roles of RACs & MACs
There are countless CMS regulations related to medical necessity compliance, but it is important to know where recovery audit contractors (RACs), Medicare administrative contractors (MACs) and other program integrity contractors focus their attention. A better understanding of the changing roles of these RACs and MACs can help in developing a strategy for challenging a MAC and appealing a RAC.
 MACs and RACs are now working together in a whole new way. As of Jan 3, 2012, RACs will be transferring the responsibility of issuing demands letters to the MACs. As a result, when a recovery auditor finds that improper payments have been made, he/she will submit claim adjustments to the MAC. The MAC will then establish receivables and issue automated demand letters for any recovery auditor identified overpayment.
Knowing how you will be judged by these contractors is the cornerstone for building a defensible medical necessity compliance strategy. Not only establishing, but also defining your hospital's UR plan can be the determining factor in the compliance arena. CMS states:
"The hospital must have in effect a utilization review plan that provides for review of services furnished by the institution and by member of the medical staff to patients entitled to benefits under the Medicare and Medicaid programs."
- § 482.30 Condition of participation: Utilization review
CMS auditors focus on "gray" or uncertain areas of medical necessity. These cases don't have an instant, clear-cut decision as to whether to classify them as inpatient or observation. The government believes that the annual error rate for cases that fall into this gray area is at least $34 billion, with two-thirds of that being related to medical necessity and utilization review practices.
The U.S. Office of Management and Budget projects that the actual annual error amount is $42 billion. With a target of this magnitude, it is incumbent for a hospital to understand its gray-area cases and put in a process to perform utilization review on this population. .
Physicians' Role in Compliance
The attending physician plays a very important role in compliance. While the UR committee is made up of physicians and non-physicians, only physicians can make the final determination on whether a patient's stay is medically necessary or not.
Most of these determinations come down to whether a patient is classified as inpatient or outpatient (observation). Understanding and applying the official guidelines and differences between the two is vital to a successful compliant program. Inpatient status means the patient was "formally admitted with the expectation that he or she will remain at least overnight and occupy a bed." It is possible that later the patient can be discharged or transferred to another hospital, but the intention needs to be that the patient would use the bed through the night.
The largest medical necessity targets are not going away. Unlike other error types, such as coding, which are conducive to edits and other straightforward remedies, the path to compliance with admission medical necessity regulation is not as clear cut. To that end, CMS is ramping up reviews, expanding the targets under the Program for Evaluating Payment Patterns Electronic Report (PEPPER) by publishing a quarterly compliance newsletter with an emphasis on medical necessity, and widening the scope of an alphabet soup of auditing agencies.
Once an admission decision has been made, the UR committee may disagree with the attending physician's decision of inpatient status. Under Condition Code 44, there is an opportunity to change the whole episode of care to outpatient, but only if specific procedures are followed. The patient must not have been discharged nor can the bill have been submitted when the decision is made. The attending physician must concur with the UR committee's decision and document it on the patient's chart.
It is critical for hospital personnel to know and understand current regulatory guidance related to medical necessity compliance. In an ever-changing landscape, staying abreast of updates to rules and regulations through CMS transmittals and communications is necessary to keep your hospital's medical necessity compliance processes accurate and defensible.
Joseph Zebrowitz is the executive vice president of Executive Health Resources.
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