Category Archives: Newsletters

CMS Releases Final MOON (Medicare Outpatient Observation Notice)

CMS has published the long-awaited, final Medicare Outpatient Observation Notice (MOON) which all hospitals and critical access hospitals (CAHs) are required to provide to certain beneficiaries beginning no later than March 8, 2017.  The purpose of the notice is to inform beneficiaries (including Medicare health plan enrollees) that they are an outpatient receiving observation services and are not classified as an inpatient.  The MOON is mandated by the Federal Notice of Observation Treatment and Implication for Care Eligibility Act (NOTICE Act) that was passed on August 6, 2015. 

To access the CMS notice that includes a link to the final document as a pdf and Word document along with instructions, click here

As always, if you have any questions do not hesitate to contact us.

Joan C. Ragsdale, JD
Chief Executive Officer

Ann M. Purdy, CPA
Chief Development Officer

CMS Set to Resume Audits of Short Inpatient Stays

On September 12, 2016, CMS announced that the BFF-QIOs (KEPRO for areas 2, 3, 4 and Livanta for areas 1 & 5) will resume auditing of 0 and 1 midnight hospital stays. As you will recall, the Two Midnight Rule was implemented October 1, 2013 in attempt to clarify patient status requirements. If a patient is expected to require medically necessary services in the hospital for a period spanning two midnights, an order for inpatient status is appropriate. Conversely, if the patient is not expected to require services for a period spanning two midnights (such as where the patient requires an outpatient surgery even if the patient stays one midnight) or is scheduled for short term diagnostics or monitoring for a period not expected to span two midnights, then outpatient status is generally appropriate. Actual length of stay is not determinative; there are appropriate inpatient stays where the actual stay is less than 2 midnights such as when the patient leaves AMA, recovers more rapidly than expected, is transferred unexpectedly, etc. Similarly, the patient may actually cross two midnights but may be in the hospital for at least a portion of the stay for patient or physician convenience or for social reasons, and inpatient status may not be appropriate. Thus, CMS has targeted for audit those cases where the actual length of stay in inpatient status is 0-1 midnights. For example if a patient is placed in outpatient status on Monday and remains in the hospital until Friday of the same week, but the inpatient order status was not written until Thursday and the patient was discharged Friday, the case is a 1 day stay (1 midnight after the inpatient order) and it is therefore in the pool of cases that CMS will audit. In this example if the inpatient order had been written as late as Wednesday and the patient was discharged on Friday, the inpatient stay would be for 2 midnights or greater, and the case would therefore not be in the targeted pool for audit of short inpatient stays.

Hospitals have started receiving record request letters from KEPRO and Livanta for chart review. QIO reviews are limited to a six-month look-back period from the date of admission. This is designed to allow providers receiving denial for Part A claims to have sufficient time to rebill under Medicare Part B. QIOs will request a minimum of 10 records in a 30-45 day period. The maximum number of record requests will be 30 records in 30 days. QIOs will rate and stratify providers for education and corrective action based upon the results of the completed initial patient status claim reviews. One-on-one provider education is available claim-by-claim. At the direction of CMS, the QIO will refer providers with inpatient status claims identified as having “major concerns” to the Recovery Audit Contractor to implement provider-specific audits.

Though the “Two Midnight Rule” has been in effect for nearly three years, there remains great confusion about what documentation is required to support an inpatient order. Because the record must support the expectation of the ordering physician that the patient requires care in the hospital setting for a period expected to span two midnights it is critical to understand the importance of documentation about both the patient’s severity of illness and about the treatment plan needed to address the patient’s condition. When first implemented, the Two Midnight Rule required a physician certification that the patient was expected to require care spanning two midnights. Effective January 1, 2015 the certification requirement for acute care admissions was withdrawn, but of course, there remains a requirement that the clinical documentation provide evidence that two midnight stay is required. It is vitally important to engage physician advisor resources to review the clarity of the clinical documentation on an internal audit basis and to provide feedback and resources to medical staff in order to avoid denials attributable to weak documentation. An investment of time and resources to understand documentation vulnerabilities can provide significant returns in reducing denials and appeals.

One final note on CMS activity: CMS has announced that there will once again be an opportunity to settle pending Medicare appeals. No details have yet been released, but the details should be forthcoming shortly. The announcement was posted on September 28 in the following link:
(scroll past “End of Temporary Suspension of the BFFCC-QIO Short Stay Reviews” as well as “Update 12/31/2015” to view “Hospital Appeals Settlement Updated 9/28/2016”). We will all stayed tuned to the CMS guidance on audits and appeals.

If you would like to discuss this review or have questions about this newsletter, contact Ann M. Purdy at As always, we welcome the opportunity to talk with you and to provide assistance.

We will stay tuned to the CMS guidance on audits and appeals so we can keep you informed as news is released.

Joan Ragsdale, J. D.
Chief Executive Officer
EdiPhy Advisors and MedManagement LLC
1500 Urban Center Dr., Suite 325
Birmingham, AL 35242

Client Newsletter October 4, 2016

ALERT: CMS 1633-F 2016 OPPS Final Rule

On Friday, October 30, 2015  CMS released a Fact Sheet and response to comments related to the changes to the Two Midnight Rule reflected in the 2016 Hospital Outpatient Prospective Payment System Final Rule (“OPPS Final Rule.”)   The OPPS Final Rule is scheduled to appear in the November 13 federal register.  CMS explicitly notes that it is not changing its policy with respect to hospital stays meeting the two midnight benchmark  where the “patient is reasonably expected to stay at least two midnights, and where the medical record supports the expectation that the patient would stay at least two midnights.” The OPPS Final Rule expands Part A for cases that do not meet the benchmark to provide that Part A payment may be permitted on a case-by-case basis for inpatient admissions that do not satisfy the 2-midnight benchmark if “the documentation in the medical record supports the admitting physician’s determination that the patient requires inpatient hospital care despite an expected length of stay that is less than 2 midnights.”

What documentation is required to support inpatient status?  CMS notes that the physician’s judgment is based on criteria previously appearing in CMS directives (including those related to the benchmark) such as

  • The severity of the signs and symptoms exhibited by the patient;
  • The medical predictability of something adverse happening to the patient; and
  • The need for diagnostic studies that appropriately are outpatient services (that is, their performance does not ordinarily require the patient to remain at the hospital for 24 hours or more).“…we note that while we do not refer to “level of care” in guidance regarding hospital inpatient admission decisions, but, rather, have consistently provided physicians with the aforementioned time-based guidelines regarding when an inpatient hospital admission is payable under Part A, we do note that, by definition, there are differences between observation services furnished in the outpatient setting and services furnished to hospital inpatients.  Specifically, observation services, as defined in Section 290 of Chapter 4 of the Medicare Claims Processing Manual are well-defined set of specific, clinically appropriate services, which include ongoing short-term treatment, assessment, and reassessment, that are furnished while a decision is being made, regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital (emphasis added, p. 968, CMS-1633-FC/1607-F2).”    In previous communication CMS has explicitly noted that there is no distinction between inpatient services and outpatient services, and thus, the return to circular logic that outpatient services are those rendered on an outpatient basis is not only troubling for facilities trying to ensure that appropriate status decisions are made, the language also is troubling because it would appear to provide auditors with tools to deny inpatient stays based on the intensity of service.MedManagement will continue to provide updates as sub regulatory guidance is released, and as we have done in the past, MedManagement will be reaching out over the next few weeks to address client specific issues.  In the interim, do not hesitate to contact me if I can be of assistance.Joan Ragsdale, J. D. Chief Executive Officer MedManagement LLC 205-970-8804
  • The CMS fact sheet can be viewed here.
  • CMS notes in the final rule that the use of Beneficiary and Family Centered Care Quality Improvement Organizations (QIOs) is designed to provide greater collaboration and education with providers. The QIOs began reviews of short inpatient hospital stays October 1, 2015 and will review short stays not meeting the two midnight benchmark on a case by case basis to determine if a case meets the new exception for cases not meeting the benchmark beginning January 1, 2016.   CMS declined the adoption of an evidence based standard for clinical reviewers and noted that the technical requirements for medical reviewers will be released in sub regulatory guidance not later than December 31, 2015. When the QIO denies a claim, the QIO will give the provider claim specific information and an opportunity to talk with a QIO clinician knowledgeable about the reviewed claims.  After the discussion, the QIO will provide a final results letter to the provider, will refer any denied claims to the MAC for payment adjustment and may make referrals to the Recovery Auditors for additional auditing.  CMS also noted several changes that have been made or are being made to the Recovery Auditor program, including limiting the look-back period for patient status reviews to 6 months.
  • In the commentary, CMS references the provision in Section 10, Chapter 1 of  Medicare Benefit Policy Manual which provides that when a beneficiary receives a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for only a few hours (less than 24), the services should generally be billed as outpatient services and notes “Accordingly, we would expect it to be rare and unusual for a beneficiary to require inpatient hospital admission after having a minor surgical or other treatment in the hospital that is expected to keep him or her in the hospital for only a few hours and not at least overnight ( emphasis added, p. 957 of the commentary CMS-1633-FC/1607-F2).”   Several references are made to the 24 hour/overnight standard that was in place prior to the adoption of the  two midnight rule.  When specifically asked whether the new case by case analysis was a return to the “level of care approach” for status analysis, CMS noted as follows:


As part of the 2016 Hospital Outpatient Prospective Payment System (OPPS) proposed rule (CMS-1633-P), CMS released proposed changes to the Two Midnight Rule.  These proposed changes are described in the CMS Fact Sheet released July 1, 2015 (link below).  CMS declined to abolish the Two Midnight Rule, and instead noted that the proposed changes are intended to address two issues:

“Proposing to change the standard by which inpatient admissions generally qualify for Part A payment based on feedback from hospitals and physician to reiterate and emphasize the role of physician judgment;  and

….Quality Improvement Organizations (QIOs) will oversee the majority of patient status audits, with the Recovery Audit program focusing on only those hospitals with consistently high denial rates” (emphasis added).

According to CMS, the proposed change in the review standard for inpatient cases subject to the Two Midnight Rule does not affect cases in which the admitting physician expects the patient to require hospital care that spans at least two midnights.  The change relates only to cases in which “the physician expects the patient to need less than 2 midnights of hospital care and the procedure is not on the inpatient only list.”  The proposed rule provides that if the physician expects the patient to need less than 2 midnights of hospital care, the case may still be payable as an inpatient admission based on the “judgment” of the admitting physician that inpatient services are warranted. The proposed regulations indicate that the payment determination will be made on a case by case basis. The proposed regulations note that these cases are subject to medical review by the QIO.  Further CMS reiterates that (as with all inpatient status determinations) the inpatient admission decision must be supported by the documentation in the medical record.

The proposed rule provides that the QIO will conduct reviews of short inpatient stays.  The proposed time frame is for the new process to be in place October 1, 2015 to have QIOs review a sample of post-payment claims and make a determination of the medical appropriateness of the admission as an inpatient. No clear standards for medical review have been promulgated.  Interestingly, in addressing the QIO review, CMS provided that “…we would expect it to be rare and unusual for a beneficiary to require inpatient hospital admission after having a minor surgical procedure or other treatment in the hospital that is expected to keep him or her in the hospital for a period of time that is only for a few hours and does not span at least overnight.”  Thus, it appears that in addition to temporal factors (how long the patient is expected to require services in the hospital), once again, there is an issue of intensity of service because the standard does not appear tied to the Two Midnight Rule.  Regardless of the lack of clarity regarding the standard to be applied it appears that CMS plans to initiate the review process in the 4th quarter of this year.  Finally, please note that the comment period ends August 31, 2015.

QIOs will refer cases to the MAC for payment adjustments.  In addition, if the QIO determines that a hospital has high denial rates, fails to adhere to the Two Midnight rule, or fails to respond to QIO guidance, the hospital will be referred to the recovery auditors for further audit.  Recovery auditors may resume review of patient status determinations for stays on and after October 1, 2015, but the regulatory commentary provides that those reviews will focus on providers referred by the QIO.  The new recovery auditor contracts are not in place, but once in place, should limit the look back period to 6 months and should contain other changes from current practices that were outlined in a previous MedManagement bulletin.  We will keep you posted about contractual developments with the recovery auditors.

This bulletin is intended to alert you to the changes and to direct you to the CMS transmittal and the federal regulations. We will follow this notice with more detailed communication. We will be reaching out to each of our clients to discuss the proposed rule and the implications for review in your organization.  We will also provide education opportunities.

The proposed rule is scheduled to be published in the Federal Register on July 8th. The pre-publication PDF version is available via the following link
The discussion begins on page 585.

Link to CMS Fact Sheet:

As always, should you have questions, please do not hesitate to contact us. We look forward to talking with you!

Joan C. Ragsdale, JD                                                  Ann M. Purdy
Chief Executive Officer                                              Chief Compliance Officer
Direct Line: 205-970-8804                                         Direct Line: 205-314-8859    

Quick Regulatory Update – More delay in RAC Review of Short Stays and SGR

This provides a quick update to the e-newsletter we distributed March 31, 2015 as Congress has taken the action we anticipated.

H.R. 2: Medicare Access and CHIP Reauthorization ActAdditional delay in RAC reviews of short stays

On April 14, 2015, Congress passed this bill. It delays RAC audits for inpatient stays with dates of admission between October 1, 2013 and September 30, 2015 unless there is evidence of gaming, fraud, abuse or delays in the provision of care by a provider. There had already been a delay through April 30 so this adds 5 more months to the delay. The bill will be sent to President Obama who has already indicated that he will sign it.

Audits by the MAC will continue, and there is continuing audit activity by the Department of Justice.  The medical necessity of every service paid by Medicare is ALWAYS subject to review so it is imperative to establish processes to ensure that appropriate documentation is in the medical record. Below is an excerpt from the bill.

SEC. 111. EXTENSION OF TWO-MIDNIGHT RULE. (a) CONTINUATION OF CERTAIN MEDICAL REVIEW ACTIVITIES.— The Secretary of Health and Human Services may continue medical review activities described in the notice entitled ‘‘Selecting Hospital Claims for Patient Status Reviews: Admissions On or After October 1, 2013’’, posted on the Internet website of the Centers for Medicare & Medicaid Services, {through the end of fiscal year 2015} for such additional hospital claims as the Secretary determines appropriate.

(b) LIMITATION.—The Secretary of Health and Human Services shall not conduct patient status reviews (as described in such notice) on a post-payment review basis through recovery audit contractors under section 1893(h) of the Social Security Act (42 U.S.C. 1395ddd(h)) for inpatient claims with dates of admission October 1, 2013, through {September 30, 2015}, unless there is evidence of systematic gaming, fraud, abuse, or delays in the provision of care by a provider of services (as defined in section 1861(u) of such Act (42 U.S.C. 1395x(u))).

SGR Repealed

The passage of the bill includes the permanent repeal of the 1997 law that would have cut Physician reimbursement for Medicare claims by 21% as of April 1, 2015. CMS reported that a small number of claims have already been processed at the reduced rate, MACs will automatically reprocess these claims with the new payment rate. We suggest, however that physicians and facilities flag and follow up on any reduced rate payments received.

Let us know how we can help you

If you have questions about this (or other) CMS communications or compliance requirements, please do not hesitate to contact any of MedManagement’s experts.

Joan C. Ragsdale, JD                                                   Ann M. Purdy
Chief Executive Officer                                               Chief Compliance Officer
Direct Line: 205-970-8804                                          Direct Line: 205-314-8859     

Inpatient-only Procedures, SGR Bill and RAC Reviews of Short Stays


It is rare that a newsletter contains not one but several positive notices, but there does appear to be a bit of good news on the horizon:

Inpatient-only procedures performed prior to the admission order may be bundled with the inpatient stay

CMS revised billing instructions effective April 1, 2015 to allow payment for inpatient only procedures to be bundled in to an inpatient claim under the three-day (or one-day) window rules. The expansion includes coverage as follows.

  • All preadmission inpatient-only procedures performed on the date of admission; and
  • All preadmission inpatient-only procedures performed during the relevant window (one day or three days preceding the date of admission) which would otherwise be considered related to the inpatient stay.

Relative to the preadmission bundling rules, a procedure is accepted as being related to the subsequent inpatient stay if it is clinically associated with the reason for a patient’s inpatient admission and if the inpatient stay is medically necessary. The relevant preadmission window is three days for IPPS and Maryland hospitals. It is one day for non-IPPS hospitals except for critical access hospitals (CAHs). CAHs are not subject to the preadmission bundling rules.

A link to the full transmittal is here:

Relief is in sight for Physician Fee Reductions previously scheduled to take place April 1, 2015

The medical community has actively encouraged Congress to repeal the Sustainable Growth Rate (SGR) bill, and instead, design a truly sustainable solution that affords seniors access to quality health care and stability for the physicians who care for them.   With rare bipartisan support, bills have been introduced in both houses to replace the SGR formula with a formula that provides a very small annual increase in physician fees each year between 2015 and 2019 and then to be sustained at that time through 2025.  Since 2003, 17 patches have been enacted in order to prevent the unsustainable cuts in Medicare reimbursement to physicians.  It appears likely that the bills will pass and be reconciled in the next few days.

Probable delay in RAC reviews of short stays

It appears likely that enforcement of the Two Midnight Rule through RAC auditors will be delayed until September 2015.  Audits by the MAC will continue, and there is continuing audit activity by the Department of Justice.  The medical necessity of every service paid by Medicare is ALWAYS subject to review so it is imperative to establish processes to ensure that appropriate documentation is in the chart.

New CMS State Operations Manual Provides Important Updates to Conditions of Participation and Addresses Ordering of Outpatient Services 

The update to the CMS State Operations Manual provides that certain practitioners without medical staff privileges may order outpatient services at the hospital for their patients in accordance with a policy adopted by the hospital medical staff.  The policy must address the outpatient services covered (or whether the hospital allows all outpatient services to be ordered), how the hospital will verify that the practitioner is appropriately licensed, and how orders will be verified, and processes to ensure compliance.  The section providing details on orders outpatient services is 482.54 in the following link:

It is worth the time to review carefully those sections in the State Operations Manual relevant to services provided.

Let us know how we can help you

If you have questions about this (or other) CMS communications or compliance requirements, please do not hesitate to contact any of MedManagement’s experts. Our physician advisors, nurses and legal experts are available to provide education as these new rules, regulations and guidance go in to effect. MedManagement staff continue to stay focused on serving clients with medical necessity determinations, regulatory & compliance education and other compliance solutions.

Joan C. Ragsdale, JD                                                    Ann M. Purdy
Chief Executive Officer                                                Chief Compliance Officer
Direct Line: 205-970-8804                                           Direct Line: 205-314-8859     

1500 Urban Center Drive, Suite 325
Birmingham, AL   35242 

Client Bulletin: March 31, 2015

CMS Announces Updated List of RAC Program Improvements for New Contracts

On December 30, 2014, CMS published on its website an updated list of Recovery Auditor program (RAC) improvements. Click here to view CMS document. The improvements are effective as the new RAC contracts are awarded – after December 30, 2014. A few of the changes are as follows:

“CMS will establish ADR limits based on a provider’s compliance with Medicare rules.   Providers with low denial rates will have lower ADR limits while provider with high denial rates will have higher ADR limits. The ADR limits will be adjusted as a provider’s denial rate decreases, ensuring the provider that complies with Medicare rules has less Recovery Audit reviews.”

“CMS will limit the Recovery Auditor look-back period to 6 months from the date of service for patient status reviews, in cases where the hospital submits the claim within 3 months of the date of service.”

“Recovery Auditors are required to have a Contractor Medical Director and are encouraged to have a panel of specialists available for consultation. In addition, physicians are afforded the opportunity to discuss the improper payment identification with the Contractor Medical Director, who is a physician.”

“Recovery Auditors will not receive a contingency fee until after the second level of appeal is exhausted. Previously, Recovery Auditors were paid immediately upon denial and recoupment of the claim. This delay in payment helps assure providers that the decision made by the Recovery Auditor was correct based on Medicare’s statutes, coverage determinations, regulations and manuals. Note: if claims are overturned on appeal, providers are paid interest calculated from the date of recoupment.”

We continue to anticipate word from CMS about what, if any, RAC activity will occur on and after April 1, 2015 with respect to short stays, and what the role of the MACs will be in examining short stays. There are various proposals to address the “problem” of the short stay, and there is widespread acknowledgement that the appeals process for RAC denials has been overwhelmed so we anticipate continued announcements by CMS about standards for, and reviews of, short stay cases.

We will keep you apprised of CMS announcements.

Certification Requirements Clarification

After 15 months of hospitals working diligently and struggling to make sure that certifications were in place for all Medicare acute care inpatient admissions, in transmittal CMS 1613-FC CMS changed its interpretation of certification requirements for acute care admissions on and after January 1, 2015 to “require certification only for long-stay cases and outlier cases.” Please note that the requirement for a certification for long-stay cases is not new. Prior to the 2014 IPPS Final Rule that instituted the Two Midnights rule, hospitals were required to have a physician certify the need for a hospital stay to extend 20 days or more and to address outlier cases. Historically we have not seen audit and denial activity around certification compliance although CMS has always audited to determine whether services billed were medical necessary. The “certification” requirements are not entirely clear, but based on existing guidance the following may be a best practice:

  1. The certification should be signed by a physician who is actively engaged in the management of the patient and who is familiar with the patient’s course of treatment and of course, treatment plan necessitating the continued stay.
  2. The certification statement should be in the record prior to day 20 or as soon as a case is identified as a cost outlier. Ensure that the statement is dated.
  3. The certification statement should explain why continued acute care hospitalization is necessary. In addition the basis for the conclusion that additional services in the acute care facility are required should be supported by the medical evidence in the medical record. The statement should also specify the anticipated length of stay, and plans for the patient post discharge.

We expect additional clarification from CMS and the MACs and we will share definitive guidance when issued. Remember that your utilization review plan should set forth the process by which you monitor and review extended stays and outlier cases.   As always, ensuring clear and complete clinical documentation by the attending physician is critical to facilitate patient care, ensure billing integrity and to support compliance efforts.

When timely clinical documentation tells the story of why the patient is hospitalized, details the expectation of the length of stay (i.e. does the patient require hospital care for a time spanning at least two midnights) and describes the treatment plan (including plans for discharge), the “certification requirements” will be much less problematic.

Probe and Educate Audit Activity Update

Probe and Educate Audits by the Medicare Administrative Contractors (MACs) for compliance with the 2014 Inpatient Prospective Payment System (IPPS) Final Rule 1599 are underway, and are currently scheduled to continue through March, 2015. As we examine the MAC Probe and Educate audit activity throughout the country it is evident many of the issues that have appeared in the Recovery Auditor (RAC) reviews of short stays are also present in MAC reviews as described below:
Continue reading

Continued evolution of CMS guidance and processes

Changes to the Changes—Change Request 8425 Revoked

Effective March 6, 2014 CMS changed the Program Integrity Manual (the handbook for auditors) to give Medicare auditors (including RACs, ZPICs and others) the discretion to deny “related claims” when auditing.  The examples given included a case where an inpatient claim was reviewed and determined to be unnecessary and therefor the associated (“related”) physician claim could also be reviewed and determined Continue reading