Last week I had an interesting conversation with a case management director about everyone’s favorite topic: the Medicare Advantage (MA) plans. Like all businesses, her hospital had a budget that included inpatient admission volume, and that line item was on her report card.

Now first, let me offer the disclaimer that I am just a doctor and don’t have an MBA, but I think creating a budget for hospitals makes no sense. How can one possibly know how many people are going to get sick and need hospital care in the next year? How can one know how bad the flu season will be? Did any hospital’s 2020 budget, developed in 2019, include a line item for admissions due to a worldwide pandemic? I doubt it.

That said, this hospital’s current inpatient revenue was falling below the budgeted number. And an analysis of the numbers revealed it was due to the aggressive auditing and denying of admissions by MA plans. The hospital had a great utilization review (UR) program, with a first-level review by a nurse with commercial criteria and then referral for secondary review by a physician advisor for Medicare and MA cases that did not pass inpatient criteria to determine if the Two-Midnight Rule was met.

But even with that process, the MA plans were denying a significant number of admissions, usually after discharge. Those that were not overturned on peer-to-peer or formal appeal then had to be rebilled. That meant the hospital received a minimal payment, months after the care was rendered. And as you could imagine, the CFO was not happy about that.

So, her question was whether the hospital should be more conservative with the MA patients – and unless it was a slam-dunk two-midnight case, perhaps placing them in observation was the right thing to do.

So, is it? Well, we have all seen the cartoons with the person having a little angel standing on one shoulder whispering advice and a devil on the other shoulder giving the opposite advice. In this case, on one shoulder is the compliance officer saying, “Always do the right thing; follow the Two-Midnight Rule and the money falls where it falls.” And on the other shoulder is a finance person saying, “We have bills to pay; let’s get paid fast, so use more observation and avoid all that added effort and delay.”

My advice to her was to first get the numbers. We always assume that inpatient pays more than observation, but does it, in their contracts? Perhaps the difference is small, and getting a little less sooner is preferable to fighting for months to try to get the full amount, with the risk of getting denied and only getting paid a few hundred dollars.

Perhaps observation is paid per hour, and a long observation stay pays the same or more than an inpatient admission. Also, determine if those denied claims can be rebilled with observation hours. If you can bill for observation even without an order, that changes the calculation.

Then look at each payer separately. The decision should be different for an MA plan that never seems to approve inpatient care, compared to one for which a significant number of denials are overturned. Move that slider back and forth to match payer behavior.

Although her facility is not a teaching hospital, that should also factor into the equation. Indirect medical education payments from the Centers for Medicare & Medicaid Services (CMS) only occur with inpatient admissions. The question of refunding the independent medical evaluation (IME) if an MA plan denies an inpatient admission is beyond this discussion, but should also be considered.

She was also concerned with depriving MA patients of their inpatient discharge appeal rights if they use more observation, and that is important, but so far we have seen no indication from CMS that they are concerned about this, as they have received a multitude of complaints about the MA plans, but have yet to rein them in (at least publicly).

Finally, and most importantly, I recommended she let someone else make the final decision. Present the information to your executives and let them guide you. The balance between following the rules compliantly and fighting until the end has to be weighed against the cost of those fights – and maintaining enough cash flow to keep the doors open.

If only we could just take care of patients, and get paid equitably for that care…