Many Hot Issues: PEPPER, “Readmissions,” and Appeal Frustrations

Lots of topics for today. First, last week I was discussing a hospital’s Program for Evaluating Payment Patterns Electronic Report (PEPPER) results with them and noted that they were a high outlier for one-day inpatient admissions. Their number was small, but nonetheless, they exceeded the 80th percentile. But this was not news to them, as they had just received a letter from their Medicare Administrative Contractor (MAC) informing them that they were selected for an audit of their short-stay inpatient admissions.

As you may recall, the Centers for Medicare & Medicaid Services (CMS) gave this duty back to the MACs from the Quality Improvement Organizations (QIOs) late last year, and it appears that the MACs are finally ready to start auditing. Of course, my hope is that they can interpret the Two-Midnight Rule better than they did back when these audits first started in 2014, after which CMS had to reassign the duty to the QIOs.

Speaking of the PEPPER, I am having continuing frustration with the new iteration. In light of the resumption of the short-stay audits, I took a close look at the data reported on the PEPPER to try to figure out what can be considered a normal rate of one-day inpatient admissions. Now, before you protest, I know every hospital is different, and if you get the status right on every patient, your short-stay rate is what it should be. But we all know that people like benchmarks.

And lo and behold, there was a significant problem. In the PEPPER for the fourth quarter of 2025, it states that the national 80^th percentile for the last 10 quarters for one-day inpatient medical DRG admissions was about 10 percent. But in that same table, in the next PEPPER for the first quarter of 2026, that same 80^th percentile for the previous 10 quarters was indicated as about 15 percent. That’s a huge difference.

And when I asked CMS, they responded that there was a “methodology refinement.” Now, I could understand an adjustment of a percentage point or two, but errors like this by the new CMS PEPPER contractor really call into question the legitimacy of all the data. Now, I wonder if it is better to have bad data than no data.

Next, Humana recently published a policy change indicating that they will start denying payments under their readmission program for patients who return and are placed as outpatient with observation, in addition to patients who are readmitted as inpatients. Now, to give them credit, they do note that they will review to determine if the return was related or preventable.

But if you start seeing such denials, I would ensure that they were reviewed per their policy. If the hospital’s processes or lack of proper discharge planning did not result in the return, why should you be forced to relinquish payment? Does Humana take the blame when one of their enrollees is readmitted because their contracted home care agency does not provide the patient the necessary home care? I think not.

Finally, let me share, without further comment, an appeal saga that a case manager experienced. “We received a denial from an MA (Medicare Advantage) plan. We consulted with the patient at the bedside, and the patient and the admitting physician signed the AOR form. We submitted all documentation to them as a Fast Appeal. When we followed up on their receipt, they stated that they received it as a Standard Appeal. We were transferred around, sometimes to the same person, and we were eventually told that the account has been reclassified as a Fast Appeal.”

She went on to note that “a few days later, we followed up again and were told that, since there is no AOR form, it is a Standard Appeal. We asked them to open the document while we were on the phone, and lo and behold, the AOR form is there.

They are now stating that we must resubmit everything again as a Fast Appeal. The patient has since been discharged, of course.”