Hospitalists Caught between a RAC and a Hard Place

By  |  October 22, 2014 | 

by Melinda J. Johnson, MD, FHM, FACP

The observation status problem has continued to grow both larger and worse.

My hospitalist colleagues and I are caring for patients in hospital beds in the exact same way as other patients in the hospital, but we are told that we must give them the designation called observation status.  CMS recognizes observation status as outpatient care, like seeing a patient in a walk-in clinic.

We don’t “decide” to make a patient observation status.  When a patient is admitted to us, someone else (who is usually not a physician) has already decided the patient is observation status.  Hypothetically, we can write an order to change that status, but we are being watched very closely, and our decision to change the status will be challenged in (almost) a heartbeat.  We are being watched by people paid by our hospitals to make sure that no patient is given acute inpatient status who might possibly be called observation status by someone else.  That someone else is the Recovery Audit Contractor (RAC) program.  The RAC auditors are paid by the Centers for Medicare and Medicaid Services (CMS) only if they find patients that we cared for in hospital beds just like all the other patients in the hospital who we “fraudulently” called inpatients.  They audit patient after patient, with each audit requiring intensive time and resources to prepare for.  If our hospitals don’t have the resources to adequately prepare, or the resources or time (sometimes well over a year) to appeal the decisions, our hospitals sometimes just give up.  This is deemed another successful finding of “fraud” by the RAC, resulting in CMS paying them for their find, and delivering financial penalties on our hospital.  So we continue to be watched.

We worry that the patients in observation status will have a much greater responsibility for their hospital bills, since they are “outpatients” and thus covered by Medicare Part B–with a significant copay and no coverage for medications administered in the hospital–so we tell the patients their status.  We explain the intricacies and respond to the frustration and fear, when we want to be talking to the patients about the symptoms which brought them to the hospital, and trying to figure out if the cause of these symptoms is benign or life-threatening.

We beg our leaders on Capitol Hill for changes to observation status, so all patients in the hospital who require hospital-level care are called inpatients.  They tell patient groups that observation status is a decision their doctors make.

We keep giving our patients the best possible care that we can, and we hope that the truth comes out eventually.


Johnson_Melinda_HeadshotMelinda J. Johnson, MD, FHM, FACP, graduated from Brown University School of Medicine, then completed her Internal Medicine residency at Mayo before joining the faculty at the University of Iowa Carver College of Medicine (CCOM) in 2000.  She is currently a Clinical Associate Professor in the Department of Internal Medicine.  Besides being Board Certified in Internal Medicine, she is certified in the Focused Practice in Hospital Medicine program of the American Board of Internal Medicine.  Dr. Johnson is a Fellow in Hospital Medicine of the Society of Hospital Medicine (SHM), and is a member of the SHM national Public Policy Committee (PPC).  She was one of the authors of the SHM PPC white paper on Observation Status released in July.

She is a Quality and Safety Officer for the Department of Internal Medicine at the University of Iowa CCOM.  She also serves as Secretary of the College of Medicine Executive Committee.  Dr. Johnson spends the greatest portion of her professional time as an Attending on the Medicine teaching services at the University of Iowa Hospitals and Clinics.


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