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Defining Medical Necessity page 2 Federal False Claims Investigations: Three Case Histories page 4 Closely Monitored Conditions page 6 Corporate Integrity Agreements page 7 InterQual ® Criteria Streamline Admission Screening page 8 Creating Defensible Documentation of Medical Necessity page 9 Resources page 11

Mistaken Admission: Establishing Medical Necessity for Inpatient Procedures


A R i s k M a n a g e m e n t R e s o u rc e for Hospitals and Health Systems



issue 2

Advances in medical and surgical technology have allowed an ever-growing number of procedures to be performed safely on an outpatient basis. One consequence is that medical necessity decisions for inpatient admission are scrutinized by Medicare contractors for evidence of false claims. According to the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG), the most common Medicare reimbursement violation is failure to comply with medical necessity requirements, especially for certain costly diagnoses involving orthopedic procedures (e.g., kyphoplasty) and interventional cardiology procedures (e.g., angioplasty and pacemaker implantation). Average length of stay for these procedures has gradually diminished, leading auditors to believe they can routinely be performed in an outpatient setting. Hospitals that admit patients with these diagnoses can expect thorough review by a variety of parties, including recovery audit contractors, Medicare quality improvement organizations and program safeguard contractors. (See the sidebar on page 6 for a list of scrutinized diagnoses, conditions and procedures.) The Health Insurance Portability and Accountability Act of 1996 introduced fines of up to $10,000 per claim in response to "a pattern of medical or other items or services that a person knows or should know are not medically necessary": 42 U.S.C. § 1320a-7a(a)(E). Furthermore, the Balanced Budget Act of 1997 requires that physicians provide diagnostic or other medical information when ordering a service from another entity: 42 U.S.C. § 1395u(p)(4). This information allows Medicare contractors to review and edit medical claims for necessity. If any violations are discovered, they may develop into false claim allegations, potentially resulting in substantial monetary penalties and/or imposition of a "corporate integrity agreement" to ensure future compliance. (See "Federal False Claims Investigations: Three Case Histories," page 4 and "Corporate Integrity Agreements," page 7.)


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Defining Medical Necessity

Medicare regulations require all healthcare providers and practitioners (including hospitals) to ensure that services and items ordered or delivered are In general, public and private health insurance plans and managed care organizations cover only those services that are deemed medically necessary. Under Medicare law and regulations, the program will reimburse only for items and services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," unless another statutory authorization for payment applies. (Social Security Act § 1862 (a) (1) (A)) Failure to abide by medical necessity guidelines is a violation of the federal False Claims Act. In various jurisdictions, the United States Attorney's Office has pursued Medicare fraud and abuse investigations of claims submitted for healthcare services that were judged medically unnecessary.

- provided economically, and only when and to the extent - of a sufficient level of quality to meet professionally

they are medically necessary recognized standards of care

- supported by evidence of medical necessity and quality

capable of satisfying the federal Medicare Utilization and Quality Control Peer Review Organization programs Medical necessity is a legal doctrine by which evidence-based clinical standards of care are used to determine whether a treatment or procedure is reasonable, necessary and/or appropriate.

Until recently, only hospitals were penalized for noncompliance with Medicare inpatient medical necessity regulations. Treating physicians were seldom sanctioned. However, anticipated modifications to Medicare regulations will impose accountability on both hospitals and physicians for failure to follow Medicare requirements. False claim allegations represent an especially serious business exposure, as professional liability insurance policies typically exclude both indemnity and defense coverage for claims involving Medicare or Medicaid fraud and abuse. The best protection against mistaken admissions is an effective process to ensure compliance with Medicare admission necessity requirements and established screening criteria. This issue of Vantage Point ® examines pertinent Medicare regulations and suggests ways to improve the admission determination process. In addition, a checklist is included on pages 9 and 10 to help hospitals evaluate their medical record documentation practices from the perspective of legal defensibility.

Inpatient vs. Outpatient Status

The Medicare Benefit Policy Manual (see Resources, page 11) delineates the reimbursement rules governing hospital admission of Medicare recipients. Diligent implementation of these policies should support a claim for inpatient care, whether or not InterQual® criteria have been met ­ as long as the hospital complies with the Medicare Conditions of Participation and has a utilization review committee in place to monitor admission necessity and arbitrate disputes. (See page 5 regarding utilization review requirements and page 8 for information about InterQual® criteria.) Medicare classifies as an inpatient anyone who is formally admitted to a hospital with the expectation that he or she will remain at least overnight and occupy a bed. The inpatient status remains, even if the patient is later discharged or transferred to another hospital and does not actually use a hospital bed overnight. (See the Medicare Benefit Policy Manual, Chapter 1 ­ "Inpatient Hospital Services Covered Under Part A," available at http://www. However, certain situations ­ including minor surgery and renal dialysis ­ do not always follow this general rule: Minor surgery or other treatment. When patients with a known diagnosis enter a hospital for a minor surgical procedure or other treatment expected to keep them in the hospital for less than 24 hours, they are considered outpatients for coverage purposes. This classification does not change, irrespective of when patients arrive at the hospital and whether they occupy a bed or remain in the hospital past midnight. Renal dialysis. Dialysis treatments are usually categorized as outpatient services, but they may be covered as inpatient services under certain circumstances, based upon the patient's condition. Patients are considered outpatients if they are ambulatory and in stable condition, reside at home, and come to the hospital for routine chronic dialysis treatments rather than a diagnostic workup or a change in therapy. However, individuals undergoing short-term dialysis until their kidneys recover from an acute illness (i.e., acute dialysis) are considered inpatients, as are persons with borderline renal failure who require dialysis when they have an illness (i.e., episodic dialysis). Note that an individual may begin dialysis as an inpatient and progress to outpatient status.

The best protection against mistaken admissions is a process to ensure compliance with Medicare admission necessity requirements and established screening criteria.


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Federal False Claims Investigations: Three Case Histories

California: In October 2002, 40 FBI and other federal agents raided and searched a hospital owned by a large parent corporation and the offices of two non-employed physicians, based on allegations of medically unnecessary surgical procedures. The investigation, which also involved the U.S. Department of Justice Office of Inspector General, focused on the activities of the hospital's director of cardiology and chairman of cardiac surgery. It was alleged that the cardiologist recommended bypass surgery that two surgeons and four other cardiologists later evaluated as unnecessary. In an affidavit, one medical professional revealed to federal authorities that many practitioners and administrators were aware of a pattern of unnecessary procedures, but failed to take action because the arrested physicians generated significant revenue for the hospital. Based on this information, the government pursued its investigation. In November 2002, the hospital hired a national medical audit practice to assist in reviewing treatments performed by the physicians under investigation and conduct concurrent review of any future procedures the physicians intended to perform at the hospital. Eventually, the parent corporation agreed to pay the United States more than $900 million plus interest over a four-year period to resolve civil allegations involving fraudulent billings to Medicare and other federal healthcare programs. Georgia: A hospital was accused of billing Medicare for thousands of zero-day, one-day, two-day and three-day stays that were not covered under Medicare guidelines, as the patients required only observation or outpatient care. Although the problems were due to error rather than intent, they resulted in a payment in 2007 of $26 million to settle allegations of medically unnecessary inpatient admissions. The hospital quickly made substantial modifications to strengthen its admission review process, including validated first-level case management and second-level physician adviser review. The corporate integrity agreement imposed upon the hospital by the HHS OIG as part of the false claims settlement included a case management protocol. (See "Corporate Integrity Agreements," page 7.) The protocol permits case managers to make admission decisions, subject to physician veto, thus strengthening the case for hiring highly qualified case managers. The agreement also includes case manager training and certification requirements. Louisiana: A facility agreed to pay $3.8 million to settle claims that it had defrauded Medicare and Medicaid, as well as CHAMPUS, the military health insurance program, from 1999 to 2003. The civil settlement resolves allegations relating to submission of claims for medically unnecessary angiogram, angioplasty and stenting procedures.



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Utilization Management

Hospital admission is determined by the physician. In this decision-making capacity, the physician must consider several factors, including the severity of the patient's signs and symptoms and the likelihood of an adverse outcome. The hospital's utilization management committee and case managers are responsible for monitoring overall physician decisionmaking to ensure compliance with accepted screening criteria, federal regulations and guidance, other physicians' opinions and community standards of care. Requirements. Under the Medicare Conditions of Participation, hospitals must establish utilization management committees. According to 42 CFR 482.30, "The hospital must have in effect a utilization management plan that provides for review of services furnished by the institution and by members of the medical staff to patients entitled to benefits under the Medicare and Medicaid programs." The utilization management plan must be implemented by a committee that "addresses the utilization of services furnished by the hospital and its medical staff to Medicare and Medicaid patients." Utilization and quality control peer review committees are charged with using their authority and influence to secure practitioner compliance with federal obligations: 42 U.S.C. § 1320c-5. Review process. The committee evaluates medical necessity with respect to

- hospital admission (i.e., Medicare claims status review) - duration of care (i.e., continued-stay review) - professional services rendered, such as drugs

and biologicals (i.e., outliers in cost or utilization)


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The admitting physician first determines whether a Medicare beneficiary is acutely ill and requires Medicare-covered hospital services available only in an inpatient setting. A case manager or other representative of the utilization management staff then reviews the patient's record ­ sometimes prospectively in the emergency department, but usually during the first 24 hours after admission. Using an accepted screening tool, the case manager or committee determines if the admission satisfies medical necessity criteria. If, after consulting with the admitting physician, the utilization management committee finds that a longer stay is not medically necessary, then it should promptly notify the hospital administration, patient and physician of this decision. Case management staff. Effective utilization management, conducted by a well-trained and certified staff of case managers with both clinical and risk control expertise, is essential to reducing the risk of inappropriate admissions and consequent sanctions. For information about professional standards, training and accreditation programs for case managers, see the case management and utilization review organizations listed in Resources, page 11. Accreditation. Hospitals are encouraged to seek and maintain accreditation of their utilization management program, thus demonstrating their continuing commitment to quality care and regulatory compliance. For information, visit the Web site of the Utilization Review Accreditation Commission (URAC) at

Strategies: Making Sound Admissions Decisions

Admitting physician practices. To reduce the likelihood of mistaken admissions, admitting physicians should understand the hospital's concerns regarding short inpatient hospital stays, utilize established medical necessity criteria and consistently practice good documentation techniques. The following strategies can help enhance the admissions process:

- Invite a representative from utilization management to speak with admitting - Consider assigning a case manager to the emergency department (ED) to

conduct the review process prior to patient admissions, if a pattern of ED admission denials develops.

physicians about screening criteria. Request that the representative explain the tools and criteria used to verify medical necessity for observation and inpatient admissions, and discuss exceptional situations.

- Present a full clinical summary of the severity of illness in the patient record. - Document why the patient is being admitted to the hospital, as well as why

it may not be safe to discharge the patient home. Specify the risks. repeated and unnecessary short inpatient stays.

Include any social conditions, co-morbidities and/or disabilities that influence the decision to admit.

- Ask for information and feedback on any problematic admissions to avoid

Observation stays. The Centers for Medicare and Medicaid Services identify failure to manage patient observation properly as a major cause of medically unnecessary one-day


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hospital stays. While a patient undergoing observation may be admitted to inpatient status at any time for medically necessary continued care, inpatient status can be changed to observation only if very strict criteria are met. Requirements include, but are not limited to, the following:

- The status change must be made prior to the patient's discharge. - The hospital cannot already have submitted the inpatient claim to Medicare. - The utilization management committee must make the decision, with the

attending physician's concurrence documented in the patient record. e.g., "inpatient admission changed to outpatient."

- The outpatient bill must be submitted with the appropriate condition code,

Closely Monitored Conditions

Hospitals with a high frequency of short inpatient hospital stays may become the target of a federal investigation into medically unnecessary care. The diagnoses, conditions and procedures that frequently result in short inpatient stays and so are closely monitored by Medicare include


- chest pain - back pain - congestive heart failure - gastroenteritis

- cardiac arrhythmias - chronic obstructive pulmonary disease - circulatory disorders - cardiac defibrillator implants and pacemakers

The following recommendations can help clarify inpatient and observation status:

- Provide decision support software to assist physicians in determining if an

observation or inpatient stay is most appropriate. inpatient" or "place in outpatient observation" ­ as an order to admit for "a short stay" may lead to ambiguity regarding the patient's status.

- Request that physicians write orders clearly and explicitly ­ e.g., "admit to - Screen patients when they are admitted to the hospital from an observation

unit, as findings cannot be carried over from the time the patient was placed in observation.

Utilization management issues. The following strategies can help foster a fair and reasonable review process:

- Ensure that reviews are always discipline-matched, and that the reviewing

clinician has a clear understanding of the case when distinguishing maintenance from supportive care.

- Provide the reviewing clinician with all necessary records, such as daily charting

and outcome measurement analysis.

- Document any changes in patient care from the date of the review, rather than

retrospectively, when approving additional care. is not recommended. and input.

- Instruct the reviewing clinician to specify unmet criteria if additional treatment - Send a report of the final determination to the treating physician for inspection - Encourage the reviewing clinician to speak to the treating physician regarding

issues of concern, including the appeals process. clinicians if issues cannot be resolved.


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- Schedule a conference call among the patient and the reviewing and treating

Additional documentation strategies. The decision to admit a patient is a complex medical judgment, requiring the physician to consider a number of factors. Both the decisionmaking process and the ultimate determination should be documented thoroughly and supported by a medical rationale related to the patient's condition. Even if the physician

Corporate Integrity Agreements

As part of its settlement of false claim investigations, the U.S. Health and Human Services Office of Inspector General (HHS OIG) may require hospitals and other healthcare organizations to enter into a corporate integrity agreement (CIA). These agreements incorporate a variety of compliance measures, including but not limited to designation of a compliance officer, updating of staff training and certification requirements, revision of case management protocols and creation of a compliance hotline. CIAs provide an opportunity for organizations that have committed Medicare fraud or abuse to address the issues that led to the violations and improve their systems and processes accordingly. By accepting the CIA, the entity shows its willingness to make a good-faith effort to prevent problems from recurring. In exchange for this commitment, the organization is permitted to continue its participation in Medicare, Medicaid and other federal healthcare programs. Typically, this type of settlement agreement requires compliance and monitoring for a period of four to five years.


believes the patient's condition and required treatment satisfy the InterQual® screening criteria and Medicare benefit policies, the medical record should explicitly support the medical necessity of the care provided. This will help protect the physician and the hospital from allegations of fraud and failure to adhere to the professional standard of care. Determination of medical necessity and appropriateness should not be based on whether the patient is expected to recover rapidly in an inpatient setting. Hence, comments such as "This can't be done outpatient," "This is too big a procedure" or "Patient has to be observed after this procedure" do not suffice. Instead, the physician should thoroughly document the medical rationale behind the decision and provide an objective explanation of the risks posed by a premature discharge. (See "Creating Defensible Documentation of Medical Necessity," page 9.) Making objective and externally justifiable determinations of medical necessity is a critical responsibility for healthcare providers. As the examples on page 4 show, the consequences of noncompliance in this area can be severe. Reducing exposure to regulatory sanctions and litigation requires continuous evaluation and improvement of such key processes as patient screening, utilization review/case management and documentation.


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InterQual ® Criteria Streamline Admission Screening

InterQual® clinical decision support criteria are one of several proprietary systems available to determine whether inpatient admissions are medically necessary. Currently, InterQual® offers the following evidence-based criteria for assigning levels of care:


- acute level of care, adult and pediatric - rehabilitation level of care, adult - subacute and skilled nursing facility level of care, adult - home care, adult and pediatric - behavioral health level of care

The decision support criteria in the above categories relate to both severity of illness (SI) and intensity of service (IS). Once the admission or observation review is established by a case manager, a tree structure of SI criteria is organized according to bodily system ­ e.g., cardio/respiratory, central nervous system, gastrointestinal, metabolic, reproductive, orthopedic, etc. IS criteria include assessments and monitoring, medications, blood products, intravenous fluids and psychiatric crisis intervention. Both SI and IS criteria must be met to support admission, observation or any other service in the system. Despite these screening criteria, the decision to admit, observe or discharge is not always simple, and the judgment and experience of the admitting physician are often the determining factors. Physicians are experiencing increased pressure to deny short-stay admissions, which may not be adequately reimbursed by Medicare and additionally may invite scrutiny by auditors. To protect themselves and the hospital against potential litigation, physicians must ensure that information in the patient record matches the data used in the medical necessity screening process. For more information about InterQual ® Level of Care Criteria, visit, click on "Hospitals," then click on "InterQual® Clinical Decision Support."

Creating Defensible Documentation of Medical Necessity

The following evaluative questions can help enhance an organization's documentation practices regarding medical necessity. By ensuring that patient care records contain an appropriate medical rationale supported by sufficient information, providers can better justify admission decisions and reduce the risk of false claims allegations. Note that some questions on the list may appear redundant. This is intentional, as it encourages reviewers to approach the documentation issues presented here from multiple perspectives.





Does the admission comply with the hospital's bylaws and admission policies? Is the patient acutely ill? Does the patient require an acute level of care? Does the patient require acute care monitoring? Does the patient require acute care services? Does the patient require hospital services that can be provided only on an acute inpatient basis? Does the patient's condition or care received in the observation setting substantiate the need for inpatient admission? Are inpatient services medically required, based upon the patient's medical condition? Based upon the patient's medical condition, can care be provided safely and effectively only within the inpatient setting? Can required medical services be provided safely and effectively in an alternate setting, e.g., observation area, ambulatory surgery, intermediate care facility, skilled nursing facility or home? Do diagnostic studies used in assessing the medical necessity of inpatient admission require a hospital stay of 24 hours or more? Are the facilities needed by the physician to perform the procedure/test available in an outpatient setting in the local community? Is the procedure to be performed medically necessary with regard to relevant community standards of practice? Does the patient's history prior to admission support the need for inpatient admission? Could the patient's treatment have been performed safely in an outpatient setting? Does the patient's initial clinical presentation indicate the need for inpatient admission? Do later test results support a finding that admission was medically necessary ­ i.e., following the evaluation, is it likely that the patient will need inpatient services for more than 24 hours? Does the patient care record contain a medically justified explanation of why the patient's condition requires at least a 24-hour stay?


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Creating Defensible Documentation (continued)




Current medical needs Patient's medical history Stability/instability of vital signs Presence or absence of severe pain Current diagnoses, including chronic and acute conditions Laboratory and test results relating to the need for an inpatient stay

10 Severity of other signs/symptoms

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Physician concerns from a clinical perspective Medical likelihood of an adverse outcome if the patient is not placed in an inpatient setting Risks if the patient is discharged home Patient's reaction to treatment Discussions held with patient and family Communication with patient/patient's family concerning the rationale behind treatment decisions

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Ongoing Support for Your Risk Management Program

CNA School of Risk Control Excellence This year-round series of courses, featuring information and insights about important risk-related issues, is available on a complimentary basis to our agents and policyholders. Classes are led by experienced CNA Risk Control consultants. CNA Risk Control Web Site Visit our Web site (, which includes a monthly series of Exposure Guides on selected risk topics, as well as the schedule and course catalog of the CNA School of Risk Control Excellence. Also available for downloading are our Client Use Bulletins, which cover ergonomics, industrial hygiene, construction, medical professional liability and more. In addition, the site has links to industry Web sites offering news and information, online courses and training materials.

Editorial Board Members:

Rosalie Brown, RN, MHA, CPHRM Nancy Lagorio, RN, MS, CCLA, CPHRM Hilary Lewis, JD, LLM Maureen Maughan Laurie Stanley, AIC, RPLU, CCLA/PCLA Ronald L. Stegeman Kelly J. Taylor, RN, JD, Chair Ellen F. Wodika, MA, MM, CPHRM Virginia Zeigler, ACAS, MAAA


Bruce W. Dmytrow, BS, MBA, CPHRM Vice President, CNA Specialty Lines


Hugh Iglarsh, MA


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Case Management and Utilization Review:

at at

- American Case Management Association (ACMA), - Case Management Society of America (CMSA), - The Center for Case Management (CCM),

at at at

Government Web sites:


- Centers for Medicare & Medicaid Services (CMS), - U.S. Department of Health & Human Services (HHS),


- U.S. Department of Health & Human Services Office - Medicare Benefit Policy Manual, available at

of Inspector General (OIG), at

- Commission for Case Manager Certification (CCMC), - Utilization Review Accreditation Commission,


CNA HealthPro, 333 S. Wabash Avenue, Chicago, Illinois 60604

Published by CNA. For additional information, please call CNA HealthPro at 1-888-600-4776. The information, examples and suggestions presented in this material have been developed from sources believed to be reliable, but they should not be construed as legal or other professional advice. CNA accepts no responsibility for the accuracy or completeness of this material and recommends the consultation with competent legal counsel and/or other professional advisors before applying this material in any particular factual situations. This material is for illustrative purposes and is not intended to constitute a contract. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states. CNA is a service mark registered with the United States Patent and Trademark Office. Copyright © 2009 CNA. All rights reserved. Printed 3/09.


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