Making Sense of Medicare’s Observation Regulations, One Hospital Bed at a Time0

On August 1, 2012, the Centers for Medicare & Medicaid Services (CMS) published the Final Rule for Medicare’s Hospital Inpatient Prospective Payment Systems (IPPS) (the Final Rule).

Effective Fiscal Year (FY) 2013 (October 1, 2012), the Final Rule covers the entire scope of the IPPS for acute care hospitals, long-term care hospitals, resident caps for graduate medical education (GME) payment, hospital readmission reduction program, the value based purchasing program, as well as other parts of Medicare.

The Final Rule specifically modified the way CMS approaches labor and delivery beds in the calculation of Medicare disproportionate share (DSH) payment adjustments and indirect medical education (IME). Prior to FY 2010, in certain circumstances CMS excluded from the count of inpatient days (in calculating DSH payments) labor and delivery patient days associated with beds used for ancillary labor and delivery services.  CMS applied this policy irrespective of how the hospital maintained its labor and delivery rooms, treating separate labor and delivery rooms, postpartum rooms and “maternity suites” the same way.

As of FY 2010, Medicare revised its regulations to include in the DSH calculations all patient days associated with patients occupying labor and delivery beds once the patient had been admitted to the hospital as an inpatient, regardless of whether the patient days connected to patients who occupied a routine bed prior to occupying an ancillary labor and delivery bed. CMS justified this change because the costs associated with labor and delivery patient days were generally payable under the IPPS.  As of FY 2010, however, CMS did not make a similar change to its policy for counting hospital beds.

In the FY 2012 IPPS rule, CMS’ policy for counting hospital beds was to include bed days available for IPPS-level acute care hospital services.  “[B]eds in a particular unit would be considered available for IPPS-level acute care hospital services if the services furnished in that unit were generally payable under the IPPS.”  With respect to DSH payments, CMS included patient days in units providing services that were generally payable under the IPPS.  Services furnished to a labor and delivery patient have generally been considered to be payable under the IPPS, and so until FY 2013, CMS’ treatment of labor and delivery beds was inconsistent with respect to services payable under the IPPS and its policy for counting hospital beds.

42 C.F.R. § 412.105(b) states:

(b) Determination of the number of beds.  For purposes of this section, the number of beds in a hospital is determined by counting the number of available bed days during the cost reporting period and dividing that number by the number of days in the cost reporting period.  This count of available bed days excluded bed days associated with:

(1)  Beds in a unit or ward that is not occupied to provide a level of care that would be payable under the acute care hospital inpatient prospective payment system at any time during the 3 preceding months (the beds in the unit or ward are to be excluded from the determination of available bed days during the current month);

(2)  Beds in a unit or ward that is otherwise occupied (to provide a level of care that would be payable under the acute care hospital inpatient prospective payment system) that could not be made available for inpatient occupancy within 24 hours for 30 consecutive days;

(3)  Beds in excluded distinct part hospital units;

(4)  Beds otherwise countable under this section used for outpatient observation services, skilled nursing swing-bed services, ancillary labor/delivery services, or inpatient hospice services;

(5)  Beds or bassinets in the healthy newborn nursery; and

(6)  Custodial care beds.

2013 IPPS REGULATIONS

Recognizing the past inconsistencies in the regulations, CMS made changes for FY 2013, confirming that if a patient day is counted because the services furnished are generally payable under the IPPS, the bed in which the services were furnished should also be considered available for IPPS-level acute care hospital services.  CMS therefore extended its approach to include labor and delivery patient days in its method for calculating DSH payments to also count hospital beds for purposes of both the IME payment adjustment and the Medicare DSH payment adjustment.

The Final Rule notes:

Specifically, because we have described labor and delivery patient days as being generally payable under the IPPS (74 FR 43900), we believe that the bed in which such services are furnished should also be considered to be available for IPPS-level acute care hospital services, and should be included in the count of beds available for IPPS-level acute care hospital services. The rules for counting hospital beds for purposes of the IME payment adjustment are codified in the IME regulations at § 412.105(b), which are cross-referenced in § 412.106(a)(1)(i) for purposes of determining the DSH payment adjustment.

For FY 2013 (effective for cost reporting periods beginning on or after October 1, 2012), CMS now includes labor and delivery bed days in the count of available beds used in the IME and DSH calculations, and therefore deleted the reference to “ancillary labor/delivery services” in 42 C.F.R. § 412.105(b)(4).

The Final Rule also included some additional commentary, ensuring there is no confusion:

Comment: A number of commenters stated that the current discrepancy in the treatment of labor and delivery for purposes of the patient day count and the bed day count is appropriate because labor and delivery services are typically not paid for by the Medicare program. The commenters further stated that, to the extent Medicare does pay for labor and delivery services, the Medicare program only pays for 1 percent of all births in the United States, as opposed to Medicaid, which, according to the National Bureau of Economic Research, pays for 41 percent of all births in the country. The commenters also stated that the low volume of Medicare labor and delivery patients justifies excluding labor and delivery beds from a hospital’s bed count for purposes of determining a hospital’s qualification for status as an MDH.

Response: As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43900), we believe that the costs associated with services provided in a labor and delivery room are generally payable under the IPPS. The volume of labor and delivery services paid under the Medicare program, regardless of whether it is as low as asserted by the commenters, does not alter the fact that patients receiving these services are inpatients who are receiving an IPPS-level of care, whether or not paid under the Medicare program. A policy to exclude beds from a hospital’s number of available beds based on the volume of services paid for by Medicare would create unpredictability with respect to the DSH and IME payment adjustments and could impose an undue burden on the agency and hospitals to monitor the volume of individual services to determine appropriate exclusions.

CMS noted that existing Medicare hospital cost report and cost reporting instructions contained definitions of a labor and delivery bed inconsistent with the Final Rule and did not allow for hospitals to report excluded labor and delivery bed days such as an outpatient bed day in a labor and delivery room.  CMS stated its intention to amend the cost reporting instructions to reflect its finalized change in policy and to allow for the proper reporting of labor and delivery bed days.

CMS also clarified some confusion surrounding labor and delivery rooms that exist separate and apart from beds providing services generally payable under the IPPS:

Comment: A number of commenters requested additional clarity regarding beds that would be included in the bed count. Specifically, the commenters asked if “maternity suites” in which labor, delivery, and postpartum services all occur in the same bed would be counted and if so whether the bed count would be split in the same manner that costs are split for apportionment purposes. The commenters also expressed confusion regarding hospitals that maintain separate labor and delivery rooms and postpartum rooms. The commenters stated that, in these situations, providers are concerned that including the ancillary beds would result in a “double counting” of beds. Additionally, the commenters asked CMS to specifically identify whether certain beds, such as triage labor and delivery beds used for preadmission evaluation and assessment, are to be included in the bed count. In addition to expressing confusion about CMS’ proposal, the commenters stated that they believed labor and delivery beds should not be counted if they are not licensed as routine beds.

Response: As stated above, our policy is to include in the bed count the bed days available for IPPS-level acute care services, or more specifically, the bed days of a particular unit if the services furnished in that unit are generally payable under the IPPS. We do not consider whether a bed is licensed under State law as a routine or ancillary bed, but rather whether the unit in which the bed is located is providing services generally payable under the IPPS. To the extent that the beds in a particular unit, whether maternity suite beds or ancillary labor and delivery beds, are furnishing services that are generally payable under the IPPS, such beds should be included in the bed count under our proposal. Furthermore, as stated in the FY 2013 IPPS/LTCH PPS proposed rule (77 FR 27974 through 27975), the bed days of a patient not admitted as an inpatient are not included in a hospital’s bed count. Because our proposal is intended to align our patient day and bed day policies, we also refer readers to our discussion in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43899 through 43901) for further information regarding our policy on counting labor and delivery patient days. [¶] We also do not share the commenters’ concern regarding the “double counting” of bed days for the IME and DSH payment adjustments. Under our existing policies, we include all beds in a unit that is providing services that are generally payable under the IPPS because we believe such beds to be available for IPPS-level acute care hospital services. Therefore, unoccupied ancillary labor and delivery beds would still be included in a hospital’s bed count under our proposal because they are available for IPPS-level acute care hospital services.

CASE LAW

The courts have also clarified the calculation of hospital beds for purposes of Medicare DSH payments.  In Odessa Regional Hospital v. Leavitt386 F. Supp. 2d 885 (W.D. Tex. 2005), for two consecutive years the hospital’s fiscal intermediary calculated its number of “observation beds” after dividing the total days of observation services by the number of days in the particular year.  In one year the hospital had 602 total days of observation services (for a year with 366 days), and another year the hospital had 464 days of observation services (for a year with 365 days).  In each instance the fiscal intermediary reduced the hospital’s number of beds from 100 to 98.355 and 98.73, respectively. In addressing the intermediary’s approach to determine the number of beds in a hospital (consistent with 42 C.F.R. § 412.105(b) and the Medicare Provider Reimbursement Manual), the Court defined a hospital bed as:

[A]n adult or pediatric bed (exclusive of beds assigned to newborns which are not in intensive care areas, custodial beds, and beds in excluded units) maintained for lodging inpatients, including beds in intensive care units, coronary care units, neonatal intensive care units, and other special care inpatient hospital units. Beds in the following locations are excluded from the definition: hospital-based skilled nursing facilities or in any inpatient area(s) of the facility not certified as an acute care hospital, labor rooms, PPS excluded units such as psychiatric or rehabilitation units, postanesthesia or postoperative recovery rooms, outpatient areas, emergency rooms, ancillary departments, nurses’ and other staff residences, and other such areas as are regularly maintained and utilized for only a portion of the stay of patients or for purposes other than inpatient lodging.

To be considered an available bed, it must be permanently maintained for lodging inpatients. It must be available for use and housed in patient rooms or wards (i.e., not in corridors or temporary beds). Thus, beds in a completely or partially closed wing of the facility are considered available only if the hospital put the beds into use when they are needed. The term “available beds” as used for the purpose of counting beds in not intended to capture the day to day fluctuations in patient rooms and wards being used. Rather, the count is intended to capture changes in the size of a facility as beds are added to or taken out of service.

Id. at 888-89; see also Clark Regional Med. Ctr. v. Shalala, 136 F. Supp. 2d 667, (E.D. Ky. 2001) (holding that Federal Government was not permitted to exclude from the DSH calculation beds that were sometimes used for patient observation and providing post-hospital skilled nursing care on temporary basis).

A recent decision by the Administrator of CMS (on appeal after a ruling by the Provider Reimbursement Review Board (PRRB)) underscored just how challenging it is for a hospital to lower its number of licensed beds.  In Rush University Medical Center v. BCBS/National Government Services, Inc., ¶ 82,806, Centers for Medicare and Medicaid Services (Apr. 4, 2012), the Administrator of CMS reversed a ruling by the PRRB where the PRRB disagreed with the intermediary’s finding that certain beds in a hospital were available for inpatient care. The PRRB held that a majority of the beds in controversy were taken out of service, thus, making them unavailable for inpatient care if needed. Based on testimony regarding the process of taking beds out of service and bringing them back in service, and the two types of contemporaneous evidence (memoranda relating to closures, and Room and Bed Master Price Index reports), the PRRB agreed with the hospital that it would take at least 72 hours to make the beds in controversy available. Therefore, the PRRB determined that the beds were not permanently maintained for lodging inpatients as required by federal regulations.  Because the hospital could not show it would take at least 72 hours to place beds in service, the Administrator held that it could neither disprove the same, and accordingly ruled against the PRRB.

Leave a Comment