OBSERVATION STATUS AND RAC AUDITS

When Kafka[1] Prevails

By

Eric E. Shore, DO, JD, MBA, FACP, FAAFP, FCLM, FACURP

 

 

On his birthday, the chief cashier of a bank, Josef K., is unexpectedly arrested by two unidentified agents from an unspecified agency for an unspecified crime. He later receives a phone call summoning him to court with the coming Sunday arranged as the date. No time is set, but the address is given to him. Which turns out to be a huge tenement building which K. has to explore to find the court, and although he has no idea what he is charged with, or what authorizes the process, he still has to defend himself. (A synopsis of the beginning of Kafka’s Der Process (“The Trial”)

For many years, when patients came to a hospital Emergency Department (“ED”) with complaints that could not be immediately diagnosed, they would be examined and treated and, if the diagnosis was not immediately clear, or the treatment immediately effective, they were frequently kept in the ED for up to 24 hours in what some places called a 23 hour “Hold,” or others a 23 hour “Observation.” This gave the doctors time to decide whether to admit the patient or send them home. It also had the salubrious effects of cutting the workload required for a full admission, for both physicians and nursing staff. If no admission was necessary, those patients could return to the comfort of their own home.

“All bad laws begin with good intentions.[2]” Moreover, the one law we can never repeal is the law of unintended consequences. Two things conspired to bring the concept of “Observation” to the fore in American Healthcare. First, was the mandate that hospitals be paid under a prospective payment system called “DRGs” (a description of which is beyond the scope of this paper) which mandated that hospitals should be paid flat fees for various sets of diagnoses under similar circumstances. This was supposed to be a risk sharing plan in which the hospitals could profit if they were efficient and could discharge patients earlier, and lose if they weren’t. Secondly, with health care costs rising, someone decided that it must be the hospitals’ fault so they wanted to find a way to recoup some of the money that was paid out. Thus was born the idea of auditing thousands of hospital charts going back many years, to see if every admission was medically justified and, if not, to force the hospitals to return what they were paid, thereby receiving no payment at all for caring for these patients.

Companies with alphabet soup names like RACs (Recovery Audit Contractors), MACs (Medicare Audit Contractors) and others were formed and hired by The Center for Medicare and Medicaid (“CMS”) and the states to do the audits. They are largely paid on a contingency fee basis, thus providing an economic interest in, and bias toward finding a lack of medical necessity in as many medical records as possible (they were also tasked with discovering underpayments, but this as clearly just for show). The process called for letters of denial followed by multiple appeal letters from the hospitals, teleconferences, and hearings before an administrative law judge (many of which are not even attorneys and none know anything about Medicine) with some additional appeal rights to follow. When hospitals found they could not successfully or economically pursue this procedure themselves, they were forced to hire other companies to do it for them which have been moderately successful, but at increased cost.

The hospitals were the Appellants and, under the rules of evidence, had the burden of proof, by a “preponderance of the evidence,” that an inpatient admission was justified and the patient could not have been cared for in Observation Status which was designated as “outpatient” and paid very little. There was, and remains, one major obstacle; since there is no mention of Observation in the statutes or regulations, and there is no known definition defining what services should be carried out in Observation status and which inpatient. Therefore, there is also no way to prove, “by a preponderance of the evidence,” or any other standard that an inpatient admission was justified because there is no known meter stick by which an admitting physician can judge. Could any administrative process be more Kafkaesque?

This needs to change for all of our sakes and, unfortunately, with current state and federal legislatures being what they are today, the only avenue left open is the courts. Perhaps It is time to litigate this issue and resolve it once and for all or, at a minimum, shine some light on a process that, while already serpentine, has become untenable and perhaps even unconstitutional, and damaged both health care in general, and individual patient’s lives and fortunes.

[1] An analogy, with apologies to Franz Kafka’s iconic novel, Der Process (“The Trial”), 1925.

[2] Many attribute this quote to Julius Caesar.

THE TRUE BRILLIANCE OF THE FRAMERS OF THE CONSTITUTION

When Americans go to the polls to vote for President, they are really voting for a group of “Electors” from their state, proportionate to its representation in Congress who then meet 41 days after the popular election to actually elect the President. I always thought it a silly convention that the President of the United States is elected through an Electoral College rather than simply counting the popular vote. The original reason seemed to no longer apply. But this year reminds us that once more, the Framers of the Constitution were an even more brilliant group of people than we already give them credit for.

James Madison worried about what he called “factions” forming who would vote a common interest that, if enacted, would harm the nation as a whole, and that at some point, that faction could be more than 50% of the vote. Alexander Hamilton wrote in the “Federalist Papers” that the Constitution is designed to ensure “that the office of President will never fall to the lot of any man who is not in an eminent degree endowed with the requisite qualifications.”

While modern times seem to have made the Electoral College irrelevant, it isn’t. As recently as 2000, George W. Bush lost the popular vote but was still elected President by the Electoral College. Moreover, most people are unaware that under the Constitution, the Electors can change their votes. This year may be the one to validate the Framers’ original fears. Without politicizing this too much, there are a large number of people, including those from his own party, that do not feel that at least one of the candidates is qualified by temperament, knowledge, experience or judgement to be President, yet a large number of people have formed the type of faction that Madison feared.

If this “Faction” should constitute more than 50% of the vote, their candidate could institute what Alexis de Tocqueville later dubbed “the tyranny of the majority” – that a faction could grow to encompass more than 50 percent of the population, at which point it could “sacrifice to its ruling passion or interest both the public good and the rights of other citizens.” This is the last “Check and Balance” left if an insufficient number of voters come to the polls to ensure otherwise. Let’s hope this is not the year when we need to use that one last constitutional safeguard, but we can all thank the brilliance of the Framers for its existence.