By Ronald Hirsch, MD, FACP, CHCQM, CHRI

Many members of CMSA may recall the days in hospital case management when an enemy threatened hospitals with seemingly unlimited powers and little oversight- the RACs, the recovery audit contractor program. Started near the turn of the 21st century by CMS, the goal of the RAC program was to stop inappropriate payments to providers by hiring contractors to audit claims and pay them a percentage of the recoveries. The RACs aimed at hospitals and short inpatient admissions, denying them left and right with little rationale and forcing hospitals to wage prolonged battles to try to recoup the payments they rightly deserved. 

As a result, many hospitals adjusted by keeping patients in Observation “status” for several days, avoiding the risk of audit but also depriving many patients of their access to their part A skilled nursing facility (SNF) benefits for rehabilitation, which, even to this day, requires a three- or more-day inpatient admission. Patients affected by this practice were faced with paying out of pocket for their SNF stay, and with the help of Medicare, advocacy organizations went on to sue CMS for this injustice. 

Initially filed in 2010, this case finally resulted in a court decision in 2020. As part of that decision, CMS has been directed to develop a new appeal process for specific patient groups. As proposed under CMS-4204-P, Medicare Program: Appeal Rights for Certain Changes in Patient Status, this new appeal process, once finalized, will likely be added to the regulatory tasks that are “assigned” to case managers along with delivery of the Important Message from Medicare, the Medicare Outpatient Observation Notice, the Advanced beneficiary Notice of Non-Coverage, and the Hospital-Issued Notice of Non-Coverage, and of course their “regular” work providing care management services, performing discharge planning, addressing patient’s goals of care and treatment preferences, and much more. 

From the proposed rule, it appears that CMS will be providing immediate appeal rights to a subset of Medicare patients (excluding Medicare Advantage patients) who are formally admitted as inpatient and whose status is then changed to outpatient via the formal utilization review process, commonly called the condition code 44 process. The subset will consist of two groups: those patients whose status is changed and who do not have Medicare Part B coverage, which would result in them having entire financial liability for the costs of their stay, and those patients whose status is changed. They then remain hospitalized for a total of 3 or more days who could then transfer to a SNF without any part A coverage for that stay. In both cases, CMS has specified that the appeal would only apply to those whose status is changed and who then go on to receive observation services. As such, it would not apply if the status was changed to outpatient and the patient had completed their medically necessary hospital care, thereby not warranting an order for observation services. 

However, careful analysis of the proposal suggests that while it will meet the requirements set by the court in the decision, it should have minimal impact upon the work of hospital case managers. The first group of patients, those with part A and without part B who have a status change to outpatient and then continue to receive care ordered as observation, is a very small number. First, the number of patients with part A and not B is relatively small. The subset of those who have a status change would reduce this number exponentially lower, and then for many conditions code 44 changes, the status is changed, and the patient is discharged soon after that, meaning they received no observation services and therefore are not eligible to appeal. 

Likewise, the second group, those who stay hospitalized for at least three days, would be limited in that most of such patients are hospitalized for custodial care where an order for observation services is not appropriate and is not written, thereby again restrict the number of patients eligible for appeal.  

Although the number of patients eligible for this process may be small, hospitals must be prepared to ensure patient rights are honored such patients are identified, and compliant processes are followed. CMS has proposed a new form, the Medicare Change of Status Notice (MCSN), and a process will need to be developed to ensure it is delivered to the suitable patients. Once the rule is finalized, case management will need to meet with compliance, registration, and finance to develop a process to identify eligible patients and determine who will deliver the form, explain the process, obtain the patient's signature, and a separate process if a patient chooses to appeal during their hospital stay.  

This proposed rule is also a good time to reevaluate the use of observation services for patients who are receiving custodial care, such as the elderly patient who was abandoned at the ED by their family. Such a patient does not warrant observation services, which are defined as “clinically appropriate” services, but instead, they warrant custodial care services. Separating these services not only avoids bestowing appeal rights to patients who would not qualify for such but also allows more accurate accounting of the care provided in the hospital. But perhaps that’s a topic for another article. 

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Bio: Dr. Ronald Hirsch is a Vice President of the Regulations and Education Group at R1 RCM Inc. Dr. Hirsch was a general internist and HIV specialist and practiced at Signature Medical Associates, a multispecialty practice located in Elgin, IL. He was Medical Director of Case Management at Sherman Hospital in Elgin, IL from 2006 to 2012, where he was Chairman of the Medical Records Committee from 1995 to 2012, and also served on the Medical Executive Committee. Dr. Hirsch is certified in Health Care Quality and Management by the American Board of Quality Assurance and Utilization Review Physicians, certified in Revenue Integrity by the National Association of Healthcare Revenue Integrity, and on the Advisory Board of the American College of Physician Advisors. He is on the editorial board of He is the co-author of The Hospital Guide to Contemporary Utilization Review, with the third edition published in 2021.