our findings and recommendations go to the current challenges. we found aljs decided fully in federal appellate in over half of the cases and part a hospital stays were most likely to receive favorable decisions. several factors led aljs recent decisions in the fire level.

one is that some medicare policies are unclear. this leads to more favorable decisions for a balance and to more variation among adjudicators. in fact, there is wide variation among aljs. the rate of favorable decisions ranged from 18-85%. we also found improvements were needed with aljs moving to electronic files and seem is increasing its participation at hearings. enclosing -- in closing, strong oversight and effective appeals assistance our critical for medicare to work well. cms policies, the rac and the appeal systems must fulfill their important purposes. if they do not beneficiaries, taxpayers and the medicare program suffer. oig is can -- is continuing to improve medicare.

thank you for your interest and for the opportunity to discuss some of our work. happy to answer any questions. >> as both witnesses have made the point, that midnight policy, inpatient, outpatient, audits and appeals all work together. that's why we're doing this hearing altogether. starting with mr. cavanaugh, i'm interested in your thoughts to compare inpatient and outpatient services. trying to find we should be trying to find the best quality of care at the right size with the most -- can you give an example of reimbursement, for service that can be built both inpatient and outpatient by a teaching hospital in a major city? what would be an example? >> as you pointed out in your opening statement the outpatient payment system and the inpatient paymenstem e fundamentally different and they start with different coding. it's often hard to compare

payments because we can put the same claim for the outpatient system and innovation system. they are coded to fully. on the inpatient system we tend to pay a fixed amount. that drg-based payment will include adjustments for possibly ime, dish. it could include readmission to the hospital required condition daily. it tends to be a fixed payment for the type of patient and type of service being delivered. on the outpatient site it's more just aggregated we tend to pay for service. i think you heard from the oig and that they get some of the data we have that the magnitude of the difference in payment is quite substantial. the oig mentioned a short stay inpatient payment tended to be three times as costly to medicare as the outpatient observation. that's consistent with the data we seen at cms. that gives you a sense, the system for driving the payment are different and the magnitudes are quite different.

>> how do you address that? >> i'm not entirely sure how we address the. one idea we received of stakeholders, had some sort in congress, discrete a payment system that splits the difference, a short stay inpatient payment system. as mentioned, we are soliciting comments on how to great such a payment system. i would say there are challeng challenges. some of the cases that come in a short stay inpatient case, payment, already a very low lengths of stay, chest pain has a two day average length of stay. so the question how would you create a short statement around the type of case that's already fairly short? those are the sorts of technical questions we're asking for public input in the proposed rule this year. >> ms. nudelman, in your analysis you think the midnight standards will reduce stays or increase them? >> again, our analysis is prior

to the midnight state. it is difficult to predict how things will look. what we did find is that hospitals extremely very and, therefore, it's important to look at all of the data because their starting point is very different and so it may impact hospitals very differently. >> mr. cavanaugh, affecting our medicare beneficiaries that often gets lost in this discussion and the difference going inpatient-outpatient. the medicare program of such vastly different posturing rules for our seniors, medicare beneficiaries between the two benefits. this committee is focused earlier on the advantages combining medicare part a and part b with the out of pocket costs just to make sure we protect seniors in part because we are concerned about what

seniors pay for cost sharing. can you give us your thoughts on combining parts a and b. and how that might be helpful in trying to contain the cost-sharing challenges for seniors? >> i recognize one of the goals is to speak to one of the problems that we have here which is that it generates different liabilities for the patient. i would want to hear more about the proposal that the subcommittee is considering. we have technical staff at cms who can come provide assistance to in the drafting of the bill if required. and if that would be beneficial. >> so you've not taken a look at the proposed combining part eight and part b in the president budget or in order health care proposals? >> we don't have a proposal in that at this time but like i said if the committee has a proposal would love to see it and learn more about it.

>> okay. final question. mr. cavanaugh, even the cms doesn't have a direct role in the aljs level medicare that ms. nudelman talked about, cms would still a part of the solution to solve a backlog. does hhs have a working group to address medicare appeals? if so, has hhs crafted recommendations to solve the backlog issues going forward to? >> yes. as you point out there isn't hhs wide workgroup to address the backlog. cms is part of that. we are in the process of coming up with recommendations. i don't believe there are finalized yet. >> what is the timetable on that? >> i think we could brief the committee on the very shortly. >> thank you. i now recognize ranking member mcdermott for five minutes. >> thank you, mr. chairman. from a patient standpoint you walk into the emergency room, or whatever, and you get put in one of these statuses or the other.

does it make any difference to the patients, to the beneficiary which status they are put in as to how they are treated? >> as to how they're treated, not for me benefit perspective? >> yes. i'm talking how they're treated as a patient. >> i would hope not. i would hope the patient is receiving all the services they need that are medically indicated. >> so then the difference is in the payment that's received by the hospital or that the patient has to make depending on which category their income is that correct? >> certainly the statute creates a stark difference, yes. >> because of the amount of difference for a hospital what they receive and what the patient has today. so we get some idea of who is bearing the weight. >> the amounts both at the hospital receives and the beneficiary would be liable for

would vary tremendously on individual circumstances. i can give you a precise answer. i would say when we did a rebuilding initiative will get hospitals take short inpatient cases and rebuild them as outpatient which involves some work. we did find the outpatient payments to the hospital was about 30% of what the inpatient payment would have been. >> so they are getting 70% more if they bill them as an inpatient. is that in medicare payment or the drg, the diagnosis related group, or is it the indirect medical education, the dish payment on top? >> it includes everything. >> so you're saying you're including everything. so it's to the hospital's best interest to bring them in as an inpatient? >> certainly it generates more revenue. >> from a revenue standpoint. because we said to make any difference how they're treated as people and as patient.

so the only difference is how much money the hospital makes, is that correct? >> again, it certainly makes a significant financial difference. >> no, i've heard and i think almost every member on this committee has probably heard from the hospital. the usual assumption is that the rac's are overzealous and that somehow when we take them up to appeal and we finally get to the appeal process, almost always it comes down in our favor. could you give us the numbers of how many are overturned on appeal? >> certainly, congressman. we had a report to congress on the rac program, the year 2012. in that report we showed when the rac denied the claim and when rac denies a claim only 7% of those are ultimately

overturned at some level of review. all the way up through the alj. >> only 7% are overturned. where do the hospitals get those figures that they say pashtun they are all overturned. when we finally go through this long arduous process that is backlog of everything else, it's always overturned. where do they come up with that? >> to sources. the first is in the individual hospital experience made very to minister. some may have a better success rate. the other is some of the numbers that i've seen quoted by the industry they're using as the denominator only those that they choose to appeal. not all those that were denied, which a lower to know many would generate a higher rate of that. >> does the key to more than half? >> in the numbers we've seen at cms, i haven't seen anything that would get that high, no, sir. >> the number i saw, you're holding back on the numbers you've got. the ones that i've seen said 27%

is the number that are overturned. >> i don't mean to hold back the numbers. is a numbers that are in a public report to congress. ultimately, and congress. ultimately, and i just did as good as i can come although once rac denied only 7% are ultimately overturned. if you took a low number of the once rac denied and the ones hospitals chose to appeal it would generate a higher overturned number. i just don't happen to know that number -- 14%. i am being helped, yes. so it essentially doubles the rate but it doesn't get as high as some of the numbers you may have heard from others. and individual hospitals experience may vary. >> can you give us an explanation for why this problem -- and generally congress does a run in and pass laws and you don't make rules and regulations without their having been something to generate that. what is it that drove this in

the first place? >> i think it was a confluence of a number of factors. we're hearing from hospitals and beneficiaries who are really concerned about these long observations are that was causing confusion for beneficiaries, including they didn't understand their status and they thought they were qualifying for the skilled nursing benefit. we were hearing from hospitals dealing with rac with what the hospitals would characterize as an unclear standard for inpatient care, was a difficult situation to put them in. all these forces came together and that's why cms solicited input and tried to make a clear policy. our goal is not to have it successful rac program or to drive down the number of overturned appeal to our goal is to have hospitals understand the rules, agree with the rules and built directly of the outset. >> time is expired. mr. johnson? >> thank you, mr. chairman. mr. cavanaugh, the value-based purchasing program which was enacted as part of obamacare is the federal government most

extensive effort yet to all hospitals financially accountable or patient care -- of compared medicare compared hospitals on how faithfully they filed basic standards of care and outpatient rated their experiences. in the first year of cms value-based purchasing programs, physician owned hospitals demonstrated they thrived in delivering high quality low-cost care. amazingly nine of the top 10 in 53 of the top 100 hospitals were physician owned hospitals. cms also recently released data that summarizes the utilization and payments for procedures and services provided to medicare. based on this release of information, we have now confirmed what many of us have known for some time. and that is that physician owned hospitals are costing medicare less than hospitals without physician ownership.

that doesn't consider all the cost savings associate with the higher quality of care they provide. the irony of all this is that the very law that critical hospital value-based purchasing program, obamacare, bands the same hospitals this new accountability measures as that are some of the very best in the country. obamacare prohibits any new physician-owned hospitals from treating medicare and medicaid patients. is 30 discriminates against some of the most vulnerable patients in our health system. while the law permitted those physician-owned hospitals that received medicare certification to be grandfathered under the law, it prevents these same hospitals from being able to expand, to meet the access quality demands in their community. this makes no sense and it flies in the face of the administration's own benchmark for quality of care and cost

savings. mr. cavanagh, do you stand by the results of the value-based purchasing program validates the quality of physician-owned hospitals of? >> yes. the agency stands by the results. >> do you stand by the data released by cms showing the cost differential between treating patients at physician-owned hospitals versus hospitals without any ownership by physicians? >> i apologize. i'm not for me with those big but i'm happy to look at them and view them. >> appreciate it if you would. i hope you all can support a bill that i've got out there, h.r. 27 -- 2027 which would -- ensure that nations will continue to have a choice in where they receive their health care. >> certainly we look forward to reviewing the legislation. >> thank you, sir. thank you, mr. chairman. >> mr. tompkins is recognized. >> thank you folding this hearing today. i think this is something we're

all hearing a lot about in our district. mr. tabler, i would like to revisit the issue -- mr. kaplan, the reverse audits and she mentioned 7%. mr. mcdermott said he hears from his constituents that every one of them are overturned. i'm hearing it's in the 40% for my hospitals, 40% and change. is there any way to qualify how these missed billing are done? are the intentional? are the mistakes? what is your experienced? >> certainly my experience, which actually predates my time at cms. as i mentioned in my opening statement i've only been

director center for medicare for a few weeks i do have experience working in a hospital industry might experience, not fraudulent. >> honest mistakes or they find the process is confusing and have trouble getting to where they need to be? >> certainly that's what i've heard from much of the industry. i would also say by monitoring these very close to the agency has at times found suggestions of fraud i don't think that's generally what's driving it. >> is it pretty easy to recognize the mistakes, vis-à-vis the fraud? >> i would have to defer that question to my colleague who runs the program integrity side of cmi -- cms, excuse me. >> i'd like to know that. >> will be happy to circle back with you. >> but whichever it is when hospital has to go through the process of defending their claim, there's a lot of expense

associated with that. >> that's true. >> are you able to qualify that? >> well, we don't have, click data on what hospitals expense is but certainly my -- >> they hire, what, lawyers, hired consultants speak with but also just the time and -- >> the uncertainty, again defending their billing practices rather than providing health care to patients? >> yes. again that's why we feel perfecting the appeal process is informed by what's more important having very clear guidelines at the outset of how these cases should be billed. >> and is there anyway to minimize the costs to hospitals if the claim is reversed and? >> yes. there are some things that we

are doing. the recovery auditor contracts are being weakened heeded as we speak and we hope to award new contracts this summer. in that process as we set new terms with the appropriate auditors were trying to take steps to make things less burdensome for the hospitals. we are trying to provide the requests that audited for documents from hospitals to try to limit the burden somewhat. were trying to ensure that there's an exchange of information between the auditors and the hospital so hospitals can make a case could lead to file a formal appeal that they can work with the auditor to explain what i think was appropriate. we're always looking for ways to improve this and i think there is be as the process incentivize the auditors to go after more than they should? >> i don't think it's -- i don't think there's an incentive for them to go after more than they should and i think the very low overturned right that i quoted suggests there larger going after the right types of cases.

>> that's the 7% quota. but if they're all overturned or even if they are what my hospitals are experiencing about four days, it's not quite as low. >> if i believed the claims -- >> the our lives -- lies, damned lies and their statistics. >> i just wanted to agree with you though that if there were overturned rates of 40, 50% i think that would be indicative of a larger problem than just guidelines. >> what with that problem be? >> i think it would indicate the recovery auditors were not going after cases that were -- >> what? >> the recovery auditors if they're getting overtones, 40 or 50% of that it would indicate they were going after cases that were appropriately billed to start with.

again that's not what we see. >> mr. chairman, can we further examined that? if that's the case, they are being incentivize or for some reason they're going after cases they shouldn't. >> at some point i'm going to recognize -- at some point i would like ms. newman to win. i want to recognize the differences in the numbers. i may be missing something. >> thank you, mr. chairman. mr. cavanaugh, i just want to pick up on one of the things mr. mcdermott articulated in his opening statement where he said he wanted to protect medicare's finite resources. i grew that and you agree with that. one of the challenges i think is there is a serial -- a zero-sum game element to medicare members of right now so want to draw your attention to an issue on sure is really with you. that's nantucket cottage hospital. as you know that was part of the process by which the affordable care act was passed.

i don't think any celebration in this in that it is a zero-sum game proposition. i come from illinois and my home state is losing under this equation the massachusetts, based on this manipulation, will essentially get $3.5 billion over 10 years. you recognize that that's a problem, don't you? >> i'm firmly with the provision you're talking about. i which just sent is a cms is faithfully executing the law as written. >> you don't think that's a good allocation of resources, do you? >> again i would just say we're implementing the law as requir required. >> if it takes from my state and give to another state, and what it does is it manipulates the definition of a rural hospital so that now manteca is now defined as rural which boosts

everybody up because you know these rules better than i do. the entire state of massachusetts is the beneficiary of one hospital in a particularly luxurious area is now redefined as rural and, therefore, poor. that's manipulation, isn't it? >> congressman i think you accurately described the mechanism of what is happening. and again we are bound to element of the law. >> but it's not a good idea, is it? >> we are faithfully executing the law in this regard. >> well, but i mean if you recognize that there's bipartisan support to repeal this, don't you? this is one of these areas where just a tremendous amount of bipartisan interest in trying to get back to this. senators mccaskill and coburn have come alongside with one another. there's dozens of members of the house of representatives who have recognized this and this is a situation where one state

based on one statute is getting a disproportionate benefit. and it's not getting a disproportionate esoteric benefit. in other words, this is a just simply borrowing from a future generation. this isn't saying we are going to take from illinois and we're going to give to massachusetts. that's a breakdown, isn't it? isn't that a failure? >> congressman, the provision does involve some of the technical aspects of medicare ratesetting and we have a lot of experts at cms would be happy to bring down the provide technical assistance. >> is it a technicality when a luxurious vacation area is characterized as rural, thereby poaching every other -- boosting every other hospital in the state and having an adverse impact on many other states? so massachusetts, according to our staff who put this together

in 2013 and 2014, is going to be receiving a benefit of $425 million. my home state of illinois is down 62 million. pakistan prices home state of georgia is down 30 million. you just go on and on the list. congressman mcdermott's home state is down 12 million. this is beyond just a technicality, wouldn't you say? >> what i'm suggesting is it's a function of every technical part of the ratesetting in medicare. we are happy to look further into it and look at you but they'll and provide -- >> isn't that an organization to save it's a technicality? it's not just technically taking millions of dollars from my home state and these other states across the country to benefit one state through the boosting of this sort of hospital definition. and if that's a technicality,

then i shudder to think what's the big deal? it's more than a technicality, wouldn't you acknowledge that? >> i didn't just use it as it was a technicality. what i was times it was a function of technical aspects of the ratesetting system. as you said, the provision has a meaningful impact on medicare rates spent wouldn't you technically think it's a bad idea? >> congressman come we are faithfully executing the law. if you have a provision to change it we're happy to write any technical assistance you might need. >> thank you. mr. pascrell. >> thanks, mr. chairman. i think would work together to find solutions for hospitals and for patients. i've been hearing from hospitals in my state, mr. cavanaugh, about the reporting requirements and programs that impact the work those hospitals do. to anyone who will disagree that there's much room for

improvement in the rac program, and policies related to short-term as well as observations -- observations days. we need to strike the right balance between ensuring that hospitals can comply and that medic has the ability to ensure program integrity. sounds easy but it's not. one area of interest to me is the increased use of observation space. and how it impacts the beneficiary. so i have cosponsored along with others, bipartisan, the improving access to medicare coverage act which would allow observation space to be counted towards the three-day mandatory inpatient stay for medicare coverage of skilled nursing facility services. so here's my question, mr. cavett.

a number of independent reports from medpac, the hhs inspector general, brown university, an interesting study, indicated that there's been a substantial increase in the number of observation stay claims and a decrease in the number of inpatient stays. according to madcap -- medpac, our claims grew by 88% from 2006-2012. a brown university study found that the average length of stay increase by more than 7%. could you tell me what is computing to this trend and the rise in observations days? >> certainly seem as this aware of the growth in observation space as well. one of the things we believe is contributing to it is the

behavior of some hospitals that want to avoid auditors probing whether an inpatient stay was appropriate. >> you want to lay that on the record, please? >> what do you mean? >> what if the hospitals don't? >> again, this is anecdotal having talked to some hospital associations and some individual hospitals have some hospitals have decided they would rather take patient in observation status as an excess caution rather than risk having an inpatient admission subs will be denied. >> what does that lead to? >> well, first of all, what i think is unfortunate is as you point out if the patient should be receiving inpatient care, they are not occurring the days they need to qualify for the benefit. >> that's pretty troubling. under the current law, under what exists right now, medicare requires that a patient be

clarified -- classified as an inpatient or in a hospital stay for three days in order to qualify for coverage in a skilled nursing facility. after they leave the hospital. so a number of beneficiaries being cared for in hospital on outpatient observation status rather than admitting them as inpatient, which has caused problems for medicare coverage. that's serious. mr. cavanaugh, do believe the three-day inpatient stay requirement for medicare coverage of skilled nursing facility services is appropriate? >> congressman, i think cms shares your interest in trying to find ways to improve the use of skilled nursing facility benefits. i am pleased to tell you there are two examples of where we're exploring specific alternatives to this. in the affordable care act, the

secretary and cms were given the authority to waive certain provisions of medicare in order to test new payment service delivery models. in the pioneering -- run by the innovation center and the bundled payments are care improvement also bound by the innovation center, we are running tests, where we are participants have waivers from the three-day prior hospitalization will. we chose those invited to which we feel those environments the providers have both a clinical and financial heightened responsibility so we feel it's the best possible environment to waive the rule without having excess utilization. those tests are fairly new and we're anxious to wear going to evaluate them closely and when we have data to share we would be happy to share them with this committee. >> thank you, mr. chairman. >> we will move to two to one questions we can ask the questions. >> thank you, mr. chairman. thank you for testifying this morning, both of you. on this issue, and staying with

the questions that my predecessors year have just posed, i think a lot can be pulled out of some of the information we get from our subcommittee staff that summarizes the issues with hearing today. let me read if i can from it because i think it crystallizes on the midnight will worry are. for fiscal year 2014 cms maintains 751 diagnostic related group is building codes for inpatient hospital payment. the outpatient payment system is focused on current procedural terminology, or cpt codes, that are maintained i the american medical association. the cpt codes map to ambulatory payment classifications, or apcs, for outpatient service reimbursements. for calendar year 2014, cms maintains 813 apcs. there is no one to one matching

of drgs to apcs nor international classification of disease codes to cpt codes. hospitals are responsible for knowing to different coding systems and to different payment systems for medicare reimbursement. seems to think that's the problem, isn't it a? a patient comes into a hospital, presents with certain symptoms and certain complaints. but there's two different coding systems that hospital is then required to utilize in terms of reimbursement it ultimately receives for whatever service is provided to the patient. to does not the answer lied to a new methodology that somehow blends these codes or smooths these two different payment systems, one outpatient, one inpatient? so there's a fair way to reimburse for the service provided not the length of stay on an arbitrary basis? >> thank you for the question.

i do think in this year's rule in which we requested input on a short stay inpatient payment system we were suggesting that we were open to the kind of thing you're talking about, which is trying to see if a solution here is to minimize the payment differences. i do want to prejudge the result of that. we are waiting to receive public comment on how that might look but i think it's an openness to a step in the direction you're discussing. >> is that openness towards getting to a system where, again, the reimbursement to the hospital is based upon a more simple find methodology, and a methodology that is tied to the nature of the service that's provided, not an arbitrary time period for which the patient is in the hospital? and but also if ms. nudelman would reply to that as well. >> i mean, i defer to see ms. and the congress to make the

policy but i think the overall objective is going back to not paying vastly different amounts. at the very least a standardized across block, that cross blocks the outpatient and inpatient procedures would be a useful tool. >> well, typically and inpatient reverse meant would be about three times what an outpatient reverse meant would be. to be a fundamentally unfair situation where somebody is discharged from hospital 10 p.m. before the second midnight, and the for the hospital receives a third of the reimbursement for the services that were otherwise provided or could've been provided if you just kept the person three more hours, discharge in order at 1 a.m. after the two midnight said in passed by and get three times the reimbursement. isn't there a fundamental interest arbitrarily setting up

a trend over any particular time period for determining reimbursement versus just the nature of the service that will treat the patient as a mr. cavanaugh, you allude to some moments ago, that is the goal, getting the patient properly cared for in a hospital setting based upon the symptoms and problems and then the diagnosis is made to deal with that? >> i think, congressman, it's fair to say cms shares your goal. what i would caution is in any time we quit a new game there's lot because integrating new payment systems. what you are ticketing i think is a very worthy goal of seamless payment system that presents many technical challenges. however, again, we expressed openness and our proposed rule to exploring payment solutions to this so we look forward to hearing any ideas this subcommittee has and we look forward to working with you on this. >> thank you both. >> thank you. mr. smith. >> thank you, mr. chairman and thank you to our panelists here today.

the more regulations we have, the more difficult for medical providers to do the job and especially it becomes more difficult to do the right thing. mr. cavanaugh, similar to concerns raised about the two midnight rule there's another regular sure and cms announced it will be -- begin enforcing bishopric into the 96-hour rule at critical access hospitals. this regulation required decisions to certify at the time of admission, a patient must transfer the patient or face non-reimbursement to understand cms has walked back this will allow more time to file a certification. is that true? >> that's true. we have provided guidance to some of the hospitals that we will allow the certification of her into up to 24 hours before the bill is submitted and i think that will be coming up more formally sometime soon. >> i assume that you've

received, feedback, as have i from hospitals and physicians. can you reflect briefly if you might on the kind of feedback you received that would've prompted walking back a bit of? >> certainly we got a lot of input about the timing and the burden and whether the trade off between what we were seeking and what the hospitals were requesting to whether there was any loss in the assurances we needed that the patient was seeing the appropriate level of professional, editing hospitals made a convincing case that there was room for some adjustment in the policy. >> it would seem the rule is unnecessary and even arbitrary. how did you derive at the actual number of 96 hours? >> that part is in statute to the statute requires the physician make a certification that the expectation when the patient arrives was that they would need no more than 96

hours. >> what is the background on that 96 number? >> i apologize but i don't know the story. i just know it is statutory-based. >> cms has not enforced it off until -- they decided to start enforcing that come is that i could? they have not been previously? >> again i apologize. i didn't jump a just a couple of weeks. i do not that the requirement does trade back to the statutes. >> okay but i've introduced a bill, the critical access hospital relief act of 2014 which would repeal the regulation and i would certainly encourage the agencies support of that. i think it might even make a lot of folks jobs more easy to carry out, and i know we've got of the burdens on critical access hospitals such as the physician supervision. again arbitrary. hard to determine how that ever even came about in terms of a

rule or regulation. it's very discouraging i think for medical providers to be facing all of these regulations that, like i said earlier, make it difficult for the good actor to do the right thing. i know we've seen advertising on television about addressing fraud in medicare and medicaid and other areas. and yet i still think that all of these regulations are making it more difficult for the provider to do the right thing. i'm not convinced it's actually preventing fraud. i can appreciate the fact that there are limited resources that you acknowledge that, and that we are all trying to operate in a world of limited resources. and yet i think that many of these regulations are a publishing the exact opposite of what they were intending to accomplish.

it's a huge burden and i would hope that the agency would really reflect on that fact as we do move forward. thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. thank you for holding this hearing to want to thank our panelists for testimony here today. just to maintain the momentum of some of my colleagues, as i've been talking to a lot of our providers back home in wisconsin over the two midnight rule, their sense is it's awfully arbitrary and they're having some definitional problems as far as what constitutes inpatient care versus observational status, outpatient care. has seamless been working with the provider committed to provide better definition or cleared in regards to those type of services? and what is the difference? if there and under and observational status versus inpatient care, is the thing she

can point to that clearly distinguishes between the two types? >> first on the first half of the question about whether we're working with providers, i would say we certainly are. i think was a big part of our attitude going into this year as you become we suspend the recovery auditors looking at these cases for these purposes. because we wanted to work with provider and we wanted to do it is a we have as i said that macs going into each hospital and take a small sample of cases and seeing whether they're complying with the rules. and in instances where hospitals are covered in a film fo for the rest of this year and in cities where hospitals are having trouble understanding or implementing the new rule, the max are working with them to educate them. i do feel like we've taken this pause in recovery audit program looking at these types of cases for the very reason you say which is to work with the hospital. >> again, the origin of the rule was to respond to qwest for clarity. -- to requests for clarity. what we are doing is perhaps

additional payment is the. we wait to see how these discussions go. this is a dialogue between us and the industry, and we do hope to learn quite a bit during this time. >> are the clear distinctions that can be made within a hospital setting? >> certainly observational status is supposed to be used for short period. periods. for the purposes of determining whether a patient needs inpatient level of care. and during that time there ought to be diagnostic and other monitoring team conducted. i would hesitate to go any further in the distinction because i'm not a clinician, but i think your point is well taken, which oftentimes these are based on complex medical judgments that are difficult to translate into payment costs. >> you mentioned seanez is moving toward our short stay payment rule right now and you are starting to get some

feedback, comments on the. what are the very factors, just for the committee's benefit, what are the very fact is you're taking under consideration, putting that ruled together? >> the two questions we posed specifically in the proposed rules were, one, how would you define short stay cases bikes and are examples of this. the other payment systems out there that do use short stay payment. so it's not unprecedented. but it is a big challenge here as i mentioned earlier in that some of the cases that are inpatient, that are subject to rac review are already should short stay in one or legitimate inpatient meaning to have an average length of stay of two days, so cases are typically one, two, or three days already. how do you carve out a short statement on the second, this is the subject of some questions, the second question we posed to the public was how would you construct this new payment? i think questions would've risen we did include other things.

i think these are real important issues where we need public feedback before we move forward. >> is it uncompensated care or underinsured, is that a factor stick with the way the crickets and medicaid been is typically to the dish judgment i think it's a fair question whether she be part of this as well. >> recently cms did their physician reimbursement data dump that received a lot of articles, a lot of focus especially on summary -- some reimbursements that seems outside the parameters but we are from doctors and the follow-up question that it wasn't just been. over multiple docks or whatever using the same code in order to submit the building -- building information. does that sound possible that is what is taking place and why some doctors are being reimbursed 12 or $14 million in a single your? >> it is true that in certain instances multiple writers bill

under the same identification. >> why are we allowing that? >> i think that i have to look into that and get back to but i think there are speed it seems if we're trying to bring greater transparency, allowing multiple providers to use the same code seems to be against that issue and some that i think will have to address. >> i would be happy to look into that. >> thank you, mr. chairman i want to thank the panels as well. i think this is a important topic. oftentimes we don't put the patient at the center of these discussions. it sometimes do do a special or talk about money. i suspect it includes all rac audits that are done through the entire country i do want you to

answer that but right now like inviting later. the question we really need to answer is of those cases that hospitals have appealed that are inpatient stays denied duty medical necessity, what percent of those are overturned? do you have those numbers? >> i don't believe i have them handy but we can get them and we will get them to use in. >> i would appreciate that. there's a hospital in my area where 72% are overturned. 72%, so i would urge you to look at your chest when which is over 40% or thereabouts, something is wrong. something is wrong with the system. i want to revisit that but i want to touch on the two midnight rule but when a patient presents to the emergency room and is being admitted when does the physician, when is a positiophysician to pesticide ts this admission is medically necessary? >> that says the admission is medically -- >> or would qualify for the

inpatient, the two midnight. >> the physician or other qualify professionals can give the order verbally but has to countersign it at some point. by the order has become at the time of the admission speak with yes. for a patient to become officially inpatient, a physician or other qualified personnel has to give an order. >> we're asking for doctors to predict what's going to happen to the patient over the next two midnight's? >> it is based on -- the two midnight rule is based on the expectation, physicians expectation based on what they know at that time and if the physician's expectation isn't fulfilled mean if the patient recovered or something else intervenes, the rule is not what happens but what the physician recently expected. >> wouldn't we just be better off if we said that doctors and patients and found out to be making these decisions and not cms? >> again, cms can we're trying to leave it largely to doctors

discretion. but we are trying to balance many goals. >> i got you. but many physicians out there was a that they don't feel that you are trying to allow them to practice medicine. are the clinical studies or reports that back up the two midnight rule speaks i'm not sure i understand. understand. >> are there any clinical studies, scientists that say this two midnight rule makes sense from the patient's perspective of being treated? >> well again, we -- >> any clinical studies? >> the two midnight rule is relatively new. i'm not aware of any study. >> if you are i would love to hear about it. cms contracts with these groups to go get that money, right? >> cms contracts to review improper -- >> you pay them a percent? >> a contingency fee, yes. >> when an appeal is overturned, do you go get that money back to speak with yes.

>> how much is that? >> i'm sorry? >> how much money is that in total? >> i would be happy to go back and find that number. >> can different racs have different criteria for what is medically necessary? >> and they are all tied to medicare policy. spent what is the clinical input that rac is our to have to define what is medically necessary? >> rac is required to have a medical director supervising all their medical policies. >> to medical specialty societies have a chance to review that? >> of the work? not directly. >> all the money doe that is uso imply with all these wilson revelations cost money to hospitals? >> yes, sir. >> millions, maybe more. where does that money come from? >> well, i think you're getting at the point that i would concede readily which is our goal is not have a lot of these cases reviewed can not have a lot of cases overturned the our goal is to have a clear policy

that hospitals agree with and can comply with spent it comes from patient care? then that money is not going into caring for the patient. when we are one of our colleagues say if this isn't affecting the patient, it's not true, is it? >> it is not a productive use of money and why we're trying to reduce the need for this type of review. >> thank you very much. >> thanks. mr. renacci. >> i want to thank the panel. mr. cavanaugh, mr. mcdermott asked you a question, talk a little bit about three people entering the hospital and i just was interested in a response but you said i would hope that the patient receives all the benefits they are entitled to. i want you to keep that in mind when we go through a couple of questions i have for you. more and more medicare beneficiaries are losing out on skilled nursing coverage.

the oig found beneficiaries had over 6000 hospital stays the last three nights or more and did not qualify them for skilled nurses and facility service. i spent a record of micro almost 25 years in long-term care, industry i've recognize barrier to access the current three-day inpatient requirement has created for our seniors. for this reason i've introduced legislation h.r. 3531, that not only removes this very but also encourages hospitals and nursing facilities to committee with each other before discharge. mr. cavanaugh, disenius in my district are often unaware of the three-day inpatient requirement. furthermore, seniors and their caregivers are unaware of whether or not their hospital stays was billed as inpatient or observation but i want you to think about that patient enters the hospital. they are entitled to long-term care under medicare and end up

in this quagmire of observation day, not in inpatient day, and quite frankly they probably could go directly to a nursing home in many cases because the doctor is only sending them to the hospital because it's a requirement to its costing the medicare system dollars to send him to the hospital just to get them the path to that nursing a. if you think about that patient, going back to comment i would hope the patient receives all the benefits they are entitled to, we send this patient to hospital because it's a requirement. they go through three days. they have to get to the nursing -- the doctor says they belong in a nursing home. i can tell you these patients belong in the nursing home and they get caught up in this observation day but here's the problem. then they are sent to the nursing home and when they're sent to the nursing home, for 2000 of hospital stays can medicare does not pay for

services and the beneficiary was charged an average of $11,000. so now we have this patient who started in the hospital, ended up in observation day, probably should've never been in the hospital if we have a different system that my bill would allow them because of the doctor says that's the care that is the. has cms implemented any policies that would decrease the incidence to which seniors, and can that's who i'm talking about, that person you talked about, the benefits they're entitled to, seniors were caught off guard and left on the for thousands of dollars for medical bills? >> congressman, i think you raise a very important issue and one that was one of the driving factors to us looking at the two midnight rule. two things. one, one of the impact we are seeing at least preliminarily of the effect of the two midnight rule is we're seeing a decrease in these long observation stays and i believe those are probably

shifting to inpatient status. potentially helping to beneficiaries you're talking about. you're also talking about a large-ish of one of these patients need to go through hospital or should need to go to the hospital inward to access skilled nursing facility benefit. we are interested in exploring alternatives to that we currently have the binder a subset of the pioneer acos, several have had the three-day hospital session will wait so they can test whether there are stays in effect with for patients to be admitted without the par hospitalization. we are this you also outlines some of the participants of both hospitals and post acute care providers to do that as well in our bundled payment initiative. we are hoping we will gain for nicholas financial evaluation results from that that we could share with this committee and may be applied to broader medicare policy. >> it sounds like these studies will give us some of those answers but you would agree sending somebody to the hospital

and having the cost, the burden of the person in that hospital when they really could go to a nursing home might be a way of saving some dollars if we send them directly to the nursing of? >> we do feel there is potential but again we are testing it and i don't want to prejudge the results of the tests. >> thank you. i yield back. >> thank you. mr. crowley. >> thank you, chairman brady and ranking member mcdermott for a line you to join you at the thing today. welcome, mr. cavanaugh, but if you. i know speak for mcauliffe is a we look forward to working with you in your new capacity, new role at cms. i represent parts of new york city, queens and the bronx. i know you're for me with those areas quite well to i'm fortunate to have a number of highly regarded hospitals and medical institutions, many of which are also academic medical centers. i know your family with all of those as well. these hospitals and others across the country are

struggling with the two midnight rule. while i appreciate cms efforts to try to clarify when a patient should be admitted as inpatient, i have series concerns about the overall policy. new york hospitals focused i'm really providing the best treatment rather than on what time a patient is admitted. the two midnight rule sets a standard that does not always reflect a clinical judgment of the treating physician. several months ago we introduced legislation to delay enforcement of the two midnight rule. i'm glad this delay was included in the most recent doctor payment fix and i think the committee all of its work in achieving that delay. but the problems with the underlying rule remain. they need to be addressed. that's why our bill also wants you must implement a new payment methodology for short inpatient stays that don't fit neatly into

the two midnight policy. i was very pleased to see that seem as has proposed medicare inpatient rule for next fiscal year includes a request for feedback on establishing a short stay inpatient methodology. which could help providers and beneficiaries. i hope that cms will continue to work closely with hospitals and patients in establishing this process, and in taking into account the cost of associate with operating teaching and safety net hospital's. it's important, a new payment system protect graduate medical education and disproportionate share of hospital payments. i know the rulemaking process is underway, but can you comment at all on how you see this issue being addressed as you move forward? is there any possible message -- method you have considered or are willing to consider? >> thank you, congressman. thank you for your kind words.

i do know new york and the hospital and should do quite well having worked there and in one hospital and close with many of the others. you are correct. first of all, you are correct that congress extended and based on your legislation the pause in the rac are you for medical necessity of inpatient stays until march of next year. i think that does give us all both congress and the administration sometime to think about how the policies working and whether there are additional steps that are needed to make a clear policy that we can all agree on. one of those areas where we're going to spend a significant amount of time and resources on is exploring the possible of a short stay outlier. i don't want to prejudge how we would do this because we are soliciting public input, but that's i said in response to several other questions, it is an intriguing idea but also poses real conceptual challenges. we are up to those challenges but i don't want to underestimate them.

one of the things i would point out is if it is going to be an inpatient short stay thing, we are still going to need a definition of when inpatient care is necessary because you saw the distinction between inpatient and outpatient. we will have the challenge of how degrade short stay payment when certain drgs are already very short stay. but i know as i said there's some very great minds up in the new york hospital industry that i know are working on this and they've been in touch with us. we have been in touch with other associations so we eagerly await their input. ..