```

[Senate Hearing 114-862]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-862

                      CHALLENGING THE STATUS QUO:
                       SOLUTIONS TO THE HOSPITAL
                        OBSERVATION STAY CRISIS

=======================================================================

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                              MAY 20, 2015

                               __________

                           Serial No. 114-06

         Printed for the use of the Special Committee on Aging

                [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Available via the World Wide Web: http://www.govinfo.gov

                                 ______

                 U.S. GOVERNMENT PUBLISHING OFFICE

49-417 PDF                WASHINGTON : 2022

                       SPECIAL COMMITTEE ON AGING

                   SUSAN M. COLLINS, Maine, Chairman

ORRIN G. HATCH, Utah                 CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois                  BILL NELSON, Florida
JEFF FLAKE, Arizona                  ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina            SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee                KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada                  RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas                 JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                ELIZABETH WARREN, Massachusetts
THOM TILLIS, North Carolina          TIM KAINE, Virginia
BEN SASSE, Nebraska
                              ----------                              
               Priscilla Hanley, Majority Staff Director
                 Derron Parks, Minority Staff Director

                         C  O  N  T  E  N  T  S

                              ----------                              

                                                                   Page

Opening Statement of Senator Susan M. Collins, Chairman..........     1
Opening Statement of Senator Claire McCaskill, Ranking Member....     3

                           PANEL OF WITNESSES
                                Panel I

Sean Cavanaugh, Deputy Administrator and Director, Center for 
  Medicare, Centers for Medicare and Medicaid Services, 
  Baltimore, Maryland............................................     6
Mark E. Miller, Ph.D., Executive Director, Medicare Payment 
  Advisory Commission, Washington, D.C...........................     7

                                Panel II

Jyotirmaya ``Jeetu'' Nanda, M.D., System Medical Director, 
  Informatics and Physician Compliance, Center for Clinical 
  Excellence and Corporate Responsibility at St. Louis-SSM Health 
  Care, St. Louis, Missouri......................................    17
Spencer Young, Senior Vice President, Clinical Operations, 
  HealthDataInsights, Las Vegas, Nevada..........................    19
Tori Gaetani, R.N., Director of Care Coordination, Population 
  Health, EMHS Beacon Health, Brewer, Maine......................    21

                                APPENDIX
                      Prepared Witness Statements

Sean Cavanaugh, Deputy Administrator and Director, Center for 
  Medicare, Centers for Medicare and Medicaid Services, 
  Baltimore, Maryland............................................    35
Mark E. Miller, Ph.D., Executive Director, Medicare Payment 
  Advisory Commission, Washington, D.C...........................    46
Jyotirmaya ``Jeetu'' Nanda, M.D., System Medical Director, 
  Informatics and Physician Compliance, Center for Clinical 
  Excellence and Corporate Responsibility at St. Louis-SSM Health 
  Care, St. Louis, Missouri......................................    62
Spencer Young, Senior Vice President, Clinical Operations, 
  HealthDataInsights, Las Vegas, Nevada..........................    68
Tori Gaetani, R.N., Director of Care Coordination, Population 
  Health, EMHS Beacon Health, Brewer, Maine......................    84

                        Questions for the Record

Sean Cavanaugh, Deputy Administrator and Director, Center for 
  Medicare, Centers for Medicare and Medicaid Services, 
  Baltimore, Maryland............................................    91

 
                      CHALLENGING THE STATUS QUO:
                       SOLUTIONS TO THE HOSPITAL
                        OBSERVATION STAY CRISIS

                              ----------                              

                        WEDNESDAY, MAY 20, 2015

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:17 p.m., Room 
562, Dirksen Senate Office Building, Hon. Susan M. Collins, 
Chairman of the Committee, presiding.
    Present: Senators Collins, Tillis, McCaskill, Whitehouse, 
Donnelly, and Warren.

                 OPENING STATEMENT OF SENATOR 
                   SUSAN M. COLLINS, CHAIRMAN

    The Chairman. The hearing will come to order. Good 
afternoon.
    Today's hearing will focus on the continuing use of 
hospital observation stays and the financial implications for 
Medicare beneficiaries and their families. This hearing is a 
follow-up to one that the Aging Committee held last year, which 
found that the financial consequences of these stays can be 
devastating for patients and their families.
    Medicare originally intended observation stays as a way to 
give hospital physicians more time to run tests or to do lab 
work in order to decide whether a patient should be admitted to 
the hospital or is stable enough to go home. These observation 
stays, which Medicare considers to be outpatient care, usually 
lasted between 24 and 48 hours. Hospitals, however, have been 
increasing their use of observation stays and they are also 
keeping Medicare patients in observation status longer.
    A 2012 Brown University study found a 34 percent increase 
in the ratio of observation stays to inpatient admissions over 
a 3-year period. This led researchers to conclude that 
outpatient observation status was becoming a substitute for 
inpatient status. At the same time, the study found that 
patients remained in observation status longer, with an 88 
percent increase in the number of patients staying at least 72 
hours, well beyond the recommended 24 to 48 hours.
    According to the HHS Inspector General, in 2012, Medicare 
beneficiaries had more than 600,000 observation stays that 
lasted three nights or more. Many of these patients find 
themselves in a Medicare twilight zone, where they may be in a 
hospital bed for days receiving care and treatment from doctors 
and nurses, but still not have been officially admitted to the 
hospital as an inpatient.
    The financial consequences of these stays matter. They can 
be severe. For example, seniors can be held responsible for 
outpatient copayments and prescription drug costs that they 
otherwise would not have been responsible for as an inpatient. 
There is also no out-of-pocket cap on these costs.
    More important, if a Medicare patient is not formally 
admitted, Medicare will not pay for subsequent skilled nursing 
or rehabilitation care. A Medicare patient must spend three 
consecutive midnights in a hospital as an admitted patient in 
order to qualify for coverage for care in a skilled nursing 
facility. As a consequence, if a patient who has been on 
observation status needs follow-up nursing home care, they must 
pay the entire cost themselves, even if they have spent the 
last three nights in a hospital bed being cared for by that 
hospital's doctors, nurses, and other personnel.
    Many patients on observation stays may not even realize 
that they have never been admitted as inpatients. They just 
know that they are in the hospital. If they are admitted later 
to a skilled nursing facility for follow-up care, they may be 
shocked to learn that they will be liable for out-of-pocket 
costs totaling thousands of dollars. Some Medicare 
beneficiaries may be foregoing skilled nursing or 
rehabilitation care altogether because they simply cannot 
afford to pay the out-of-pocket costs.
    That is why I have joined with a number of my colleagues in 
introducing legislation to resolve this problem by deeming time 
spent in hospital observation status as inpatient care for the 
purpose of the Medicare three-day prior hospital stay 
requirement.
    Our hearing will further examine the financial implications 
for our seniors of spending long times--long periods of time in 
observation status without formally being admitted as patients. 
We will also explore whether there is a relationship between 
the Medicare Recovery Audit Contractor, or RAC audits, and the 
spike in hospital observation stays, as well as the 
effectiveness of efforts by CMS, such as the ``two midnight'' 
rule, to clarify when Medicare patients should be admitted for 
an inpatient hospital stay. Finally, we will discuss a proposal 
to resolve problems associated with this issue that have been 
put forth by Members of Congress, advocates, and stakeholders, 
as well as by the Medicare Payment Advisory Commission known as 
MedPAC.
    These issues are also a very high priority for the Ranking 
Member of our Committee, Senator McCaskill. She was the one who 
requested that the Committee hold this hearing. In keeping with 
the long tradition of bipartisanship on this Committee and in 
recognition of Senator McCaskill's leadership role, I am going 
to turn to her to introduce our witnesses and also to take the 
lead on asking questions, in recognition of her work.
    Before turning to Senator McCaskill, however, I do want to 
take this opportunity to welcome Tori Gaetani, who is the 
Director of Care Coordination for Beacon Health, an affiliate 
of Eastern Maine Health Care Systems based in Brewer. As a 
Pioneer Accountable Care Organization, Beacon Health is 
participating in a pilot project for CMS that exempts 
participating organizations from the three-day hospital stay 
requirement for patients to qualify for Medicare skilled 
nursing. I look forward to hearing her testimony and how it has 
affected costs and quality of care.
    With that, let me now turn the hearing over to our Ranking 
Member, Senator McCaskill.

                 OPENING STATEMENT OF SENATOR 
                CLAIRE McCASKILL, RANKING MEMBER

    Senator McCaskill. Thank you, Chairman Collins. I am happy 
to continue the great bipartisan tradition of this Committee 
and I am pleased that we are holding this hearing on such an 
important issue. I also want to thank Senator Warren for being 
here today and adding her important voice to this discussion.
    I do just want to say, before we get started, that I want 
to thank all the witnesses that are here, and I certainly want 
to thank Senator Collins for all of the years of work she has 
put into this issue, and I know her knowledge and perspective 
are going to be invaluable as we struggle with public policy in 
this complicated and difficult area.
    This April, I was fortunate to be able to have enough time 
in Missouri that I was able to move around the State on a 
senior listening tour, and I stopped in big cities, like St. 
Louis and Kansas City, and I stopped in very small communities, 
and as often happens when I do the most important part of my 
job, and that is slow down, shut my mouth, and listen, I 
learned a lot about what seniors are afraid of in my State, 
what they are struggling with, and what the challenges are that 
they face.
    One issue I heard at almost every stop was confusion and 
anger and a real questioning about this issue, you know, being 
taken by surprise, not understanding. You know, I was in the 
hospital and then I got this big bill and I do not understand. 
Very rarely does an issue continue to come up like that, and 
this one did, and so, that is when I realized--I came back to 
Washington and talked to Senator Collins and said, let us take 
a look at this, because it is complicated and hard.
    There has been a rapid growth in the use of observation 
status over the last several years. In fact, it is astounding. 
The trend is so steep that there has to be a systemic 
explanation for what is going on here. It is not a coincidence. 
We need to understand what is causing it and we need to make 
sure that it makes sense, most importantly, for the patients.
    Patients are placed under observation if physicians cannot 
quickly diagnose them as needing inpatient or outpatient 
services. Those under observation are considered technical 
outpatients. This outpatient classification can saddle 
beneficiaries with very large out-of-pocket costs for hospital 
services and, importantly, for post-hospitalization stay at a 
skilled nursing facility, and the worst part about it is many 
beneficiaries do not know what they are going to have to pay, 
or the fact that they are even going to have to pay until after 
they have been discharged, because the care they receive is 
virtually identical to the care that they would receive as an 
inpatient. For many of them, it never occurred to them that 
this care might not be billed like any other hospitalization.
    CMS has established a time-based definition of inpatient 
care known as the ``two midnight'' rule. The rule was intended 
to provide clinicians with a benchmark to help make admissions 
decisions, although stakeholders have complained that this rule 
is confusing and does not account for complex medical judgments 
involved in patient care. Additionally, Recovery Audit 
Contractors, known not so affectionately among hospitals as 
RACs, have focused most of their energy on auditing the 
appropriateness of short-term stays.
    We also know that there are some Medicare payment 
inequities between reimbursements for inpatient care versus 
care under observation. All of this has led to a dramatic 
increase in observation stays and a dramatic increase in the 
number of Medicare appeals, with few answers.
    Let me be clear. While this is complex, and with many 
stakeholders and each stakeholder's voice should be heard, as a 
former auditor, I know that the RACs serve an important 
function for the solvency of the Medicare Trust Fund. In fact, 
their work has recovered over $10 billion for the Medicare 
Trust Fund and extended its life by two years since the 
creation of the program.
    Health care providers' viewpoints are also essential to 
better understand how we can support their clinical 
decisionmaking. CMS's voice needs to be heard, because they set 
Medicare payment policy and direct the actions of the RACs and 
other program integrity functions, and last but certainly not 
least, we need to be most of all mindful about how all of this 
affects the beneficiaries, because, after all, they are the 
people that we are trying to take care of.
    It seems to me that if we have this big spike in 
observation status use, it is negatively impacting patients and 
wasting a whole lot of resources fighting the problem that 
there may be some misaligned incentives here. My fear is that 
these misaligned incentives are causing stakeholders to make 
decisions based on financial motives rather than making the 
best clinical decision possible for the patient. These 
incentives might be causing players in this system to be acting 
in a way that was not intended and not helpful.
    Today, I would like to talk honestly about some ways we 
might be able to fix this system to get it working properly 
again and not waste a single dollar in the process from the 
Medicare Trust Fund.
    I am concerned that more than half of the RAC audits are 
for inpatient hospital admissions when that appears to be out 
of sync with both the proportion of inpatient claims to total 
Part A and B claims, as well as out of sync with where CMS's 
own contractors say there are high or improper payment rates. 
What this means is that while appearing to be recovering about 
one-third of the improper payments in the inpatient hospital 
setting, they are catching very few of the improper payments in 
other categories. I do not view this as a RAC issue, but this 
is an area where CMS must take responsibility, because they 
direct where the auditors go, broadly speaking.
    I am also very concerned that many hospitals appear to be 
placing far too many patients in observation status in order to 
avoid oversight and loss of some payments. Some are also 
deliberately gumming up the appeal system by instituting a 
policy of appealing everything, regardless of merit. They do 
this because they know the Administrative Law Judges are not 
required to follow Medicare rules and regulations, they only 
have to give those rules substantial deference. The Chief 
Administrative Law Judge testified that in 2015, five health 
systems were responsible for 51 percent of the Office of 
Medicare hearings and appeals intake. Let me say that again. In 
2015, five health systems were responsible for more than half 
of all the Office of Medicare hearings and appeals intake.
    All of these issues are why I am excited to have these two 
panels of witnesses here today. I look forward to hearing each 
one of their viewpoints and suggestions to improve the 
situation.
    On the first panel, we have Sean Cavanaugh, the Deputy 
Administrator at the Centers for Medicare and Medicaid 
Services, and Director of the Center for Medicare. Mr. 
Cavanaugh is responsible for overseeing the regulation and 
payment of Medicare fee-for-service providers at CMS. He will 
discuss CMS's role in shaping policy that impacts the use of 
observation status, such as the ``two midnight'' policy, and 
how these policies are actually working.
    Joining him on the first panel is Dr. Mark Miller, the 
Executive Director of the Medicare Payment Advisory Commission, 
or MedPAC. MedPAC is a nonpartisan Federal agency that advises 
Congress on Medicare payment, quality, and access issues. Dr. 
Miller will talk about MedPAC's work regarding hospital short-
stay policy issues, the RAC Program, and the ``two midnight'' 
policy.
    On our second panel, we have Dr. Jeetu Nanda, the System 
Medical Director for Informatics and Physician Compliance at 
SSM Health in St. Louis. Dr. Nanda is representing the American 
Hospital Association. Dr. Nanda will discuss the impact the 
observation status crisis has had on hospitals and providers 
and how the ``two midnight'' policy has affected their 
practice. He has various experiences in utilizing management, 
including providing second-level physician review of hospital 
admissions for a hospital contractor.
    Spencer Young is the President of Health Data Insights, a 
health care services company that specializes in the 
identification and recoupment of claim overpayments to 
providers. Health Data Insights, a subsidiary of HMS, is the 
National Medicare Recovery Audit Contractor for Region D, which 
consists of 17 states and three territories. He also serves as 
Senior Vice President of Clinical Operations for HMS. Mr. Young 
will discuss more specifically the RAC's experience related to 
short hospital stays and what the audit moratorium has meant 
for Medicare improper payment rates, and then, finally, as 
previously introduced by our Chairman, Tori Gaetani, the 
Director of Care Coordination at Beacon Health, that is going 
to talk about their experience with waivers under an 
Accountable Care Organization structure.
    Thank you again, Chairman Collins, for your important 
leadership on this issue, and thank you to all of our witnesses 
for being here.
    Okay, so we will begin with the testimony of Mr. Cavanaugh. 
Thank you.

       STATEMENT OF SEAN CAVANAUGH, DEPUTY ADMINISTRATOR

               AND DIRECTOR, CENTER FOR MEDICARE,

          CENTERS FOR MEDICARE AND MEDICAID SERVICES,

                      BALTIMORE, MARYLAND

    Mr. Cavanaugh. Good afternoon, Chairman Collins, Ranking 
Member McCaskill, and Senator Warren. Thank you for inviting me 
to testify today on Medicare hospital payment issues.
    When a patient arrives at a hospital needing care, one of 
the critical decisions that physicians or other qualified 
professionals must make is whether to admit the patient for 
inpatient care. This decision is often a complex medical 
judgment, taking into account the patient's medical history, 
comorbidities, and other factors. However, because of statutory 
requirements, Medicare pays hospitals different rates for 
inpatient and outpatient services. Therefore, the decision 
whether to admit a patient for inpatient care also has 
implications for provider payment and beneficiary cost sharing.
    Three years ago, hospitals and other stakeholders requested 
that CMS provide additional clarity regarding the definition of 
inpatient. Hospitals were growing frustrated with the 
administrative and financial burden incurred when recovery 
auditors denied a claim for services after care had been 
provided. At the same time, Medicare was hearing from its 
contractors that Medicare was paying hospitals for inpatient 
care that should have been provided in a less expensive 
outpatient setting.
    Some hospitals reacted to the scrutiny of auditors by 
treating more patients on an outpatient basis, often in 
observation status. Some observation stays lasted three, four, 
even more days. This caused problems for beneficiaries, because 
the time spent in observation did not help them meet the three 
inpatient day prior hospitalization requirement for the skilled 
nursing facility benefit.
    In 2012, we solicited feedback on possible criteria that 
could be used to determine when an inpatient admission is 
reasonable and necessary. We received a large number of 
responses, but there was not a consensus around any one 
approach.
    In 2013, CMS finalized the proposal that has become known 
as the ``two midnight'' rule. The rule sets a physician 
expectation based benchmark for when CMS and its contractors 
would consider inpatient hospital admission and payment 
appropriate. CMS sought to balance principles that I believe 
are shared by all stakeholders, including beneficiaries, 
hospitals, physicians, and Congress. These principles are 
centered around the need for criteria that are clear to 
providers and respect a physician's judgment, are consistent 
with sound clinical practice, reflect a beneficiary's medical 
needs, and are consistent with the efficient delivery of care 
to protect the trust funds and reduce the Medicare payment 
error rate.
    In November 2013, CMS announced a probe and educate 
strategy around the new standard, in which Medicare 
Administrative Contractors, or MACs, are conducting prepayment 
reviews on a sample of short-stay inpatient claims from each 
hospital to determine compliance with the ``two midnight'' 
rule. Claims for inpatient admissions that are determined not 
reasonable and necessary are denied and the MACs provide 
further education regarding the rule.
    As part of this strategy, we also prohibited the recovery 
auditors from conducting any post-payment medical necessity 
status reviews of claims with dates of admission between 
October 1, 2013, and March 31, 2014. CMS used this opportunity 
to engage in a dialog with stakeholders on the ``two midnight'' 
rule. As we began hearing from stakeholders that more time was 
needed to understand the policy, we extended the medical 
review, probe, and educate strategy through September 30, 2014. 
Congress further extended the probe and educate strategy and 
the limitation on recovery auditors through September 30, 2015.
    We believe these extensions are allowing hospitals time to 
fully understand the ``two midnight'' benchmark. In fact, 
preliminary information suggests, as a result of the ``two 
midnight'' rule, the proportion of long outpatient stays is 
beginning to decline.
    However, despite CMS's efforts to educate hospitals and 
other stakeholders on the ``two midnight'' rule, stakeholders 
have provided feedback that the rule introduced confusion for 
providers. Therefore, we solicited feedback through a Notice of 
Proposed Rulemaking in April 30, 2014, on an alternative 
payment methodology that could reduce the difference between 
inpatient and outpatient payment for short-stay cases.
    In a recent Notice of Proposed Rulemaking published April 
30, 2015, we noted that hospitals and physicians continue to 
voice their concerns with parts of the ``two midnight'' rule 
and that we are considering this feedback carefully, as well as 
recent MedPAC recommendations, and expect to include a further 
discussion of the broader set of issues related to short 
inpatient stays, long outpatient stays with observation 
services, and the related IPPS payment adjustment in the 
calendar year 2016 Hospital Outpatient Prospective Payment 
System Proposed Rule that will be published this summer.
    I look forward to hearing the Aging Committee's ideas 
regarding the ``two midnight'' rule, and with that, I would be 
happy to take any questions.
    Senator McCaskill. Thank you very much.
    Dr. Miller--oh, is it Miller? I am sorry. I had ``Miler'' 
in my written remarks. It is obviously Miller. Sorry.

         STATEMENT OF MARK E. MILLER, PH.D., EXECUTIVE

              DIRECTOR, MEDICARE PAYMENT ADVISORY

                  COMMISSION, WASHINGTON, D.C.

    Dr. Miller. That is quite all right. Just call me.
    Chairman Collins, Ranking Member McCaskill, distinguished 
Committee members, I am Mark Miller, Executive Director of the 
Medicare Payment Advisory Commission. The Commission was 
created by the Congress to provide it with independent analysis 
and advice on a range of Medicare issues. On behalf of the 
Commissioners, I would like to thank you for considering our 
recommendations today.
    The Commission's work in all instances is guided by three 
principles: to assure that beneficiaries have access to high-
quality, coordinated care; to protect the taxpayer dollar; and 
to pay providers and plans in a way to accomplish these goals.
    For today's hearing, there is a series of cascading issues. 
Simplistically, Medicare's inpatient hospital payment system is 
based on averages, and so a short stay is generally more 
profitable than a long stay. Based on positive demonstration 
results, the Congress authorized the Recovery Audit Contractor 
Program in 2006 to encourage recovery of overpayments using 
private contractors and a contingency fee strategy.
    The RACs focused on hospital short stays because the 
decision to admit can be clinically complex, as I had 
mentioned, these stays are profitable, and denying a short 
inpatient stay represents a large recovery. Part of the rise in 
outpatient observation status is a reaction of the hospitals to 
avoid RAC reviews of short inpatient stays, and finally, 
putting a beneficiary in observation status rather than 
admitting them can affect their out-of-pocket liability, most 
notably, Medicare does not cover the skilled nursing facility 
stay if the beneficiary is referred with less than three 
inpatient days.
    It is important to keep in mind that RACs provide critical 
oversight. They recovered $3.7 billion in improper payments in 
2013, and short-stay denials accounted for a substantial 
proportion of these recoveries, but hospitals have to produce 
documentation and often appeal these denials and this creates 
administrative costs for the hospitals and a substantial 
backlog for CMS and the appeals process.
    In considering the actions to take here, the Commission 
analyzed changes in payment policies, including a one-day DRG 
and a site-neutral payment for conditions common in both the 
inpatient and outpatient setting. The Commission did not make 
recommendations on the payments. These payment policies do have 
benefits, but they come with their potential problems in their 
own rights, and so, to date, they have not made recommendations 
on that, but the Commission did move forward on recommendations 
for the RAC process and for beneficiary liability.
    Regarding the RAC, the Commission would withdraw the ``two 
midnight'' rule, target RAC attention to the hospitals that 
have aberrant patterns of one-day inpatient stays as opposed to 
all hospitals, reduce the contingency fee for RACs that have 
high overturn rates in order to create a stronger incentive to 
deny claims only when a convincing case can be made, and 
establish a RAC look-back period that is shorter than the 
hospital rebilling period for short inpatient stays. Now, this 
is jargon, but the issue here is that most of the short stays 
denied by RACs are two or more years after the date of care, 
and, thus, beyond the period where the hospital could rebill 
and recover at least the outpatient care provided.
    Turning to recommendations on beneficiary liability, 
beneficiaries often do not realize that they are in observation 
status and they have not been officially admitted to the 
inpatient setting. This can influence their out-of-pocket 
liability. The Commission has recommended informing the 
beneficiary that they are in observation status if that status 
exceeds 24 hours and they are likely to need skilled nursing 
facility care.
    In order to strike a balance between protecting the 
beneficiary's out-of-pocket liabilities and the potentially 
high cost to the taxpayer of a more open skilled nursing 
facility benefit, the Commission recommended retaining the 
three-day rule for skilled nursing facility care in fee-for-
service but allowing up to two of those days to be observation 
days.
    While on observation status, the beneficiary can be charged 
for common self-administered drugs related to their diabetes 
and heart conditions and the like. These charges are well in 
excess of the costs that the hospital pays to acquire these 
drugs, and the Commission recommended that these self-
administered drugs be folded into the observation day payment 
on a budget neutral basis.
    It is important to note that there are likely costs here. 
This is because of the ability of the hospitals to rebill has 
been expanded. This is because targeting RAC efforts is likely 
to reduce total recoveries, and because more beneficiaries will 
qualify for the skilled nursing facility benefit.
    The Commission has been thoughtful in arriving at these 
recommendations, and I would point out that as a result of our 
ongoing policy work, the Commission has many standing 
recommendations that achieve savings.
    In closing, I would like to thank you for your attention 
and I look forward to your questions.
    Senator McCaskill. Thank you very much, and thank you, 
Senator Tillis, for joining us also.
    I will begin with questions and then ask the other Senators 
to make their questions.
    I am curious. Some of the RAC improvement suggestions that 
you outlined in your testimony and that I had a chance to 
review in your full written testimony--why can we not do those 
immediately? I mean, do we have to wait for the next RAC 
contract to be finalized before we would implement those 
suggestions?
    Dr. Miller. I would defer on the whole contracting process 
to Sean. My understanding is most of these changes can be 
accomplished administratively. Exactly mechanically how it is 
done, I would defer to him, and I would also say that I think 
they have taken some steps in these directions.
    Senator McCaskill. Could you address that, Mr. Cavanaugh?
    Mr. Cavanaugh. Certainly, Senator, and your question is 
right and Mark is right that there are a number of things that 
we can do today without waiting for the next contracts, and the 
things we can do are often very much in line with what MedPAC 
has recommended.
    For example, we have started in the existing contracts to 
get the RACs to focus not just on hospitals, but on providers, 
generally, that have high denial rates, so we are asking them 
when they are doing RAC reviews and they are finding low denial 
rates on a specific provider to move on, that we want to focus 
where the denial rates are the highest.
    The RACs are currently not looking at these inpatient cases 
that we are talking about, but we have announced that at such a 
time when they are allowed to look at them again, that we are 
going to propose--or require that for them to look at these 
cases, if the hospital files the claim on a timely basis, the 
RAC would only have six months to look at it, and the purpose 
of that is exactly as Mark indicated, which is if they are 
going to look at these cases, they need to do it during the 
window when the hospital has an opportunity to rebill the case. 
We do not want them looking two or three years back when the 
hospital is not in a position to rebill the case.
    We do believe, as you mentioned in your remarks and as Mark 
mentioned, that the beneficiary is entitled to know what their 
status is, so we have been working with hospitals. We have 
provided educational materials. We have been strongly pushing 
the idea, if you are putting patients in an observation status, 
they need to know that.
    Senator McCaskill. Up front.
    Mr. Cavanaugh. Up front.
    Senator McCaskill. Because the hospital knows.
    Mr. Cavanaugh. Absolutely.
    Senator McCaskill. Are you going to require that the 
hospitals inform patients as they are put in rooms that you are 
here on observation and, therefore, you will have out-of-pocket 
expenses that you would not have if you were being admitted?
    Mr. Cavanaugh. To date, our efforts have been not a 
requirement. It has been educational and urging them.
    Senator McCaskill. Yes. I think a right to know is pretty 
important. I mean, it is their money, right? There is an 
assumption, if they are being wheeled into a hospital bed and 
all the things are happening to them that happen to you when 
you get admitted into the hospital, I think it is pretty 
important they know.
    What about the issue of allowing them to just focus on 
inpatient versus outpatient as opposed to some of the other 
recoveries that could be possible? It is almost like--you know, 
as an auditor, I understand risk-based auditing, and risk-based 
auditing sometimes is a pain because the stuff that may be the 
highest risk is the hardest to audit or more time intensive, so 
if you are on a contingency basis, you want to go for low-
hanging fruit where you can get the best recovery on the time 
you spent, not necessarily go where you are going to clean up 
practices that are hurting care in this country and/or costing 
the trust fund more money than it should.
    For example, DMEs, durable medical equipment, labs, they 
have a larger, higher improper payment rate than the hospitals 
do in this regard, but they spend no attention there because it 
is more expensive for them to audit there and they are not 
going to make as much money, so you really have not aligned the 
incentives in a way that makes sense for the care of people in 
the Medicare system.
    Mr. Cavanaugh. We are in complete agreement, and one of the 
actions we are taking now within the existing contracts and 
will continue in the future contracts is requiring the RACs to 
diversify the types of claims they look at for the very reasons 
you identified. We have an unacceptably high payment error rate 
in home health, in DME, several other areas. We need them to be 
focusing on that. We all understand why, for the reasons you 
and Mark indicated, why they are focusing on those claims, but 
that is not adequate for our purposes. We need them helping us 
in all the areas where we have a high payment error rate.
    Senator McCaskill. Yes. You guys really need to get after 
this in the next contract. I mean, if you look at the single 
audit that states are required to do for the Federal 
Government, which you are probably familiar with, I mean, there 
are different classifications that a State auditor has to look 
at, and the reason they are classified is because the Federal 
Government is telling us, this is where the highest risk is and 
you must do so many audits in this area, so many audits in this 
area, and so many audits in this area, and by the way, we do 
not care if some of those audits may be more time intensive or 
more expensive, and if we have got to bake that into the 
contingency rate, that is really going to produce much better 
results than allowing them just to go where they are going to 
make the quickest return on their investment, so I hope that 
you look at that.
    Mr. Cavanaugh. We will, Senator.
    Senator McCaskill. Finally, CMS describes observation care 
as, ``a well-defined set of specific clinically appropriate 
services.'' I cannot find that well-defined set of clinically 
appropriate circumstances, and so if it is well defined, you 
know, I do not get that, because it does not appear to me that 
it is well defined.
    Mr. Cavanaugh. Well, we can provide you more information, 
but I think the important point is, and you mentioned in your 
opening statement, the purpose of the observation status is not 
to be a substitute for inpatient care and to avoid auditors. 
The purpose is to determine whether the patient, in fact, needs 
inpatient care, and it was because we saw these longer and 
longer observation stays that we promulgated the ``two 
midnight'' rule. We wanted to protect the beneficiary from 
that, make sure they knew their status and make sure that they 
qualified for the skilled nursing facility after they had been 
in a hospital for that period of time.
    Senator McCaskill. I get the point you are making, but with 
every action that we take, there is a reaction, and sometimes 
the reaction is not what we intended, and I get that the 
method--I mean, the reason the ``two midnight'' rule came about 
makes sense, but the application has had unintended 
consequences that I think we have to get after now.
    Thank you. Senator Collins.
    The Chairman. Thank you.
    Mr. Cavanaugh, I want to follow-up on an issue that Senator 
McCaskill raised, and that is whether or not beneficiaries are 
informed about their status and whether it is observation or 
inpatient, because for most of them, it is going to be 
indistinguishable.
    Legislation has passed the House to require hospitals to 
notify Medicare beneficiaries receiving observation services 
for more than 24 hours that they are in that category, and that 
would include an explanation of the potential financial 
implications of not being admitted as an inpatient, and we have 
heard that MedPAC has made a similar recommendation.
    I want to follow-up on the question that Senator McCaskill 
asked you. Is there any bar to your administratively requiring 
hospitals to notify their patients?
    Mr. Cavanaugh. I would have to get back and consult with 
the General Counsel, but as I said, we are in complete 
agreement with the notion that the patient should certainly 
know their status and know it as early as possible, because as 
Senator McCaskill indicated and you reiterated, the hospital 
certainly knows their status, and we have been pushing very 
hard through educational channels, even providing sample 
materials that hospitals could use to educate their 
beneficiaries on what status they have, so we agree with the 
spirit of the legislation. I would have to check on whether we 
have the authority under--administratively.
    The Chairman. Given that it can take a long time for 
legislation to make its way through the process and become law 
here, I would urge you to implement it administratively if you 
possibly can, and I think you would find, given the House 
passage of the bill, that there would be widespread support for 
that.
    We have talked a bit this afternoon about improper 
payments, and while improper payments have declined in many 
Federal programs, they have actually gone up in the Medicare 
program, increasing from 8.5 percent in Fiscal Year 2012 to 
12.7 percent in Fiscal Year 2014, and we put out a report last 
year from this Committee noting that the improper payments have 
increased at a time when CMS has been hiring more and more 
contractors to review claims and to conduct audits.
    I have long believed that Medicare must shift from a pay-
and-chase strategy to combat fraud and abuse to one that 
prevents that harm from ever occurring in the first place, 
whether it is inadvertent or outright fraud, and one of my 
major concerns about the Recovery Audit Contractors program is 
that their strategy to reduce improper payments is based on 
that old pay-and-chase model rather than trying to prevent the 
improper payments from happening in the first place, and in 
fact, I was shocked to learn that the RAC's statement of work 
actually prohibits the RAC auditors from educating providers 
about Medicare payment policies.
    Now, I recognize that it generally falls to the MACs, the 
Medicare Audit Contractors, not to be confused with the RACs--
we have a lot of acronyms here--to educate providers, but if a 
recovery auditor identifies a hospital that has a lot of 
improper payments, is that information conveyed to the Medicare 
Audit Contractors so that they can start educating the provider 
and putting them on the right path?
    Mr. Cavanaugh. Yes, exactly. We use the RACs not just to 
recover, but to identify providers that need further education. 
It goes not just to the MACs, but to the agency itself so that 
we know which providers need work--we need to work with, and I 
think, the role that education can play is best exemplified by 
the current probe and educate period that the MACs are 
conducting, but we do use the RACs to identify providers that 
need that type of education.
    The Chairman. Finally, I have long thought that we could do 
a better job of targeting our compliance efforts toward the 
outliers, some of whom were mentioned by Senator McCaskill in 
her opening comments, rather than applying the compliance 
efforts across the board. That, again, was another of MedPAC's 
recommendations. My question for you is, will CMS implement 
that recommendation to focus your efforts on the outliers?
    Mr. Cavanaugh. Yes. We have already begun with the current 
RAC contracts to require them to focus on providers where they 
find a high denial rate and to move on from providers who are 
consistently failing in accordance with our rules.
    The Chairman. Thank you.
    Senator McCaskill. Senator Warren.
    Senator Warren. Thank you.
    The care that a patient receives when the stay in the 
hospital is the same whether they are classified as inpatient 
or outpatient under observation. The coding difference, of 
course, is huge when the bill comes due, and patients will owe 
a maximum of their Part A deductible of $1,260, while 
outpatients under Part B will owe 20 percent of the cost of 
each and every service that has been provided to them. Now Part 
B might sometimes be cheaper for short outpatient stays, but we 
know that it can run into the thousands of dollars for longer 
hospital stays. Inpatient versus outpatient coding also 
determines whether Medicare will cover a subsequent stay in a 
skilled nursing facility.
    Mr. Cavanaugh, you talked about protecting the 
beneficiaries as a key part of what you are trying to do here, 
and I just wanted to ask, has CMS evaluated how the changes in 
admission patterns caused by the ``two midnight'' rule have 
affected out-of-pocket costs for beneficiaries?
    Mr. Cavanaugh. We have looked at whether, in fact---you 
know, one of our goals in promulgating the ``two midnight'' 
rule was to decrease the use of long observation stays, and the 
preliminary data from the Office of the Actuary--I just checked 
with them yesterday--are that those stays are, as a proportion 
of all stays, are coming down.
    Senator Warren. I am sorry, Mr. Cavanaugh. That is not 
actually my question. My question is whether or not, since the 
rule has been changed, have you done a study on what the 
financial impact is on the people who were previously admitted 
to the hospital, now are under outpatient. Do you have anything 
on that, any data on that?
    Mr. Cavanaugh. No, I do not.
    Senator Warren. Okay. I think, knowing the impact on 
beneficiaries' costs is critical information for CMS to look at 
when we are trying to evaluate the impact of the ``two 
midnight'' policy.
    Dr. Miller, can I ask you if there are any potential 
negative impacts from the ``two midnight'' rule on 
beneficiaries.
    Dr. Miller. Well, I mean, I think Sean is right, and we 
would have anticipated that there would be some decline in the 
long observation stays. I also think I would say, just before I 
get into it, things are a bit on hold, so exactly how these 
patterns are going to play out if the ``two midnight'' rule 
were fully in play, I am not sure anybody has got a good handle 
on.
    You could anticipate--you know, somebody said just 
recently, there is action and reaction. For example, with the 
``two midnight'' rule, hospitals may decide to hold a patient 
who is in the inpatient setting who might be, and let us just 
say for a minute, a one-day stay patient, for two days, because 
then they know that that person would not be audited, and I do 
not know whether that is a bad or a good outcome for an 
individual patient, but there is that kind of change.
    I think hospitals are also concerned about the two-day, or 
midnight rule as saying, well, there is going to be much more 
focus on one-day inpatient stays. That could drive more into 
the observation status, but it is not necessarily the long 
observation status which you were talking about just a second 
ago, so there is some back and forth that I think that can 
occur here.
    Senator Warren. Let me focus on one part of this. That is 
very helpful. The current three-day inpatient stay required for 
skilled nursing facility care to be covered by Part A is 
certainly a problem, but we have good data to suggest that 
there are better ways to do this. The Partners ACO in 
Massachusetts has a skilled nursing facility three-day rule 
waiver which allows doctors to directly admit patients without 
any time in the hospital, and the initial data suggests that 
direct admissions save Medicare about $4,000 per patient due to 
decreased hospitalizations and better managed care.
    Let me ask, Dr. Miller, how can risk sharing payment models 
like Accountable Care Organizations help reduce the need for 
things like the three-day or ``two midnight'' rule policies and 
improve care for beneficiaries?
    Dr. Miller. Right. I did not talk about it in my opening 
comments because of the focus of the hearing, but we have also 
made recommendations in the ACO environment, a number of 
recommendations. Among them, we recommended that if the ACO is 
willing to accept two-sided risk, upside and downside risk, 
then there is a very different dynamic between the program and 
the provider in that instance and we said it made sense to 
waive a lot of these fee-for-service rules that are really put 
in place to try and stop providers who abuse the system, and 
so, we are on board with that.
    It is just really important--I think you have locked onto 
it--it could play out very different if you had it in an open--
okay.
    Senator Warren. Okay, good, but thank you very much. You 
know, we are all looking for payment policies that will allow 
Medicare recipients to receive higher quality care at lower 
costs, and in the meantime, we need to address this observation 
status problem. Seniors need to be notified of their admission 
status, as Senator Collins and Senator McCaskill have both 
said. I agree with them on this, and CMS needs to implement an 
auditing system that is less disruptive, more effective, and I 
think, as Senator McCaskill says, far more targeted.
    I am willing to work with my colleagues on this Committee 
and on the Finance Committee to encourage changes in law, but I 
also ask that CMS step up here and use its regulatory authority 
to make the changes that MedPAC discussed today and to make 
them as quickly as possible. Thank you.
    Senator McCaskill. Thank you, Senator Warren.
    Senator Tillis.
    Senator Tillis. Thank you, Senator McCaskill.
    First, I would like to associate myself with your comments 
on the RAC Program and trying to get a broader base of audits 
out of it versus the cherry picking that would go on today. It 
makes sense, based on the rules as they exist today, but that 
really needs to be looked at.
    I had a question that related to the American Hospital 
Association. I know they are not a real fan of the ``two 
midnight'' policy, or RACs, in general, and I know that a 
variety of associations brought lawsuits last year against the 
Department. What is your reaction to their fundamental argument 
that the clinicians feel like you are really preventing them 
from making the best medical decision on the ground for these 
cases, that they are somehow--they are subjected to arbitrary 
limits that are potentially influencing clinical outcomes?
    Mr. Cavanaugh. We certainly heard that, as you have, 
Senator. We take it to heart. It was never our intent to do 
something that was contrary to a clinician's best judgment, and 
as we indicated in our inpatient proposed rule this year, we 
are taking that under advisement and we expect to have more to 
say on that in our outpatient rule, which will be out in the 
next couple of weeks.
    Dr. Miller. The only thing I would add is the clinicians on 
the Commission discussed this and there was decidedly this 
notion that we should return to the situation where it is the 
clinician's judgment that drives the decision and, generally, 
with a 24-hour timeframe in deciding whether a patient goes 
inpatient and outpatient.
    I also think the hospitals are concerned about other 
things, as well. I mean, they have complained about the 
documentation that is associated with the ``two midnight'' 
rule, and I also think that they are concerned that the one-day 
stays will be less available to them, because if the two-day 
stays qualify, they are concerned that the 1-day stays will be 
targeted by the RACs, so I do not think that their objections 
to the ``two midnight'' rule are entirely about the clinician's 
judgment.
    Senator Tillis. Thank you.
    I had a question on the appeals. It was 474,000, almost a 
half-a-million, appeals filed, I believe, in 2014. I know in 
2015 half of those came from five appellants, so that probably 
gives you an idea of some of the areas where you need to be 
looking.
    What is the success rate of--of the nearly 500,000 that 
went through in 2014--I know your processing backlog--how many 
of those appeals were successful as a matter of percentage?
    Mr. Cavanaugh. We do--for the RAC Program, specifically, we 
do an annual report to Congress, and the most recent report was 
for calendar year 2013, and what we found is if you look at the 
total universe of cases that RACs had recovered payment for, 
only about nine percent of them were ultimately overturned upon 
appeal.
    Senator Tillis. Okay. That is a very successful--actually, 
that is a very successful rate. We were at a Veterans Committee 
earlier today and the appeals were in the 50's and 60 percent 
range, so it raised the question about whether or not we were 
getting it right.
    Mr. Cavanaugh. Well, just to be transparent, you will hear 
other numbers, and what you hear is the subset of all the cases 
that the RACs denied, only a subset of those get appealed, so 
many of them never go into the appeals process, and if you just 
look at the subset that go into appeals, the success rate is 
somewhat higher. I think it is around 18 percent, but I will 
get you the exact number.
    The reason you hear different numbers is it depends what 
universe you start with. The agency thinks the relevant 
universe is all the cases that the RAC denied.
    Senator Tillis. Thank you.
    Thank you, Madam Chair.
    Senator McCaskill. Thank you.
    Senator Donnelly.
    Senator Donnelly. Thank you, Madam Chair.
    Mr. Cavanaugh, I want to learn more about how we can avoid 
confusion for beneficiaries. It is pretty difficult to know the 
distinctions for them between inpatient/outpatient observation 
statuses, but there are financial implications, especially if a 
patient later needs to go to a skilled nursing facility, so how 
are patients notified if they are in observation status?
    Mr. Cavanaugh. It varies by hospital. We have worked very 
hard with hospitals to encourage them to tell patients early 
and often and clearly what their status is and what the 
implications of that status are, including we have provided 
sample materials that hospitals can use to distribute to their 
patients.
    Senator Donnelly. How does CMS educate beneficiaries on 
this issue?
    Mr. Cavanaugh. We have a number of methods to work with 
beneficiaries, including the annual ``Medicare and You'' 
handbook we give out. It is difficult for us to work directly 
with beneficiaries, but we try to educate them. We have 1-800 
where they can call and ask questions. I think it is more 
important, though, as several of your colleagues have raised, 
that they be educated at the time when it is most relevant, 
which is when they are in the hospital.
    Senator Donnelly. Thank you.
    Thank you, Madam Chair.
    Senator McCaskill. Thank you.
    This may be better addressed by the next panel, but I do 
just have one question. From your perspective, Mr. Cavanaugh, 
has CMS looked at the difference between admission status as it 
relates to observation versus admit for non-Medicare patients 
in the same hospitals where Medicare patients are subjected to 
the ``two midnight'' rule?
    Mr. Cavanaugh. No, not to my knowledge.
    The Chairman. It would be fascinating to know that, to see 
if the practice is different with patients where there is not a 
``two midnight'' rule, and it would seem to me that would be 
data that would be fairly easy to compile. If you are not under 
the pressure of--is this going to be audited or not based on 
one or two days or how many midnights and it is just a pure 
clinician decision, are you seeing longer observation stays? 
Are you seeing shorter observation stays? Are you seeing 
observation stays at all in terms of what hospitals are 
characterizing their admissions? That is a preview for the next 
panel of a question I am going to have, so you have time to 
think about your answer.
    Dr. Miller. We did not look deeply at this, so I cannot 
answer your question in a lot of detail, but when we started 
off looking at this, we saw some ramp-up on the private side, 
as well, so it is not like the two trends are going in 
completely opposite directions.
    Senator McCaskill. Ramp-up in terms of more use of----
    Dr. Miller. More observation.
    Senator McCaskill. More observations, as opposed to 
admittances?
    Dr. Miller. Right, but I cannot give you any detail on 
length, because you were asking about how long those were for.
    Senator McCaskill. Right. Okay. Great.
    Any other questions for this panel?
    The Chairman. Yes, thank you. If I could just ask one quick 
question of both witnesses, and that is I have mentioned that I 
think we should be informing beneficiaries of their status so 
that they do not get this unexpected bill later. The House has 
passed legislation. I have pressed CMS to do it by rule.
    One qualm I have is I am wondering if we tell a patient 
that they are in observation status whether they are going to 
get up and leave prematurely because they are going to be very 
worried about the financial implications of staying, and I 
wonder if either of you has looked at that. Knowing my State as 
I do, I know there are seniors who would be so concerned about 
the potential bill that they would either ask to be admitted as 
an inpatient or they would ask to be discharged immediately, if 
it would not warrant it.
    Dr. Miller. I do not want to get in your way, but there is 
a third outcome, which is that working with the family, the 
clinicians, the case managers, you can also plan a different 
post-acute care discharge strategy, so whether home health or 
whether somebody goes to a different institutional setting is 
also an outcome when somebody is informed that it might affect 
their skilled nursing facility eligibility, but I cannot give 
you any evidence on a given patient, but that is the other 
outcome that can occur.
    Mr. Cavanaugh. I think it is a good caution, which is, as 
several members of the panel have mentioned, that any action we 
take could have unintended consequences. I do have--I have 
heard anecdotally, though, through our team that does some of 
the education, that the more typical response is the patient 
gets aggressive in advocating on their own behalf, and that 
would, I think, be a beneficial outcome.
    The Chairman. I think so too, and just so my question is 
not misinterpreted, I am not suggesting that that information 
be withheld from patients. I think patients do need to be 
informed, but I am concerned that it could lead some patients 
to not get the care that they need or not get the diagnosis 
that they need because they are worried about the financial 
implications--or the follow-up care, for that matter. Thank 
you.
    Senator McCaskill. Thank you both for being here. We 
appreciate it very much.
    I would call up the next panel, please, for their 
testimony.
    As I said earlier in my opening remarks, I have introduced 
all three of the witnesses. We have Dr. Jeetu Nanda, who is a 
System Medical Director for SSM Health in St. Louis, home of 
the always perennial competitive St. Louis Cardinals; Spencer 
Young, who is President of Health Data Insights in Las Vegas, 
Nevada; and Tori Gaetani, who is Director of Care Coordination 
at Beacon Health in Brewer, Maine.
    Welcome to you all, and we will begin with your testimony, 
Dr. Nanda.

         STATEMENT OF JYOTIRMAYA ``JEETU'' NANDA, M.D.,

            SYSTEM MEDICAL DIRECTOR, INFORMATICS AND

           PHYSICIAN COMPLIANCE, CENTER FOR CLINICAL

           EXCELLENCE AND CORPORATE RESPONSIBILITY AT

         ST. LOUIS-SSM HEALTH CARE, ST. LOUIS, MISSOURI

    Dr. Nanda. Chairman Collins, Senator McCaskill, Senator 
Tillis, Senator Whitehouse, and Senator Donnelly, on behalf of 
the American Hospital Association's nearly 5,000 member 
hospitals, health systems, and other health care organizations, 
I thank you for the opportunity to testify today.
    I am Dr. Jyotirmaya Nanda, System Medical Director for 
Informatics and Physician Compliance at the Center for Clinical 
Excellence and Corporate Responsibility at St. Louis-based SSM 
Health, which is a Catholic not-for-profit system that is one 
of the largest integrated delivery systems in the Nation.
    Hospitals seek to deliver the right care at the right time 
in the right setting. While a complex issue, observation 
services ultimately reflect the high standard of care and 
quality regulations to which hospitals adhere.
    The use of observation services has expanded due to many 
factors, including evolution of medical practice patterns, 
changes in Medicare payment policy, activities of Medicare 
Audit Contractors, and other Medicare auditors. It is important 
to note that the distinction between inpatient and observation 
services is a payment distinction set forth by CMS. It is not a 
clinical distinction.
    Today, most inpatient admissions are based on a CMS time-
stamp payment policy and dependent on whether or not the 
patient will stay two midnights in the hospital, regardless of 
what time the patient presented.
    Despite this payment distinction, Medicare beneficiaries 
who receive observation services commonly receive care in the 
same hospital rooms as inpatient, and the care delivered is 
often indistinguishable from inpatient care. As a result, 
observation status can be confusing for patients who are 
physically in the hospital, many times overnight, and receive 
tests, procedures, medications, and nursing care that could 
never happen in the outpatient clinical setting.
    Hospitals are doing their best both to comply with Medicare 
payment policies and address the confusing and difficult issue 
of patient status with patients and their families.
    SSM has hired dedicated Patient Access Nurses and Case 
Managers to comb through all the hospital admissions, identify 
Medicare and Medicaid beneficiaries, and give them printed 
material and explanation of what an observation stay is. We 
have dedicated physician advisors in each of our hospitals. 
Eighty percent of their time is spent determining whether the 
patient meets the requirements for inpatient admission.
    Medicare Contract Auditors and government prosecutors have 
made it clear that they believe observation status can serve as 
a substitute for inpatient admission in many cases. They 
continuously second-guess physician judgment, sometimes years 
after the patient was seen, and often with additional 
retrospective information on the patient's condition, 
undermining the physician's medical judgment at the time of 
admission.
    As a result, hospitals are left in an untenable position. 
On the one hand, they risk loss of reimbursement, monetary 
damages, and penalties from auditors and prosecutors when they 
admit patients for short medically necessary inpatient stays. 
On the other hand, they face criticism over the perceived use 
of observation services instead of inpatient admission.
    Hospitals must comply with the rules and regulations set 
forth by the government and their contractors. Perhaps the 
largest driver of the increase in observation stays has been 
the RACs. RACs are paid on a contingency fee basis, receiving a 
commission of nine to 12 percent of the value of claims they 
deny. The more claims they deny, the more they profit. 
Furthermore, RACs are not financially penalized for 
inappropriate denials that are later overturned in Medicare 
appeals system.
    The Medicare Audit Improvement Act of 2015, introduced by 
Representatives Graves and Schiff, would make much needed 
fundamental changes, including eliminating the contingency fee 
structure and instead paying RACs a flat fee like every other 
Medicare contractor; reducing payments to RACs that are 
consistently inaccurate and have high appeal overturn rates; 
fixing CMS's unfair rebilling rules by allowing hospitals to 
rebill claims, when appropriate.
    In conclusion, the AHA stands ready to work with the 
Committee to help develop clear Federal policy on observation 
status, reform the RAC Program, and address payment regulations 
that inhibit reform efforts. Thank you.
    Senator McCaskill. Thank you very much.
    Mr. Young.

            STATEMENT OF SPENCER YOUNG, SENIOR VICE

      PRESIDENT, CLINICAL OPERATIONS, HEALTHDATAINSIGHTS,

                       LAS VEGAS, NEVADA

    Mr. Young. Chairman Collins, Ranking Member McCaskill, and 
Senator Whitehouse, thank you for the opportunity to testify 
today about the work of my company, HealthDataInsights, and the 
positive impact of recovery auditors on the resources dedicated 
for the care of American seniors.
    My name is Spencer Young and I serve as the Senior Vice 
President of Clinical Operations for HealthDataInsights, also 
referred to as HDI. HDI is the CMS recovery auditor for Region 
D, which is comprised of seventeen western states and three 
U.S. territories.
    As you know, the Recovery Audit Program takes a private 
sector approach to recovering improperly paid Medicare claims. 
Unlike other contracts in the Medicare integrity field, our 
work is not focused on fraudulent payments, but instead to 
ensure compliance with Medicare billing policies and 
guidelines.
    At the direction of CMS, we focus on some of the most 
prevalent types of improper payments. Our role is not to 
determine CMS or Medicare policy, but to ensure billing 
compliance in accordance with current guidance and regulations.
    The funds we recoup from improperly paid claims are 
returned directly back to the Medicare Trust Fund, which is 
critical at a time when the Medicare fee-for-service program is 
awash in billing errors.
    According to the GAO, more than $46 billion was lost to 
waste and billing errors in 2014 alone, a new all-time high for 
a program that has experienced steady increases in improper 
payment rates for the past three years. Against this rising 
tide, the Recovery Audit Program has recovered nearly $10 
billion for Medicare since 2006.
    While the recovery auditing has been a great success, 
recent constraints have decreased the number of reviews and 
recoveries. First, under the ``two midnight'' rule, a 
moratorium was placed on claim audits of short inpatient 
hospital stays from October 2013 until October 2015, creating a 
two-year period in which the billing category with the very 
highest level of improper payments will not be audited.
    The cost will be high. Based on historical data, it is 
estimated that the short-stay audit moratorium will result in a 
loss of more than $8 billion to the Medicare Trust Fund. 
Congress and taxpayers should be concerned that Medicare 
providers will be shielded from comprehensive reviews of these 
claims for an extended period of time.
    Another challenge has been the delay in finalizing the new 
recovery audit contracts, a process that stretches back to 
February 2013. It is currently unknown when the contract awards 
will occur. In June 2014, CMS suspended the RAC Program pending 
the award of new contracts. In August 2014, the program was 
granted a limited restart. Previously, recovery auditors 
reviewed more than 800 claim issues. Today, under the limited 
restart, auditors can review only a small percentage of those 
claim issues.
    As you know, in addition to identifying improperly overpaid 
claims, recovery auditors also identify underpayments. In fact, 
recovery auditors have returned more than $800 million in 
underpayments to providers since 2006. We are currently not 
able to conduct automated reviews for underpayments, a 
limitation that has a direct impact on providers.
    Audit restrictions have significantly weakened the Recovery 
Audit Program. The result is that billions of dollars of 
improper payments are not being recovered and restored to the 
Medicare Trust Fund. We understand that some of these 
limitations are a response to provider concerns, but recovery 
auditors work within a well defined set of guidelines that 
ensure a low burden for providers while maximizing the return 
for taxpayers.
    For example, under CMS rules, recovery auditors review no 
more than two percent of any provider's claims and can only 
examine specific types of claims determined by CMS. As shown in 
the chart, recovery auditors are among the most highly 
regulated contractors serving Medicare. According to GAO, 
recovery auditors are, ``subject to more rules and regulations 
than any other post-payment auditor contractor.''
    Even with these limitations, recovery auditors have 
demonstrated average accuracy rate of more than 95 percent and 
have maintained this rate since the program began. Overall, we 
remain committed to auditing in a way that is sensitive to the 
concerns of all Medicare stakeholders, including providers.
    In closing, the ongoing work of recovery auditors is vital 
if we are to continue to safeguard public resources for the 
care of American seniors.
    Thank you again for the opportunity to appear before you 
today, and I would be pleased to answer your questions. Thank 
you.
    Senator McCaskill. Thank you, Mr. Young.
    Ms. Gaetani, please.

          STATEMENT OF TORI GAETANI, R.N., DIRECTOR OF

           CARE COORDINATION, POPULATION HEALTH, EMHS

                  BEACON HEALTH, BREWER, MAINE

    Ms. Gaetani. Chairman Collins, Ranking Member McCaskill, 
and members of the Senate Special Committee on Aging, my name 
is Tori Gaetani and I am here today as Director of Care 
Coordination on behalf of EMHS Beacon Health, our statewide CMS 
Pioneer Accountable Care Organization. I want to thank Senator 
Collins for the opportunity to speak with you today regarding 
our experience with the Pioneer ACO waiver of the requirement 
that Medicare beneficiaries spend three overnights in an acute 
care hospital in order to access the skilled nursing facility 
benefit.
    Beacon Health is now in our fourth year of the five-year 
pilot program, caring for nearly 29,000 Medicare beneficiaries, 
and we accept both upside and downside risk for ACO Medicare 
services. We are proud of our ACO performance, consistently 
ranking among the highest quality ACO networks in the country.
    In 2014, we were approved by CMMI to participate in the 
Pioneer ACO waiver program for skilled nursing facility 
admissions. The waiver eliminates the three hospital overnight 
requirement for beneficiaries and allows us to admit qualified 
beneficiaries directly to a skilled nursing facility, or SNF. 
Thus far, 183 Pioneer patients and 14 qualified skilled nursing 
facilities, including swing beds at four Critical Access 
Hospitals, participate in our SNF waiver program.
    Our participating SNF partners were required to have a 
quality rating of three or more stars under the CMS five-star 
quality rating system as reported on the Nursing Home Compare 
website, but have committed to quality of care measures beyond 
the Nursing Home Compare reports.
    Beacon Health established a care coordinated process for 
approval of patients to qualify for the SNF waiver admission. 
We have nurse care coordinators embedded in all our primary 
care practices, as well as transition of care nurses embedded 
in our hospitals and emergency departments. Pioneer patients 
can be referred directly from home, a primary care practice, 
emergency department, or after one or two days' stay in a 
hospital, but patients do have to be medically stable with a 
confirmed diagnosis, meaning medical conditions do not require 
further testing for proper diagnosis. Also, patients must not 
require inpatient hospital evaluation or treatment. Patients 
need to have an identified skilled nursing or rehabilitation 
need that cannot be provided as an outpatient or with home 
health services.
    After medical stability and skilled need is determined, the 
patient's primary care provider is contacted for approval of 
the plan to transition a patient to a skilled nursing facility. 
Patients and families are given a choice of which facility they 
want to go to. We offer them a list of fourteen, which 
encompasses our State.
    The coordination of care process does not stop when a 
patient is admitted to a SNF facility. Our nurse care 
coordinators continue their relationship with SNFs throughout 
the patient's length of stay and then beyond. Since May 2014, 
399 Pioneer patients have been referred to the SNF waiver 
program. Of those patients, 183 have benefited from the three-
day waiver and were admitted to a SNF. The majority of the 
patients did not meet the qualifications were not properly 
aligned to Beacon Health Pioneer program, however, many were 
not medically stable, without a skilled need, or appropriate 
for home care services outpatient services.
    If you consider from a financial point of view, we are 
providing a significant cost savings for Medicare. According to 
the AHRQ, an average hospital stay costs $2,300 a day, and 
according to MedPAC, the average SNF cost per day is between 
$450 and $500. One patient who avoided three nights in the 
hospital could save Medicare costs of approximately $5,500.
    What does this mean for beneficiaries? For Mr. Smith, an 
86-year-old gentleman who was living with his wife at home, it 
meant a better quality of life. Mr. Smith had found himself in 
a local emergency department for weakness and falls at home. 
The emergency department assessed him, sent Mr. Smith back home 
with home care services for physical and occupational therapy.
    However, Mr. Smith continued to fall at home. The primary 
care practice made outreach to Mr. Smith, asked him to come in 
for a visit. Mr. Smith and his family came in for his 
appointment. When his provider saw that general overall 
physical decline was present with increased weakness which was 
leading to the frequent falls, Mr. Smith, his family, and the 
provider agreed for the patient to spend some time in a nursing 
skilled facility for more intensive rehabilitation.
    The family took Mr. Smith to the SNF of his choice, where 
he stayed and participated in therapy for thirteen days. Mr. 
Smith returned home to his wife with outpatient services. Since 
Mr. Smith's discharge from SNF in March, he has had no falls, 
met his therapy goals, and remains living independently at home 
with his wife. Mr. Smith was never admitted to the hospital. He 
got the appropriate level of care directly after a visit with 
his primary care provider.
    The health care world calls it achieving the triple aim. 
Beacon Health sees it more as doing what is right for our 
patients.
    In conclusion, we strongly urge the Senate Special 
Committee on Aging to recommend to Congress to eliminate the 
three hospital overnight requirement as antiquated and an 
artificial barrier for Medicare beneficiaries to access the 
skilled level of care needs. Trust us to know what is best for 
our patients and allow us to provide them with the level of 
care they need to go back to living their lives. Thank you.
    Senator McCaskill. Thank you very much. We appreciate all 
of you.
    Let me start with Dr. Nanda, so you indicated in your 
testimony very clearly the distinction between inpatient and 
observation services, the payment distinction set forth by CMS, 
not a clinical distinction, and I think when you all visited my 
office a few weeks ago, one of the physicians explained to me 
that it is a case or utilization manager who is often making 
the decision about whether or not a patient is admitted or not. 
Is that true with all patients, Dr. Nanda, or just Medicare 
patients?
    Dr. Nanda. It is Medicare patients, because the managed 
care Medicare as well as commercial, it is a contract issue, so 
that is driven by contacts and not by CMS regulations.
    Senator McCaskill. Explain that. That was not clear to me.
    Dr. Nanda. Okay.
    Senator McCaskill. Or maybe I do not understand the 
terminology, so let us say I come in.
    Dr. Nanda. Sure.
    Senator McCaskill. I have got a private insurance policy. 
For all the haters out there, I pay for it myself.
    I have to go to the emergency room for something. Who makes 
the decision whether or not my status is observation or whether 
I am admitted?
    Dr. Nanda. If you have commercial insurance, it does not 
matter, because----
    Senator McCaskill. It does not matter?
    Dr. Nanda. It does not matter, because there is a 
contracted rate with your commercial insurance.
    Senator McCaskill. For every day I am there, regardless of 
whether you are observing or whether you are admitting.
    Dr. Nanda. Absolutely. Absolutely.
    Senator McCaskill. Okay, but for Medicare, it matters.
    Dr. Nanda. Yes.
    Senator McCaskill. For Medicare, if I am on Medicare, a 
utilization manager is going to make that decision.
    Dr. Nanda. Utilization manager in collaboration with the 
physician advisor and the attending physician.
    Senator McCaskill. It says that the distinction is just a 
payment distinction, so what difference does it make? Why would 
a doctor even be involved?
    Dr. Nanda. The CMS regulations say that the doctor's order 
has to be there, right, so the doctor has to be involved 
because it is a complex medical decision that is to be made by 
a physician, the inpatient decision, so the doctor's order has 
to be there. The only way that you can overturn or go above the 
physician is if two utilization management physicians agree to 
make it observation or inpatient. Now, when it is changed----
    Senator McCaskill. I am confused.
    Dr. Nanda. Okay.
    Senator McCaskill. Is the doctor making this decision or is 
a utilization manager making this decision?
    Dr. Nanda. The doctor has to agree to the decision.
    Senator McCaskill. Okay.
    Dr. Nanda. The utilization managers can recommend.
    Senator McCaskill. Okay. As clear as mud, I think.
    Dr. Nanda. Precisely.
    Senator McCaskill. If there is no difference in the 
treatment and there is no difference in what happens, then why 
do we need time constraints at all?
    Why did observation stays get so long? Were they more 
profitable under Medicare?
    Dr. Nanda. Length of observation--so, in the previous 
testimony, it is a time-base thing, but also, there is medical 
necessity, quote-unquote. That medical necessity is the 
problem.
    I will give you an example. Last weekend, I worked in the 
hospital, got a patient who has advanced Parkinson's, falls all 
the time. He is 89 years old, but we patched up his lacerations 
and gave him his home medications. There was not a whole lot 
for us to do. That patient was admitted as observation. If I 
changed that patient to inpatient and keep him three days so 
that he can go to a nursing home, if that admission gets 
denied, the whole nursing home part also gets denied and the 
patient is stuck with that bill, so I keep the patient 
observation. Does not qualify for SNF. I send the patient home 
to come back after a greater injury.
    Senator McCaskill. Okay. The Medicare only applies in the 
SNF for 100 days, right?
    Dr. Nanda. Yes.
    Senator McCaskill. Medicare does not pay for long-term 
skilled nursing.
    Dr. Nanda. Right. Right.
    Senator McCaskill. What we are really talking about is 
whether or not--we are going through all these machinations 
when we are really just talking about 100 days, right?
    Dr. Nanda. The 100 days may be all the patient needs to get 
rehabbed, medication adjusted in a different setting than in 
the acute hospital setting.
    Senator McCaskill. Right. Okay.
    Mr. Young, why can we not do this on a--proper site care be 
done on a prepayment basis?
    Mr. Young. It is just a matter of whether or not they want 
it to be done on a prepayment basis. The technology is there 
and the commercial----
    Senator McCaskill. And ``they,'' you are referring to CMS?
    Mr. Young. That is correct. In the commercial space where 
we perform these services, we do perform them on a prepayment 
basis.
    Senator McCaskill. Okay, and then, my last question, before 
my colleagues have an opportunity, you know, I am on the Armed 
Services Committee, so I am fairly used to now all of the 
acronym thing, but we have got RACs, we have got ZPICs, we have 
got QWIKs, we have got CERTs, on and on and on, and by the way, 
this is all in the same space. Should we not, like, make this a 
little simpler? I mean, is there really a rational basis for 
all of these different categories, and all of them have 
different sets of rules and guidelines. It is almost like 
somebody over there decided, I am in charge of making this as 
complex and as confusing as possible.
    Mr. Young. I think everybody is just looking at different 
things and that is why they have the different types of 
contractors, and everybody is focused on something different. 
For example, a ZPIC is really focused on fraud and abuse, 
whereas a RAC is really only focused on is it billed in 
accordance to Medicare guidelines, so you do not have one 
contractor that is doing the whole spectrum.
    Senator McCaskill. Would it not be more efficient if we 
cross-trained everybody and said, we are going to put you on a 
contingency basis, but we are also going to ding you if it 
turns out you are wrong, and just let them loose?
    Mr. Young. It could be.
    Senator McCaskill. Yes. I think it would be.
    Mr. Young. It is very possible.
    Senator McCaskill. I think it would be. Okay.
    Senator Whitehouse.
    The Chairman. No, I have----
    Senator McCaskill. Oh, I am sorry.
    Oh, yes, the Chairman. I keep forgetting about you.
    The Chairman. Just because I turned the gavel over----
    Senator McCaskill. I know.
    The Chairman. [continuing]. for one hearing----
    Senator McCaskill. Can you tell how much I like this?
    The Chairman. I can.
    Senator McCaskill. Senator Collins, I am so sorry.
    Senator Whitehouse. You have just got to be very careful.
    The Chairman. No good deed goes unpunished, right?
    Senator McCaskill. That is exactly right.
    The Chairman. Exactly.
    Ms. Gaetani, first of all, let me thank you for coming down 
from Bangor to share with us--or from Brewer, I guess I should 
say--to share with us the experience of Beacon Health in 
exercising this waiver that means that your patients do not 
have to have three days in the hospital before being admitted 
to a skilled nursing facility, and from what you have told me, 
it seems that your experience, which is four years now, I 
believe you said, is that correct?
    Ms. Gaetani. In the Pioneer pilot. We have had since March 
2014 with experience with the SNF waiver.
    The Chairman. Okay.
    Ms. Gaetani. One year.
    The Chairman. One year, sorry. In the past year, you have 
already shown better outcomes for your patients as well as 
reduced cost savings, is that an accurate summary?
    Ms. Gaetani. That is a very accurate summary.
    The Chairman. Does your experience lead you to believe that 
we could eliminate the three-day rule without there being a 
huge increase in Medicare costs?
    Ms. Gaetani. It is my assumption and belief that there 
would not be a huge tidal wave of volume of patients that are 
seeking SNF level of care because there still is the 
eligibility requirements, which are clinically based, based on 
a skilled nursing need or rehabilitation need. I do anticipate 
there would be increased utilization, not a tidal wave of 
influx. However, by reducing the barrier of the three-night 
requirement, patients are allowed then to receive the 
appropriate level of care that they need.
    The Chairman. As in the case of Mr. Smith, whom you 
described, he was able to return home fairly quickly because 
you were able to get him the skilled nursing care that he 
needed in a facility, is that accurate?
    Ms. Gaetani. Yes, it is.
    The Chairman. If you combine the fact that hospital care is 
very expensive with the fact that you are able to get your 
patient the appropriate level of care sooner without going 
through artificial barriers, it seems to me that you not only 
improve the quality of care, but that in the end, you are 
likely to lower the cost, as well.
    Ms. Gaetani. I think you are spot on with that statement. 
It is also--you receive a short-term savings of the immediate 
costs of not having that three-night experience, but there are 
long-term effects to that, as well. By providing patients the 
appropriate level of care, they are able to live their lives in 
the healthiest way possible. A majority of them want to live 
safely in their homes.
    The Chairman. Absolutely. That is always the preference, is 
for people to be safely in the privacy, security, and comfort 
of their own homes, and it seems to me that your program shows 
that there are reforms that are possible to produce that better 
outcome, and I really appreciate the experience and your 
sharing it with us today.
    Ms. Gaetani. Thank you.
    The Chairman. Dr. Nanda, I want to follow-up on an 
intriguing question that occurred to me when you were having 
your exchange with the temporary Chairman of this Committee, 
that is, it seems to me that an individual--if you took two 
individuals who were equally sick, that there could be 
different decisions made on whether or not to admit them as 
inpatients based on the source of payment for their care. Is 
that a fair conclusion on my part?
    Dr. Nanda. Yes and no. Yes, because it is possible to get 
different classifications, but no, because if the patient has 
commercial insurance, the beneficiary does not get stuck with a 
higher copay or, you know, there is no financial implication to 
a person who has commercial insurance, whereas--and that is 
contract, basically. If they have a deductible, it is their 
deductible. For a Medicare beneficiary, there is, and as 
Senator McCaskill said, it can be thousands of dollars because 
there is no limit on that 20 percent in observation. Inpatient 
is limited, so yes, I mean, there can be a huge difference.
    The Chairman. If they--and if the hospital is going to get 
dinged through a recovery audit that finds that the person 
should not have been admitted, and yet if the person has 
private insurance that is not going to occur, it seems 
difficult to conclude other than that that could influence the 
decision of the utilization manager and the physician in a 
close case.
    Dr. Nanda. For a physician, usually, we have no clue what 
their insurance is. When a patient comes in----
    The Chairman. You have no clue as to--I am sorry----
    Dr. Nanda. As the patient's insurance, what insurance the 
patient carries, because we are looking at the clinical aspect. 
We are treating them medically. It is the case managers that 
look and inform us later on that it is Medicare or it is 
commercial.
    The Chairman. You testified that it is the utilization 
manager that makes the recommendation----
    Dr. Nanda. Right.
    The Chairman. That has to be concurred in by the provider, 
by the physician, and, thus, the person who is making the 
recommendation does know the source of the insurance----
    Dr. Nanda. Yes----
    The Chairman. [continuing]. and whether it is Medicare or 
private, correct?
    Dr. Nanda. Agreed. It is the attending physician that does 
not know.
    The Chairman. Thank you.
    Senator McCaskill. Now, Senator Whitehouse.
    Senator Whitehouse. Thank you. This is a great hearing.
    As I understand it, the distinction between the observation 
and inpatient admission has very significant ramifications for 
the patient's payment, both in-hospital and in post-acute care 
afterwards, and I think it is everybody's sense, at least on 
this panel, that those effects on payment do not necessarily 
make a lot of sense.
    Dr. Nanda, do you also believe that it can have an effect--
this follows a little bit on Senator Collins' question--that 
that distinction can have an effect on care? Would care change 
at all in hospitals if the distinction were eliminated?
    Dr. Nanda. No. I do not believe care is really affected by 
the status of the patient. The observation patient gets just as 
much care. They are in the same hallway, same room, same nurses 
taking care of observation or inpatient.
    Senator Whitehouse. Let me ask it a different way. Are 
doctors aware enough of this predicament in the funding law 
that when they have a patient who might qualify for post-acute 
care if they were in for three days, that they will give them 
the extra day to make sure that they qualify rather than force 
a discharge? Are doctors sensitive at that decision point that 
if they give them, it could even be just a few extra hours, it 
could have a huge difference in their lives as to the post-
acute part of their care?
    Dr. Nanda. I will answer this with tongue in cheek. Yes, 
because we live in the same community that our patients live. 
The patient that I may deny one day may be the grandparent of 
my daughter's classmate. We live in the same--so, do we do a 
couple of hours? I am sure it happens.
    Senator Whitehouse. I do not fault you for that. I think it 
would be----
    Dr. Nanda. Yes. No, I am sure it happens.
    Senator Whitehouse [continuing]. cruel not to in some 
cases, particularly given the uncertainties about exactly when 
the right moment of discharge is.
    Dr. Nanda. Absolutely, because--so, if a patient comes in 
at 11:55 at night----
    Senator Whitehouse. Versus 12:05----
    Dr. Nanda [continuing]. versus if he comes in at 12:05, 
there is a difference. That is one midnight, which is----
    Senator Whitehouse. Crazy.
    Dr. Nanda [continuing]. kind of ridiculous.
    Senator Whitehouse. Yes. Ms. Gaetani, first of all, 
congratulations to you and to your organization on having 
undertaken and persisted at and succeeded at the Pioneer ACO 
effort. I know that not every participant made it through, and 
for those that did, it has been a real success. It has been the 
first broad adoption through the Innovation Center, and what 
people did across the country in the Pioneer ACOs to make that 
work and to make those changes was really impressive, so as a 
general proposition, congratulations and well done and thank 
you.
    Ms. Gaetani. Thank you.
    Senator Whitehouse. On this, it really seems like there was 
a wall between you and Nanda and Dr. Young, in which they were 
living in a world of artifice and nonsense and arbitrary 
distinctions, not from their own fault, just that is the world 
that they are in, but when you had the waiver, everything you 
said was about the well-being of the patient, and the ability 
to make sure that each patient in his or her own way got the 
right care was really quite impressive, so I hope that more and 
more people will take advantage of these waivers. If somebody 
somewhere else is looking at trying to follow your path, do you 
have any encouragement, or do you have any particular warnings 
of bumps in the road that they should be alert to, because it 
seems like the right way to go.
    Ms. Gaetani. I have nothing but encouragement, as, just as 
you have said, that I believe that is the right thing to do, 
because of the fact what we did have to put in place was really 
create a structure around the process. There needs to be, with 
all transitions of care, whether it be to a SNF level of care 
or to home care services, there needs to be a coordinated care 
effort involved in transitions of care that includes the 
provider, includes the health care team, and there has to be 
along with that a level of accountability, and quality needs to 
be a big piece of that process, as well. I would encourage 
anyone to----
    Senator Whitehouse. It is an up-front effort and an up-
front investment to put that system in, but once you have done 
it, it is worth it.
    Ms. Gaetani. Absolutely.
    Senator Whitehouse. Thank you.
    Senator McCaskill. Thank you, Senator Whitehouse.
    Committee members have until Friday, June 5th, to submit 
questions for the record, and the one question I would submit 
to Dr. Nanda and to my friends at all of the hospitals in 
Missouri that I talk to frequently--I am very proud, by the 
way, of the hospitals in Missouri. I think you all do a great 
job, but I really want you to look at reforms that we could 
make in the RAC program that would not go as far as some of the 
legislation that you have suggested.
    I think if we went to no contingency and just a flat fee, 
you take away the incentive for them to ferret out people who 
are abusing the system, and we know they are out there. We know 
we have lots of medical providers in this country that are 
taking advantage of a very bureaucratic system and they have 
figured out a way--I mean, I do not need to tell you. You all 
follow the stories in the press. We have had a lot of cases in 
Missouri of Medicare fraud and abuse and waste.
    Things that maybe are a little short of going that far. I 
mean, I get it that maybe dinging them--and I would like to 
have more information on the appeal process.
    Dr. Nanda. Sure.
    Senator McCaskill. I know you all are appealing everything, 
and maybe we could figure out a way to streamline the appeal 
process, move these decisions much more close in time to the 
point in time that the decisions were actually made. I think 
that is a very valid concern.
    I think there are a lot of things that need to get fixed 
here, and I especially would like the input of the hospitals 
about the recommendations that have been made by MedPAC to 
change the RAC system in ways that sound like, to me, a lot of 
them make a lot of sense. It sounds like, to me, they are well 
thought out, and if you have got any big problems, Mr. Young, 
with the recommendations MedPAC is making, that you think are 
going to be unworkable, I think it would be helpful for this 
Committee to hear from you in that regard, also.
    Mr. Young. Okay.
    Senator McCaskill. You keep doing what you are doing, and 
hopefully, if these ACOs keep going as well as they are going 
across the country, I think that will be a model where we are 
lining up incentives in the right place, and I do think, going 
forward, that these ACOs are really our best hope to handling 
our generation and the costs that will be associated with our 
generation as we all move into the Medicare system.
    Yes, Dr. Nanda.
    Dr. Nanda. May I make just--I just wanted to clarify that 
the physician actually does make that decision in consultation 
with utilization management, number one.
    Number two, you had brought a concern in the previous 
panel. We at SSM make sure that any observation patient does 
have all the information about the observation status, and that 
is documented in the chart. When we do not find that 
documentation in the chart, we do not bill that.
    Senator McCaskill. Okay. Great. Well, I know that, 
sometimes, people are not told, because my husband was not in a 
hospital in Missouri, but rather in the hospital here in the 
D.C. area, and I could not figure out why they were releasing 
him, because it did not seem like, to me, he was ready to go, 
and they did, and they did not have to worry about a 
readmittance because he ended up being admitted in St. Louis 
when we got home and was in the hospital for ten days, and I 
think that is a great example of how this turns out in 
practice.
    Thank you all for being here very much, and thank you, 
Senator Collins, for giving me the opportunity to remember how 
it was in the good old days.
    The Committee is adjourned.
    [Whereupon, at 3:50 p.m., the Committee was adjourned.]

      
      
      
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                                APPENDIX

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