Hospital Observation Stay Implications for Home Health Agencies

An increasing trend to place patients in “observation stays,” rather than formally admitting them to an inpatient hospital bed, has caused a great deal of confusion for home health agencies. Use of observation stays is a rapidly growing trend as a result of hospital readmission penalties and increased Centers for Medicare and Medicaid Services (CMS) denials of hospital claims for lack of medically necessity. Services provided during Medicare beneficiary hospital stays are billed to the Medicare B outpatient benefit. Patients may be kept under observation for several days.

When patients are kept in the hospital for observation, home health agencies are left with questions about both their OASIS responsibilities and their liability for bundled services. Often patients are unaware of whether their experience with the hospital was an inpatient admission or an observation stay. Probably the only certain way to determine a patient’s status is to call the hospital directly after a patient returns home.

OASIS and Observation

Any observation stay, regardless of how long or where in the hospital the observation takes place is not a Transfer for home health purposes. Therefore, neither a Transfer nor a Resumption of Care (ROC) assessment should be completed. The following Q&A from the CMS site offers guidance. However, it should be noted that this answer implies that patients under observation are held in the ED or outpatient department, when that is not always the case. Any observation stay, regardless of how long or where in the hospital the observation takes place is not a Transfer for home health purposes.

In the CMS OASIS Q&As at Q23.8. M0100 & M2300 here, CMS responded: “For purposes of OASIS M2300 Emergent Care, Response 1, Yes, used hospital emergency department without hospital admission, is the appropriate response for a patient who was held in an emergency department for outpatient observation services without a subsequent qualifying hospital admission. A qualifying hospital admission is an admission to a hospital inpatient bed for 24 hours or longer for reasons other than diagnostic testing. A Transfer OASIS is not required as the patient did not meet the criteria for the RFA 6 or 7…During the period the patient is receiving outpatient observation care, the patient is not admitted to a hospital. Regardless of how long the patient is cared for in outpatient observation, the home care provider may not provide Medicare billable visits to the patient at the ER/outpatient department site, as the home health benefit requires covered services be provided in the patient’s place of residence.”

Bundled Services During Observation

Regarding therapy and supplies during an observation stay, due to home health episode bundling requirements and edits, a hospital Part B bill will not be paid for bundled services as long as there is an open home health episode. According to OASIS A23.8 “Outpatient therapy services provided during the period of observation would be included under consolidated billing and should be managed as such. The HHA should always inform the patient of consolidated billing at the time of admission to avoid non-payment of services to the outpatient facility.”

However, home health services may only be delivered outside of the home if the service requires equipment too cumbersome to bring into the home. Just because a patient is being held in observation at a hospital doesn’t mean that a home health agency can contract for routine therapy assessments and treatment and include those services on the home health claim.

The following is from the Medicare Benefit Policy Manual 30.1.2 – Patient’s Place of Residence.

The law does not permit an HHA to furnish a Medicare covered billable visit to a patient under a home health plan of care outside his or her home, except in those limited circumstances where the patient needs to use medical equipment that is too cumbersome to bring to the home.

Furthermore, before a home health agency can be held responsible for payment to a hospital should the “place of residence” requirements be met (and include the services and supplies on a home health claim) all contracting requirements must be met. Home health agencies may not include services on their claims unless they have physician orders, a contract with the provider, documentation of the service, and approve the services before provided (i.e. the HHA is responsible for these services in the same way it is responsible for contracted services such as contract therapists).

CMS policy that releases home health agencies from liability for bundled services and supplies provided during a hospital observation without the agency’s approval and without a contract in place can be found in the Medicare Benefit Policy Manual at 10.11 – Consolidated Billing “E. Knowledge of Services Arranged for on Behalf of the HHA …An HHA would not be responsible for payment in the situation in which they have no prior knowledge (unaware of physician’s orders) of the services provided by an entity during an episode to a patient who is under their home health plan of care. An HHA is responsible for payment in the situation in which services are provided to a patient by another entity, under arrangement with the HHA, during an episode in which the patient is under the HHA’s home health plan of care…”

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