Navigating Reclassification from Inpatient to Outpatient Observation

You have heard Dr. Ronald Hirsch, and I present on CMS-4204-F which introduces a process for expedited determinations for traditional Medicare beneficiaries who are reclassified from inpatient to outpatient observation services.

This process does not apply to Medicare Advantage enrollees and this process does not apply to patients who do not receive observation services after conversion from inpatient to outpatient.

On Dec. 5, the Centers for Medicare & Medicaid Services (CMS) provided additional guidance with the expectation that the Medicare Change of Status Notice (MCSN) that hospitals must start to provide this notice to qualifying individuals no later than Feb. 14, 2025.

Here’s an overview of what information we have thus far. 

The expedited determination process is codified at 42 CFR Part 405.1210 through 405.1212. It applies to Original Medicare beneficiaries formally admitted as inpatients but later reclassified to outpatient observation while still hospitalized.

Eligibility criteria differ based on Part B enrollment:

• With Part B: A minimum three-day hospital stay is required with less than 3 days of inpatient status. The admission is considered day one, but the discharge day is not (like the SNF 3-day rule).

• Without Part B: No stay requirement applies. Thus, notice is given as soon as the status is changed from inpatient to outpatient with observation services.

This process is relevant for all inpatient-level facilities, including Critical Access Hospitals (CAHs). Beneficiaries may act through representatives as needed.

Hospitals must document delivery of the MCSN form with a signature, offer paper copies upon request, and ensure the MCSN is provided within specific timeframes:

• With Part B: Deliver after reclassification and by the third hospital day.
• Without Part B: Deliver immediately after reclassification.
• All cases: Delivery must occur at least four hours before discharge.

The MCSN must remain two pages, but hospitals can add logos and contact details. Beneficiary-specific notes can be included in the “Additional Information” section. Beneficiaries who refuse to sign still retain expedited determination rights. Hospitals should document the refusal with the date.

Hospitals must use interpreters, translators, and assistive devices to ensure comprehension, adhering to the Affordable Care Act and Civil Rights Act requirements. Hospitals must retain signed MCSNs in the medical record, with electronic storage permitted. The notice must be given similar to the guidelines for the Important Message from Medicare (IMM), no later than the 4-hour discharge window, however the patient does not have to stay for the four hours if they have no intention of appealing.

Beneficiaries and hospitals share responsibilities during the expedited determination process.

Beneficiary Responsibilities:

• Timely Requests: Must be made before leaving the hospital.
• Untimely Requests: Allowed post-discharge or even after claim submission.
• Provide Information: Respond promptly to BFCC-QIO requests and submit relevant details.

Hospital Responsibilities:

• Submit the MCSN and additional documentation to the BFCC-QIO by noon the next calendar day.
• Provide a copy of the submitted documentation to beneficiaries if requested.
• They may not be able to submit a claim/ patient bill on timely requests until QIO determination has been made, but the patient does not have to remain hospitalized during this time period either.

BFCC- QIO (Livanta or Acentra Health pending your region) must be available 24/7 to accept requests and notify hospitals of receipt. The review will consist of validating the MCSN delivery and document and reviewing the appropriate documentation. 

They will be required to issue their determinations within one calendar day for timely requests and two days for untimely ones.  Their notifications must detail the determination rationale, payment consequences, and appeal procedures.

BFCC-QIO determinations are binding unless a beneficiary request’s expedited reconsideration. These requests must adhere to specified timeframes, allowing dissatisfied beneficiaries another opportunity to challenge the reclassification decision.

Clarification still needed:

In the final ruling but NOT mentioned in the Medicare Claims Processing Manual or the MLN 

The final ruling confirmed that the MOON is not required for delivery of the MCSN as not every applicable patient that is changed from inpatient to observation, meets the MOON qualification of the anticipated 24 hours of observation services. 

So, there could be rare instances where a Medicare Part A only patient who is changed from inpatient to outpatient receive a condition code 44 notification, then have observation services ordered, which requires an MCSN and if observation is expected to continue for the estimated 24 hours, would then receive a MOON. 

The ruling also stated that if the patient qualified for the MCSN, appeals to the BFCC-QIO and wins, which means the inpatient admission is appropriate.  The ruling comments state that the “beneficiary would be deemed an inpatient under the original hospital admission order” and thus would appropriately need to receive an IMM notice prior to discharge since they have returned to inpatient status.

Example Scenarios:

Medicare Pt A only patient admitted as inpatient, next day converts to outpatient and OBS services started- CC44 process & MCSN is given.  The patient discharges later that day- no MOON needed.

Medicare Pt A & B patient admitted as inpatient, next day converts to outpatient and OBS services started- CC44 process, patient will stay over night MOON given, discharged in am, no MCSN given because it is less than 3 days.