Updates on Observation Services & Orders: United Health

UnitedHealthcare (UHC) updated their hospital guidelines for observation services. This seemingly small update made Sept. 22, 2024, has led to notable behavioral changes regarding peer-to-peer conversations, claim denials, and rebills.

Previously, when hospitals received inpatient care denials, UHC permitted them to “rebill” the claim with observation services, according to their denial letters. However, it now appears that UHC is applying a similar approach to Humana, requiring an official order for observation services to be in place prior to patient discharge.

This shift indicates that the updated guidelines may reinforce the operational framework outlined in the December 2023 policy, which emphasizes the necessity of having an official physician order for observation services before discharging a patient. The policy clearly states that an observation status (UHC’s wording; this writer is well-aware that observation is not a status) must be established and documented with an order to avoid reimbursement denials.

A physician or qualified healthcare provider must place this order before discharge to ensure that services are appropriately billed. The absence of this order can lead to rejected claims and a lack of reimbursement for the hospital.

While the policy is explicit about the compliance requirements for observation, including not extending beyond 48 hours, it falls short in addressing situations in which a physician believes that a patient requires inpatient admission; UHC denies this authorization for their members.

According to UHC’s provider manual for coverage determination, the organization utilizes tools such as “UnitedHealthcare medical policies and third-party resources (like InterQual® criteria) to administer health benefits and determine coverage.” Notably, InterQual is owned by UHC, which raises questions about the independence of the criteria.

For patients whose inpatient status is denied by UHC, the hospital’s ability to adjust the claim hinges entirely on whether an observation order was placed before the patient left the facility – because the policy lacks clarity regarding the turnaround time for the reconsideration process if a denial is received. Typically, this occurs during the peer-to-peer process, which is scheduled “at a timeline provided by the UHC nurse on the call.”(2024, UHC Provider Manual).

Unfortunately, this could take place after a patient has already been discharged, making it impossible for the hospital to change the status determination prior to the patient’s departure if the peer-to-peer review upholds the denial. This practice and strict policy run the risk of hospitals defaulting to a conservative stance to place observation orders when there is any uncertainty about the patient’s status, because of the anticipation of a potential UHC denial.

However, without an observation order in place before the patient discharge, when clinically appropriate, hospitals face significant challenges in obtaining reimbursement. In such cases, the claim may be denied entirely, leaving the hospital to absorb the financial burden.

It is the continued practices of payers that are requiring hospital utilization review teams and physician advisors to up their games and work with providers to balance the clinical needs of patients with the behind-the-scenes requirements of insurers like UHC, ensuring that an observation order is placed, when necessary, and that it is well-documented and correctly coded.

The practice of utilization review is continuing to evolve, and requires a team of experts that are highly skilled and proactively efficient in regulatory guidelines and payor requirements to appropriately ensure the medical necessity and reimbursement for hospital services.

This is particularly true when payers such as UHC continue to evolve their policies and practices, making it harder for providers to achieve appropriate reimbursement for services.