Dishonest Hospitals Sidestep Medicare Readmission Penalties by Submitting Claims for Inappropriate Observation Stays

Under Medicare’s Inpatient Prospective Payment System (IPPS), there has always been a recognized problem that hospitals drive up health care costs when they readmit patients who were prematurely discharged. Initially, Medicare regulations monetarily addressed this concern by paying hospitals only one DRG payment for patients admitted twice on the same day with the same symptoms. Even then, double-billed same-day readmissions flooded the Medicare system. In response, CMS subsequently implemented an edit in 2004 to attempt to reject subsequent claims on behalf of beneficiaries who were readmitted to the hospital on the same day. Nonetheless, Medicare claims for same-day readmissions continued seeping through the payment system, and more hospitals increasingly billed for inappropriate observation stays.

Recently, Congress decided to attack this potential inpatient Medicare fraud readmission problem more broadly, when the Affordable Care Act established the Hospital Readmissions Reduction Program. This program effectively reduced Medicare payments to IPPS hospitals with excessive readmissions. Unlike the same-day readmission regulations, this law penalized hospitals based on high readmission rates over a 30-day period. In other words, Medicare reimbursement rates are now negatively impacted when a hospital has a high rate of Medicare readmissions during a 30-day period.

If past is prologue, the effective expansion of the Medicare readmission penalty will drive dishonest hospitals to deflate their readmission rates by diverting the claims to In turn, this scheme will allow hospitals to receive payments from Medicare, while at the same time dodging the Medicare readmission penalty. Such payment schemes are evidenced by hospitals with disproportionately high rates of observation stays over 24 hours.

More information for whistleblowers is located at the Nolan Auerbach website.