Industry Insights

Will Your Utilization Review Functions Pass the Test?

September 2015
Author:  Paula Archer

Paula Archer


Health Care Performance Advisory Services

Health Care

14241 Dallas Parkway, Suite 1100
Dallas, TX 75254-2961


The Notification of Hospital Discharge Appeal Rights and the issuance of Medicare’s Important Message (IM) requirements took effect July 2, 2007. The IM is a standard notice that must be delivered to all Medicare inpatients on admission and before discharge, and the Centers for Medicare & Medicaid Services (CMS) requires 100 percent compliance. Most hospitals have implemented policies and procedures defining the notification process, which may include admissions or registration staff, utilization review (UR), social work or nursing.

The recently signed Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act requires hospitals to be ready to comply with the new requirements in August 2016. It requires hospitals to provide notification of treatment status to Medicare patients within 36 hours of receiving outpatient medical services, or upon discharge, if sooner. The law requires that patients be provided with both written and verbal notification, which should meet the following requirements:

  • Explain the individual’s outpatient status and the reasons
  • Explain implications of that status on services, including those furnished as an inpatient—particularly the implications for cost-sharing requirements and subsequent coverage eligibility for services furnished by a skilled nursing facility (SNF)
  • Include appropriate additional information
  • Be written and formatted using plain language and made available in appropriate languages
  • Include signature of the individual or person acting on the individual’s behalf to acknowledge receipt of the notification, or if the individual (or representative) refuses to sign, signature of the presenting hospital staff

More often than not, Medicare patients believe they are inpatient when they go to a hospital bed overnight. They’re not always aware of the higher costs (copays) associated with observation status and that observation status doesn’t apply or meet the requirement for coverage of post-acute SNF services (hospital inpatient stay of at least three days).

Optimal UR functions provide timely clinical reviews to ensure sufficient information is documented for the payor to determine medical necessity for both inpatient and outpatient (observation) stays. Effective UR teams will facilitate discussions with physicians to help identify patients that may be classified incorrectly as observation or inpatient status and have collaborative communication to ensure the status is correct according to regulatory policies. 

Good UR processes translate into opportunities for resource management and patient advocacy through the Hospital Value-Based Purchasing Program’s Patient Experience of Care Domain, which includes nurse communication, doctor communication and hospital staff responsiveness.

Acute care hospitals should do the following:

  • Assess their current UR plan and revise as needed to meet the requirements documented in the Condition of Participation – Utilization Review
  • Assess the staffing and current value of the UR Committee and make appropriate adjustments, if indicated
  • Develop UR policies and procedures on the appropriate charging and reporting of Medicare observation services based on the Medicare Claims Processing Manual
  • Audit observation encounters to ensure observation services are not being billed concurrently with diagnostic or therapeutic services for which active monitoring is a part of the procedure, e.g., colonoscopy, cardiac catheterization, physical therapy and some drug administration services
  • Ensure UR staff completes admission review every 24 hours on observation patients to monitor changes in acuity
  • Educate and prepare physicians and clinical teams regarding the NOTICE Act
  • Develop processes and procedures on the NOTICE Act information and forms to provide to Medicare patients with the required elements documented above

SNFs should do the following:

  • Educate admissions staff of the NOTICE Act
  • Develop collaborative communication with the transferring hospital’s discharge planners and/or UR team regarding the patient’s discharge status to prevent inappropriate SNF admissions that may result in provider liability denials

If you have additional questions regarding UR functions and the NOTICE Act and how they could affect your organization, contact your BKD advisor.

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